Packer16 Posted August 28, 2015 Author Share Posted August 28, 2015 Your math is right. The assumption here is FCF is used to pay down the debt over time. This how good LBOs work. AIQ is in this boat. The issue has been that the growth investments have not provided much growth and if it continues it may be better to paydown debt versus investing in growth that doesn't enhance FCF/share. Packer Link to comment Share on other sites More sharing options...
Libs Posted August 28, 2015 Share Posted August 28, 2015 Your math is right. The assumption here is FCF is used to pay down the debt over time. This how good LBOs work. AIQ is in this boat. The issue has been that the growth investments have not provided much growth and if it continues it may be better to paydown debt versus investing in growth that doesn't enhance FCF/share. Packer Thanks. I get it now.....after all if they pay off the debt, FCF will go from say 50MM to 75MM just from reduced interest payments; so if EV/FCF are to remain constant, the common will go up a lot. Link to comment Share on other sites More sharing options...
constala Posted August 29, 2015 Share Posted August 29, 2015 Q2 2015: Likely 40m-50m of Owner Earnings. At current 15.40$ share price, that's 3x-4x for a growing company with good management. I struggle to reconcile your Owner Earnings estimate of 40-50m, you also wrote they guided to about 44m Owner's Earnings. However in the Q2 Earnings call AIQ management indicated : FCF before growth CapEx is expected from $20 million to $45 million, with a Growth Capex between $44m and $55m. If I'm not mistaken, OE=FCF- interest cost right? It would seem to me FCF is typically derived from EBIT and does not take the interest cost into account, and that for a leveraged company such as AIQ (net debt 500/Mcap 150) OE would be a fairer reflection of cash available for owners. I guess OE's management projections should be about 25m (the int cost) less than their FCF guidance, which gives Owners Earning guidance : -5m$/+20m$....so quite a low number that fails to support the thesis? (the rest of the picture is not great: no asset backing, no growth, big growth capex which has not been FCF enhancing so far, headwinds on price and volumes, no activists...) In other words, if I adopt a conservative FCF/OE vision, that is, with a 42% tax rate, a maintenance capex closer to the full capex needed to keep EBITDA stable, and maybe even some planned amortization of the debt, the net levered adjusted FCF of AIQ is quite small; say $5m-20m, maybe less....I do not find the margin of safety I was expecting to find here. Looks like a leveraged value trap and too much jockey-dependent (and Oaktree long at $5...maybe not so bothered about a rerating) Link to comment Share on other sites More sharing options...
RedDaruma Posted September 15, 2015 Share Posted September 15, 2015 Just started researching on AIQ. Does anybody know good papers/research notes to understand the business? Link to comment Share on other sites More sharing options...
Homestead31 Posted September 16, 2015 Share Posted September 16, 2015 any reason for the recent spike? or just as simple as increased chance of fed not raising rates benefiting a highly leveraged company that benefits from low rates? Link to comment Share on other sites More sharing options...
Gamecock-YT Posted September 16, 2015 Share Posted September 16, 2015 any reason for the recent spike? or just as simple as increased chance of fed not raising rates benefiting a highly leveraged company that benefits from low rates? Just RedDaruma establishing his position. ;) Link to comment Share on other sites More sharing options...
Laxputs Posted September 16, 2015 Share Posted September 16, 2015 any reason for the recent spike? or just as simple as increased chance of fed not raising rates benefiting a highly leveraged company that benefits from low rates? Just RedDaruma establishing his position. ;) haha Link to comment Share on other sites More sharing options...
siddharth18 Posted September 16, 2015 Share Posted September 16, 2015 http://seekingalpha.com/pr/14703486-alliance-healthcare-services-announces-the-signing-of-an-agreement-for-the-purchase-of-a-majority-interest-by-fujian-thai-hot-investment-expects-to-appoint-kisum-wong-yong-ge-and-tao-zhang-to-its-board-of-directors-conditioned-on-closing NEWPORT BEACH, Calif.--(BUSINESS WIRE)-- Alliance HealthCare Services, Inc. (AIQ) (the Company, or Alliance), a leading national provider of outsourced healthcare services, announced today that Fujian Thai Hot Investment Co., Ltd (Thai Hot), has agreed to purchase approximately 5,537,945 shares of the Companys common stock from funds managed by Oaktree Capital Management, L.P. (Oaktree), MTS Health Investors, LLC (MTS), and Larry C. Buckelew, for approximately $102.5 million or $18.50 per share. Upon completion of the transaction, Thai Hot would own an aggregate of approximately 51.5% of the outstanding common stock of the Company. The Company is not selling any shares in the transaction. Link to comment Share on other sites More sharing options...
investor-man Posted September 16, 2015 Share Posted September 16, 2015 Wow that is incredibly disappointing :( Link to comment Share on other sites More sharing options...
gurpaul88 Posted September 16, 2015 Share Posted September 16, 2015 Wow that is incredibly disappointing :( +1 Link to comment Share on other sites More sharing options...
Laxputs Posted September 17, 2015 Share Posted September 17, 2015 Didn't find anything about them after an Ecosia search. As per SA: Thai Hot is an investment holding company based in Fuzhou, China, holding a diversified portfolio of assets in various industries including real estate development, securities, hospitality, biomedicine and healthcare. Thai Hot was founded in 1996 and its total assets exceeded $10 billion as of December 31, 2014. Thai Hots diversified portfolio includes controlling ownership in Thai Hot Group, one of the leading real-estate developers in China listed on the Shenzhen Stock Exchange (SZSE:000732). Thai Hot is also the third largest shareholder of the Shanghai Stock Exchange listed Dongxing Securities (SHSE:601198). Thai Hot expanded its business landscape to include biomedicine and the healthcare industry by acquiring a large-scale pharmaceutical company. In early 2015, Thai Hot made healthcare and medical services one of its top priorities, including radiology and oncology, and it intends to expand healthcare services in mainland China to an underserved healthcare marketplace. Disappointing Oaktree will not be at the helm. Link to comment Share on other sites More sharing options...
RedDaruma Posted September 17, 2015 Share Posted September 17, 2015 Also, I think the question is AIQ can continue to provide cheap financings on the back of Thai Hot to the same extent with Oaktree? Link to comment Share on other sites More sharing options...
tombgrt Posted September 17, 2015 Share Posted September 17, 2015 Too bad... Now we know where the sudden buying came from... Link to comment Share on other sites More sharing options...
kirkomi Posted September 17, 2015 Share Posted September 17, 2015 Recap. Oaktree owned 46.3% via OCM principle opportunities fund. And now they are selling everything at $18.5. How is that good news ? A major reason for me being comfortable with the immense amount of debt was Oaktree. Now that they are bailing out, I don't see a reason to stick around. Link to comment Share on other sites More sharing options...
tombgrt Posted September 17, 2015 Share Posted September 17, 2015 Same kirkomi.. I'm thinking of selling lost or all for a slight profit :( Link to comment Share on other sites More sharing options...
gurpaul88 Posted September 17, 2015 Share Posted September 17, 2015 Packer any thoughts? Link to comment Share on other sites More sharing options...
kirkomi Posted September 17, 2015 Share Posted September 17, 2015 I am out. Sold at a $300 loss :) Wasn't a big position. Link to comment Share on other sites More sharing options...
Phaceliacapital Posted September 17, 2015 Share Posted September 17, 2015 What do you guys think will happen? Link to comment Share on other sites More sharing options...
BG2008 Posted September 17, 2015 Share Posted September 17, 2015 Strictly from an efficient market perspective, Thaihot bought a control stake at 18.50. Both buyer and seller are willing. The price is a 27-28 percent premium to where it trades at now. I believe the current price is fair (not undervalued) as the minorities do not have control. Given that Oaktree likely knows a lot more than we do and the buyer is likely a Patsy as they are foreign, I don't believe the shares are deeply undervalued at current price. It's very likely that they shopped the company around behind the scenes quite extensively so that there was a robust price discovery process. My original thesis is that when Oaktree eventually realize a liquidity event, it will be done at peer's multiple for the entire company. Given that the market cap is a tiny sliver, there will be a return on investment that is many multiples of my entry price. The liquidity event did just happen for Oaktree, but not in the fashion that I imagined. The facts have changed for me. Link to comment Share on other sites More sharing options...
Packer16 Posted September 17, 2015 Author Share Posted September 17, 2015 I looking at what the impact will be here. What I know: the asset is cheap and Oaktree did not provide the debt (they facilitated the debt origination but held a nominal amount). What I don't know: how the new owners will try to monetize the asset and why did Oaktree sell. I find it interesting that they did not buy 100% but only 52% with a restriction from increasing ownership for 3 years. This may be an incentive for management to increase value before next purchase. Does anyone know anything about the buyer and their reputation? At this point I think I will investigate then decide what to do. Packer Link to comment Share on other sites More sharing options...
hyten1 Posted September 17, 2015 Share Posted September 17, 2015 relating to incentive for management in the filing states "In addition, subject to the approval of the Board or an authorized special committee of the Board, the Term Sheet provides that Thai Hot will fund a new management incentive arrangement which involves the issuance of $1.5 million in cash-based awards to the Company’s management." I looking at what the impact will be here. What I know: the asset is cheap and Oaktree did not provide the debt (they facilitated the debt origination but held a nominal amount). What I don't know: how the new owners will try to monetize the asset and why did Oaktree sell. I find it interesting that they did not buy 100% but only 52% with a restriction from increasing ownership for 3 years. This may be an incentive for management to increase value before next purchase. Does anyone know anything about the buyer and their reputation? At this point I think I will investigate then decide what to do. Packer Link to comment Share on other sites More sharing options...
zippy1 Posted September 17, 2015 Share Posted September 17, 2015 This is what I found on Baidu about Thai Hot. Sorry that it is in Chinese. http://baike.baidu.com/view/3482123.htm Link to comment Share on other sites More sharing options...
tombgrt Posted September 17, 2015 Share Posted September 17, 2015 I understand some investors were a little spooked but come on, down 25% from what was already a 10% discount seems a bit much. I'm not selling this just at any price.... Link to comment Share on other sites More sharing options...
moody202 Posted September 18, 2015 Share Posted September 18, 2015 Agree...Thai Hot didn't buy this to flush money down the toilet! I do think though that 'Thai Spice' would be a better name for the company! I understand some investors were a little spooked but come on, down 25% from what was already a 10% discount seems a bit much. I'm not selling this just at any price.... Link to comment Share on other sites More sharing options...
BG2008 Posted September 18, 2015 Share Posted September 18, 2015 Agree...Thai Hot didn't buy this to flush money down the toilet! I do think though that 'Thai Spice' would be a better name for the company! I understand some investors were a little spooked but come on, down 25% from what was already a 10% discount seems a bit much. I'm not selling this just at any price.... Given my background in I-Banking, I'll just share my way of thinking as former I Banker. As a seller of any asset, I will make a list of all the potential buyers in the universe. The list typically goes like this: 1) Strategic 2) Financial (PE etc) 3) High Networth 4) Might as well call them anyway since they have the cash The objective is to gauge interest, narrow down the list, and then sell to the highest bidder. Frankly, you can care less if the ultimate buyer is going to light this thing on fire as soon as they bought it, unless you're selling to Warren Buffet and want to make sure that your employees are taken care of. So, a strategic and a financial did not buy Oaktree's stake. The buyer wind up being a foreign conglomerate with roots in real estate. Being from China and understanding some of the RE industry over there, my feel is that this is a moment of awakening for them. Real estate has been such a good business for so long for them. Some of these guys are really divorced from reality in terms of understanding how competitive non-real estate markets are. They are likely buying this healthcare asset for the sake of diversifying their holding. From my experience, the foreign buyers are the ultimate patsies. Japanese with NYC real estate in the 80s, Chinese bought the Waldorf, etc. They likely paid the highest price. Yet the highest price is the $18.50 to a party who is foreign and likely dumb (yes, I'm speculating here). This is a very powerful signal to tell you what AIQ is worth. Do you really want to make the bet that you know more than Oaktree about AIQ? I want to disclaim that I don't know a lot about Thaihot, but they do quack and walk like a duck. Link to comment Share on other sites More sharing options...
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