SYTE - Enterprise Diversified

[Spekulatius]

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...

 

Well, the activist is already in and his fund owns the majority of the shares. We know how well this structure works - check out Mr Big’s BH or Premier Diworsified.

 

That said, I still don’t think there is evidence that SYTE share price is manipulated by Mr Kiel.

[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...

 

Well, the activist is already in and his fund owns the majority of the shares. We know how well this structure works - check out Mr Big’s BH or Premier Diworsified.

 

That said, I still don’t think there is evidence that SYTE share price is manipulated by Mr Kiel.

 

Yea I dont know if whoever made the comment about manipulating share prices was serious or joking or whatever, but regarding the business and investment ramification I am not sure anything changes either way. There were at times signs of hope for shareholders and it seemed that some of the people involved made efforts to be somewhat transparent on this board...but theres the old adage about what one says and what one does. And if one takes the time to sift through this thread, there's been an awful lot of stuff that shouldn't really get a pass. The absurd share issuance to a select few and then the "we just wanted to hold our meeting and didnt think we'd have quorum" joke. The July 3 news dump. This material info release lags. The whole Lexington property debacle. Maybe the HVAC biz was an honest "lets give it a go" and it didnt work, but everything else? I mean shit, wasnt one of the guys who ran in here guns blazing from the same neighborhood where these turd bomb apartments were located? As I said back then, I dont even know how its possible to lose that much money on that kind of investment assuming ANY due diligence took place.

 

These types of investor traps always have stories tied to them. Someone, maybe it was ratiman, said it well a bunch of pages(and years now) ago...they got rid of the old management and now effectively shareholders have the same problem that the "activists" where supposed to take care of. If Willow Oak is the only hope of a future here, why not wind down everything else and take G&A to nil or as close to it as you can get? What are the people getting paid bringing to the table here?

[Foreign Tuffett]

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.

 

 

Exactly. Any SOTP type writeup that says nothing corporate G&A expenses communicates more about how the author is clueless (or being disingenuous) than it does about the value of the company. It should be one of the first things anyone analyzing a holding company looks at.

[thowed]

From Greenhaven Road 3Q 2020 partners letter.

 

 

The 'Greenhaven Partners fund' is an interesting one for me - in terms of 'social networks'.  It seems clear that some if not all of the fund managers have got to know each other (I'm sure some people on CoBF will have more details), and this creates potential difficulties/conflicts of interest i.e. it's harder to cut somebody loose if they are part of your social network.  Which obviously doesn't serve the investors well.

 

I can't work it out.  There are clearly some very impressive managers involved in Greenhaven Partners, but some of the crossover stuff with e.g. Greenhaven & Wyden like PAR and RICK when they're talking them up doesn't feel entirely right.  Maybe I'm just being oversensitive...

 

I don't know enough about SYTE to comment, though I think anyone fresh coming in and seeing Arquitos being the biggest holder of it might find it a bit strange.

 

It remains a shame, as I think there is a huge amount of CoBF respect for Alluvial and Bonhoeffer, and the association with SYTE doesn't seem to help.

 

[bizaro86]

From Greenhaven Road 3Q 2020 partners letter.

 

 

It remains a shame, as I think there is a huge amount of CoBF respect for Alluvial and Bonhoeffer, and the association with SYTE doesn't seem to help.

 

 

Indeed. If this firm was a minimum G&A trust type operation that just held the investment and override on those two funds I'd be very interested.

 

As currently constructed not so much. Anyway, I get that isn't really possible because they need an active business, but theoretically it would be way better. Maybe they should move the listing to Canada and just be an investment company. Or become a non-diversified CEF?

[Gregmal]

Theres also the issue of the folks who run small funds and trade semi/illiquid stock constantly talking their book or promoting their interests on places populated with investors, something I see more of on sites with larger audiences(surprise, surprise) than on forums like this. Not that there is necessarily anything wrong or mischievous about this; its fine to a certain degree, especially if you invest for a living. But its a sensitive area and when there's a bunch of other red flags all over the place, its reasonable to be suspicious. We've all seen folks randomly come here and post stuff and right away they get an earful if it smells fishy. I've never frequented shitboxes like FB or Twitter where this stuff is at its worst, but just seeing here how many folks are invested in this, or PDH, or even FRFH simply because of certain halo effects is enlightening. And a case can be made, if you are of a certain ilk, that utilizing the aforementioned places to promote certain things can also be beneficial to some while detrimental to others.

 

I dont know any of the folks involved in this. Ive never spoke to them, met them, or anything. But Id raise the same question here as I have to Sanjeev, who I do genuinely like and respect....why are you keeping the lights on? You are a numbers guy. You know damn well how this is likely to play out and are (IMO) doing a disservice to the notion of shareholder value by deliberately keeping it going.

[NeverLoseMoney]

The SEC has made some inquiries about the company's status under the 1940 Act. From page 28 of the 10-Q:

Quote

During the quarterly period ended March 31, 2021, representatives from the Securities and Exchange Commission (“SEC”) Division of Investment Management and the Company have engaged in several informal discussions and correspondence regarding a general inquiry by the SEC as to the Company’s current status under the 1940 Act, namely as a result of the apparent quantitative significance of the Company’s assets that may constitute “investment securities” in relation to the Company’s total assets, as noted above. 

As a result of such discussions and correspondence among the Company and the SEC, the Board of Directors of the Company has re-confirmed that the Company has a bona fide intent to be engaged primarily in lines of business not constituting that of investing, reinvesting or trading in securities, nor that of acquiring, owning or holding “investment securities,” and the Board has resolved to explore certain strategic options so as to eliminate as soon as is reasonably possible any uncertainty in regard to the Company’s status under the 1940 Act. In this respect, the Company is in the process of developing a strategic operational plan setting forth specific potential steps designed to grow certain operational lines of business and effect changes to the composition of our assets in the near future; although there can be no assurances, of course, that we will be successful in our formulation and/or carrying out of any such plan.

I'm curious how the company is going to solve this problem. Growing the existing internet business somehow? Another try at making an acquisition? But where is the cash going to come from?

[capitalg]

Interesting disclosure…looking at the part that reads “and effect change to the composition of our assets in the near future.”  Maybe they plan to reduce their investment in the Alluvial fund?

[Morgan]

5 hours ago, NeverLoseMoney said:

The SEC has made some inquiries about the company's status under the 1940 Act. From page 28 of the 10-Q:

I'm curious how the company is going to solve this problem. Growing the existing internet business somehow? Another try at making an acquisition? But where is the cash going to come from?

 

Charlie Munger faced a similar issue if I remember correctly. Wesco had a large amount of non-core assets/securities and the SEC said the same thing. Wesco and their lawyer replied that because Wesco and all of its marketing materials were for the main public facing business, the rule did not apply. They just happened to have a lot of investments. 

Of course, I can't for the life of me find the letter. I was just reading it a week or so ago! Ugh. 

[Cigarbutt]

^

djco_corresp-031513.htm (sec.gov)

filename1.pdf (sec.gov)

-----) back to SYTE

[Ballinvarosig Investors]

https://www.otcmarkets.com/stock/SYTE/news?id=304071

Remaining stake in Mt Melrose has been flogged.

What a disaster that was.

[teejbink13]

18 hours ago, Ballinvarosig Investors said:

https://www.otcmarkets.com/stock/SYTE/news?id=304071

Remaining stake in Mt Melrose has been flogged.

What a disaster that was.

100%. However, this dissolves the stake completely. Puts enough cash on the balance sheet to cover all remaining debt obligations & gives breathing room to continue growing Willow Oak and allowing the fee share agreements to bear fruit. 
I think that as the dust continues to settle on past mistakes the growing undercurrent of talented managers will be brought to light. 
Granted, it makes sense if someone who was burnt in the past cannot grow to trust management again. But since 2019 on, I've seen no reason to disbelieve management on prioritizing Willow Oak and the managers therein. 

[ratiman]

They own like 10-30% of managers that manage under $100mm, right? I couldn't find the latest investors presesntation but that is roughly correct I think. A typical mutual fund is worth about 1% of assets (generously) so even if SYTE owned 100% of the managers it would be worth the proverbial 1 million dollars. That's not even worth as much as a deli in NJ. Why not find some manager with a big twitter following, create a closed end fund and try to hype it up? Because these small cap value managers aren't going to get it done. Get some twitter personality like Puru or Kuppy to create a closed end fund and then hype it up and sell it a premium to NAV and everybody's happy. Or do an ISP roll-up strategy under the old Sitestar brand and get lots of credit cards on autopayment from 80 year olds who never check their credit card statements. That's what B. Riley did with United Online and he turned it into a hugely successful venture fund/i-bank. Let's think big here. No more HVAC or small time fund managers. Something really big to get the market excited and do something interesting with this vastly overvalued stock. 

[Spekulatius]

They missed the boat to create a Deathstar SPAC when those things were hot. Would have been a hoot.

[ratiman]

Buy some offshore drilling rigs and turn it into the best way to speculate on higher oil prices. But this third tier fund management business is just a way to bleed shareholders dry while collecting a lot of fees.  The only way a fund management business works is if you can ride the success of a fund manager like Bill Gross, Gundlach or Ken Heebner and I don't see that in any of the managers here. 

Edited May 22, 2021 by ratiman

[ratiman]

SMB Twitter has some personalities that could probably sell shares in a roll-up company, like in self-storage units or Amazon FBA companies. SYTE has a valuable currency and should do something with it, and it could be powerful combined with Twitter celebrity. Do a reverse merger with some Twitter celebrity. 

[Jurgis]

I'm sure Twitter personalities are just sittin' and waitin' for a phone from SYTE to ring.

[teejbink13]

On 5/22/2021 at 6:34 AM, ratiman said:

They own like 10-30% of managers that manage under $100mm, right? I couldn't find the latest investors presesntation but that is roughly correct I think. A typical mutual fund is worth about 1% of assets (generously) so even if SYTE owned 100% of the managers it would be worth the proverbial 1 million dollars. That's not even worth as much as a deli in NJ. Why not find some manager with a big twitter following, create a closed end fund and try to hype it up? Because these small cap value managers aren't going to get it done. Get some twitter personality like Puru or Kuppy to create a closed end fund and then hype it up and sell it a premium to NAV and everybody's happy. Or do an ISP roll-up strategy under the old Sitestar brand and get lots of credit cards on autopayment from 80 year olds who never check their credit card statements. That's what B. Riley did with United Online and he turned it into a hugely successful venture fund/i-bank. Let's think big here. No more HVAC or small time fund managers. Something really big to get the market excited and do something interesting with this vastly overvalued stock. 

Yes they have contracts with fee share agreements ranging from 10% to 50% and they have a $15m direct investment in Alluvial Capital (which has compounded at ~18% over the last 5 years.  They're currently a $19m mkt cap company which means that the alluvial stake provides quite the backstop for valuation.
 Take Focused Compounding (AUM ~$12m as of Mar21), if they returned 20% this upcoming year that's $240k in profit towards SYTE.  They were seeded with $4.25m last year.  SVN Capital & Bonhoeffer are basically call options. This isn't factoring in the current ~$0.5m in cash that will be on the balance sheet, nor the ISP which will likely spin off high $300k of income this year.  
I don't know what your valuation criteria are, but this certainly isn't a "vastly" overvalued stock. It sits anywhere from over/fairly valued to materially undervalued (based on 5-10yr outcome distributions if they bring on more managers and the current ones continue to bear fruit). 

[5xEBITDA]

8 hours ago, teejbink13 said:

Yes they have contracts with fee share agreements ranging from 10% to 50% and they have a $15m direct investment in Alluvial Capital (which has compounded at ~18% over the last 5 years.  They're currently a $19m mkt cap company which means that the alluvial stake provides quite the backstop for valuation.
 Take Focused Compounding (AUM ~$12m as of Mar21), if they returned 20% this upcoming year that's $240k in profit towards SYTE.  They were seeded with $4.25m last year.  SVN Capital & Bonhoeffer are basically call options. This isn't factoring in the current ~$0.5m in cash that will be on the balance sheet, nor the ISP which will likely spin off high $300k of income this year.  
I don't know what your valuation criteria are, but this certainly isn't a "vastly" overvalued stock. It sits anywhere from over/fairly valued to materially undervalued (based on 5-10yr outcome distributions if they bring on more managers and the current ones continue to bear fruit). 

How will any of this value ever be recognized aside from someone deciding it should trade at a higher multiple? Seems very dependent on someone else taking a view on value as opposed to things working themselves out. 

[teejbink13]

20 hours ago, 5xEBITDA said:

How will any of this value ever be recognized aside from someone deciding it should trade at a higher multiple? Seems very dependent on someone else taking a view on value as opposed to things working themselves out. 

I'm confused about the question. Are you asking how value will be recognized concerning the fee share agreements with the funds? It would be recognized in payouts that could approximate 5-6% of current market cap per year on a go forward basis from the funds to Willow Oak. 

Edited May 25, 2021 by teejbink13

[teejbink13]

SYTE poised to have an absolute blow out Q2. 95% likelihood to generate performance fees from all managers. Depending on the level of outperformance of Bonhoeffer in 2021 this could be a substantial amount of cash available to either reinvest at attractive rates or for corporate G&A.  Alluvial is likely to post another 10%+ quarter, giving Dave 20% annualized returns since 2017 and adding roughly $1.6m in book value to the Alluvial capital stake SYTE owns. 
At $7 you're paying roughly 1 x P/B for a book that's got a reasonable shot at compounding at greater than 15% per year with call options on 3 talented managers & an internet service provider generating roughly $300k. 
The cash burn is real and the longer the company stays subscale, the more value it burns; but there's a non-insignificant probability this returns 2-3x+ in 5 years time.