DGNR - Dragoneer Growth Oppportunities

[thepupil]

Let's get this out of the way, thepupil is not who you go to for your hot SAAS / tech takes.

 

But...

 

- Dragoneer is a high quality growth investment firm with over $14B under management, a strong track record, and high quality institutional backing. I'll let you google about Dragoneer / Marc Stad

 

- Advent is a high quality private equity firm with over $50 billion under management. I'll let you google around.

 

In February, Dragoneer and Advent announced they'd be taking CCC Information public via Dragoneer's first SPAC.

 

Pre-deal announce this was a 40% premium SPAC. Dragoneer is very well regarded. the market seems less than excited about the deal such that we've now drifted down to $10.6, a mere 6% premium to trust value for a Q2 close transaction.

 

this is not some super sexy, pie in the sky, flying car business. This is a growing 96% recurring revenue, 45% maturity EBITDA margin (if you believe the company), 34% current EBITDA margin, SAAS business which provides services to the property and casualty insurance industry.

https://www.dragoneergrowth.com/wp-content/uploads/2021/02/CCC-Investor-Presentation-2021.pdf

 

I have done no diligence beyond perusing the presentation.

 

I think it's a reasonable time to purchase at a 6% premium to trust value and then do more diligence on what appears to be a high quality growing business involving hihgly credible market participants.

 

the scenario analysis is

1) you decide you don't like, and get back $10.00 losing $0.6 or 5.6% over a short time frame or sell at a igher price if possible.

2) the unwind that's occuring in growth land reverses and you sell for a profit

3) you decide to be a long term owner of the business at the admittedly expensive price.

 

that's my 10 minute thoughts, more of a lead than anything. invitation for the more knowledgeable growthy guys to have a look / also need to do all the check re, when you need to vote by etc.

 

 

 

[Jurgis]

The underlying seems to be expensive. 7-10% expected growth, high current valuation based on proforma numbers, so might be even worse in reality. Looking at their "comparables" why not just buy ADSK instead?  ::)

So your 3) is not attractive IMO.

That leaves 1) and 2). Might be worth a swing, but likely I won't.

Thanks for idea though.

[LC]

FWIW the pro forma adjustments are minor and in some cases, conservative. That said it still looks a bit pricey to me. 30x EBITDA!

[thepupil]

I put all of 30 more minutes into this and decided not to buy. It’s at $11.4 up from $10.2-$10.6, no idea whether that represents any kind of alpha to similar opportunities (probably not). Agree with the preliminary reactions that it seems expensive but in hindsight probably should have bought some when downside was only 2-5%

[Gregmal]

You got close and I presume, the others and/or fundamentals may have swayed you. But on a short term swing the only important metric is risk/reward and narrative. You said it yourself, 2-6% downside...so throw the fundamentals out the door unless you plan on holding post deal close. Next, how long until deal close? Was/is a nice setup here and in some others that are similar. Deep diving into long term fundamentals doesnt really make sense for a short term trade with a hard floor, at least IMO. Frankly, I'd argue that 3-4 month window til close is catalyst rich as they'll be running full promo mode to get everyone on board.

[thepupil]

bump, $10.13 bought some.

[Spekulatius]

bump, $10.13 bought some.

 

Could be a good trade, but I think the acquisition is overpriced.

 

2 Comps:

1) ADSK, much more moats business and higher growth, same valuation in terms of EV/ EBITDA. Seems to be better deal.

2) QLYS (mentioned before here), similar growth next business quality, EV/EBITDA ~23x compared to CCC ~30. So accounting all these SPAC shenanigans (warrants etc) it looks like a straight buy of QLYS is a much better deal.

 

I can see this being a good trade setup, buy at ~$10, sell at $10.8 or whatever a week later hopefully. I don’t think I want to hold anything like this post deal though.

 

I think the way to look for the SPAC is going to be in 1-2 years when they trade for less than $10 and many are orphaned.

[thepupil]

yea, its a trade for me. i'm sure there are many better similar trades out there and so much as asked twitter (to no avail). i could pore through hundreds of SPACs and probably find better, but this is just one i happened upon. with the average SPAC premium down to only 3%, probably lots to do.