EDGW - Edgewater

[LanceSanity]

Alithya and Edgewater recently announced a merger. Edgewater shareholders will be paid a special dividend of $20.5 million, which is close to a 28% dividend at current prices, and received 42% of the new Alithya. Alithya is a privately held consulting firm with annual revenue of $156M and $7.3M in Adj. EBITDA, revenue CAGR at 26.9% in the past year. Edgewater has $104M annual revenue and $11.8M adj. business unit EBITDA (don't know what this means).

 

Piggybacking off a VIC analysis, if adj. EBITDA is a good proxy for FCF and this kind of business is worth 10x adj. EBITDA, EDGW would be a good deal at this price. However, the stock has dropped since the announcement, so I'm probably missing something, I don't know. The special dividend takes away a lot of the risk, so I'm thinking of buying here. Ancora Advisors, 10% owner, is voting in favor, and so are insiders that hold ~16%, so it seems likely the merger will go through.

 

presentation: http://ir.edgewater.com/static-files/cfbc691d-e37e-40d7-a5f1-2bad303314a1

[Foreign Tuffett]

Some back-of-the-envelope, pro forma #s:

 

@ $5.61 share price ($4.20 after adjustment for special dividend)

$190 million market cap + $36 million net debt = $226 million EV

Assuming ~$20 million pro forma adjusted EBITDA, it doesn't seem particularly compelling