SYTE - Enterprise Diversified

[InelegantInvestor]

Almost nothing:

"The decision was made to exit the business during the quarter ended June 30, 2019. The operations of Specialty Contracting Group, LLC were considered a component of, and the divestiture reflected a strategic shift in, the Company’s business. As such, Specialty Contracting Group, LLC’s historical operations have been classified as discontinued operations in the Company’s financial statements. The loss from discontinued operations has been determined using a loss recovery approach, as the collection of future royalties is uncertain and a reasonable estimate could not be made. This approach requires that the contingent consideration, the future royalties to be received, be valued at the lesser of the amount of the “probable,” defined as a greater than 50% likelihood, future proceeds or the carrying value of the disposed assets. Due to the unpredictability of the contingent consideration, and management’s inherent lack of control over the buyer’s operations, management determined it would not be reasonable to attempt to value the contingent consideration. This resulted in assigning the contingent consideration a current valuation of zero. As and to the extent any royalties are deemed probable, they will be subsequently recognized as a “recovery from discontinued operations” on the statements of operations and will offset, or recover, the initial loss recorded. Accordingly, during the quarter ended March 31, 2020, an offsetting $11,019 recovery on discontinued operations was recognized within the reported $10,756 of net income from discontinued operations.

 

"

[bilo]

Issue I see with their asset management group is they are working with guys who should be  one man shops due to limited scalability of strategies.  Dave Waters is clearly a rad guy, but look at his top holdings.. his is strategy is the niche of niche strategies.    Same with the compounder guys plunging in miniscule, illiquid stocks.  That is fine for a small hedge fund but what does SYTE stand to make in this?  Seems to me very little.  Same with their efforts at underscale HVAC, real estate, etc.  Just not much juice in these things for investors beyond the "owner operator" making his nut.    If they want to go the "illiquid" route they should find a and acquire a BDC management contract - or collaborate with Raymond James to raise money for a new one - lots of great storytelling to sell retail  and financial advisors on! 

[Spekulatius]

Issue I see with their asset management group is they are working with guys who should be  one man shops due to limited scalability of strategies.  Dave Waters is clearly a rad guy, but look at his top holdings.. his is strategy is the niche of niche strategies.    Same with the compounder guys plunging in miniscule, illiquid stocks.  That is fine for a small hedge fund but what does SYTE stand to make in this?  Seems to me very little.  Same with their efforts at underscale HVAC, real estate, etc.  Just not much juice in these things for investors beyond the "owner operator" making his nut.    If they want to go the "illiquid" route they should find a and acquire a BDC management contract - or collaborate with Raymond James to raise money for a new one - lots of great storytelling to sell retail  and financial advisors on!

 

I don’t think these guys are great marketers either. The niche shops aren’t likely to bring in much cash due to lack of scalability and the SYTE operating costs are just high. This entities is worth more dead than alive.

[rkbabang]

Up 33% today on unusual volume.  I can't find any news.

[Gregmal]

Did a real company with a similar name/ticker go public?

[Guest roark33]

My guess is painting the tape to improve Kiel's quarterly results.  Sounds crazy, but probably the best explanation. 

[thepupil]

Not going to pretend that execution at SYTE has been perfect, because it hasn’t been, but that’s a pretty strong accusation to throw out there. I don’t think Steve deserves that.

 

Also, it’s not quarter end (but is month end)

[Guest roark33]

you have a better explanation? 

[thepupil]

I don’t have an explanation for the wild gyrations of a thinly traded security, but I’m also not the one accusing a board member of an illegal activity / market manipulation.

 

In the past, I have moved the market in SYTE by 5-10% or more getting in/out; it’s not inconceivable to me that someone forgot to use a limit order.

[Guest roark33]

OK, that makes sense, I guess.  24k shares traded....that's a large order to forget, but maybe you are right.

[thepupil]

From what I can tell only 1600 or so traded at $7.00, there was a larger trade in the mid $5’s

[Spekulatius]

Isn’t Kiel an Insider and would have to file? We should know in a few days and until then, I would reserve judgement.

[BG2008]

Isn’t Kiel an Insider and would have to file? We should know in a few days and until then, I would reserve judgement.

 

This is the most logical response

[Spekulatius]

Isn’t Kiel an Insider and would have to file? We should know in a few days and until then, I would reserve judgement.

This is the most logical response

No filing so it wasn’t him who was running up the stock.

 

I still wonder how you deal with this as a fund manager, if an illiquid stock is a substantial part of a fund. This is particularly important if an Invest or redeems or if you have new money coming in.

 

What is a fair way of dealing with this? Take 30 day average of the closing price, like is done for done mergers?

 

[thepupil]

IMO, an investment like this should be side pocketed into a separate vehicle and treated separately for performance and incentive calculations, otherwise the volatility may overly (reward / punish) (new / redeeming) LP's and the manager may also be unduly punished/rewarded given the standard annual crystallization of carry.

[Guest roark33]

So, down around 25% from that day.  Sounds about right.  If Kiel was doing it, he wouldn't do it himself, obviously.  Such an illiquid stock, you could have someone close do it for a favor.  I am just pointing out things that happen. 

[NeverLoseMoney]

I would be very surprised if there was any manipulation by management. A lot of stuff has gone wrong at this company and I think it's logical that people become more and more skeptical as a result. But it is also relatively easy to come up with an alternative explanation that makes more sense. Alluvial Capital is SYTE's largest investment. Alluvial Capital's biggest investment by some margin at the end of Q3 was P10 Holdings (PIOE) with 20% of the portfolio. It looks like P10 Holdings is up another ~60% since the end of Q3. That should be pretty good for both Alluvial and SYTE. Perhaps someone got excited about that and bought a bunch of SYTE stock? Or it could just be some random speculation from a bunch of day traders.

 

Anyway, I think the bigger issue is simply the cash flow. They have one subsidiary that is basically a melting ice cube. The other two acquisitions have failed. It was my impression when SYTE made the acquisitions that these were needed to get sufficient scale and cash flow to overcome the costs of being listed and SEC registered. I don't think that problem has gone away.

 

I do really like the investment in Alluvial and think Bonhoeffer will probably do well over time too.

[Gregmal]

Why would they risk anything manipulating the stock? Especially when you could just legally pull shit like they did with Lexington/Moore....

 

As Ive said and warned for years, anything but any orderly liquidation is a deliberate gamble with what little is left.

[Picasso]

So, down around 25% from that day.  Sounds about right.  If Kiel was doing it, he wouldn't do it himself, obviously.  Such an illiquid stock, you could have someone close do it for a favor.  I am just pointing out things that happen.

 

Can we just admire how much of a stupid remark this is.

[Picasso]

I'm not sure where roark33's account went but accusing Steven Kiel of a serious federal crime isn't a new thing for him. The person behind that account is Matt Brice of the Sova Group. He has been harassing people associated with Willow Oak for a long time in various forms. It's one thing to say you don't like the stock or think it might be overvalued but his comments are just a continuation of a long history he's had to make it harder for people on their platform to raise money. This is someone who has been given a platform to speak by legitimate managers like John Huber and if you don't think him using any opportunity he can to accuse people of criminal activity isn't harming the underlying business, well it is. I would also hazard to guess there is significant overlap between the people who interact with Matt Brice/John Huber and the managers at Willow Oak.

 

We've seen with other libel suits that half the battle is getting the identity of person causing the damages but in this case it's easy to identify the individual and shouldn't be hard to pursue whatever is needed to make sure it stops or that Willow Oak is compensated for whatever reputational damage might have taken place over the years. Matt talks to a lot of people and he's probably saying the same thing to many of them. As long as he keeps getting away with this it won't stop.

[ratiman]

SYTE management is destroying its own reputation by taking a salary for the slow liquidation of what is basically a closed end fund with absurdly high fees. None of these seeded funds have a chance because there is no way to scale microcap investing. Just sell the houses, sell the internet assets, and close up shop. If not, then at the very least start a true operating business. Do an ISP roll up, do something. But the current state of the business is unsustainable.

[Spekulatius]

SYTE management is destroying its own reputation by taking a salary for the slow liquidation of what is basically a closed end fund with absurdly high fees. None of these seeded funds have a chance because there is no way to scale microcap investing. Just sell the houses, sell the internet assets, and close up shop. If not, then at the very least start a true operating business. Do an ISP roll up, do something. But the current state of the business is unsustainable.

 

SYTE’s business model is probably broken, but I have high respect for the fund managers under their umbrella generally. Scalability is probably an issue for some of the employees strategies, but then again, most seem to operate in a low cost way so it might just work for them with less AUM than is usually needed.

[InelegantInvestor]

SYTE management is destroying its own reputation by taking a salary for the slow liquidation of what is basically a closed end fund with absurdly high fees. None of these seeded funds have a chance because there is no way to scale microcap investing. Just sell the houses, sell the internet assets, and close up shop. If not, then at the very least start a true operating business. Do an ISP roll up, do something. But the current state of the business is unsustainable.

 

They tried that with HVAC and with real estate and would have done better just burning the cash to heat their office. 

[Gregmal]

If the issue is bad management, all we need then is for an activist to come in here and shake things up, appoint themselves to the board, do an equity raise to themselves at a significant discount to market, buy some real assets like income properties...

[ratiman]

You haven't heard? "Willow Oak" is the "Crown Jewel"! Plus a SOTP analysis which is totally valid if you ignore expenses. From Greenhaven Road 3Q 2020 partners letter.