EBIX offer to buy PN

Seeking Alpha is reporting that EBIX has offered to buy PN at a share price of 9.50. PN is up big in pre market trading.

What does everyone think about this? I am planning to trim my position this morning and am considering exiting PN entirely for more than 100% gain in less than 6 months. Thoughts?

2020investor

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Seeking Alpha is reporting that EBIX has offered to buy PN at a share price of 9.50. PN is up big in pre market trading.

What does everyone think about this? I am planning to trim my position this morning and am considering exiting PN entirely for more than 100% gain in less than 6 months. Thoughts?

2020investor

It is hard to complain to have 100%+ return in such a short time. There still seems to be a reasonable amount of return to hold at the moment, of course always risk it doesn’t happen.

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OK, so what is a foolishly young Fool like moi to do in a situation like this? How long do you wait before selling out and taking profits? I’m guessing a few of you older, wiser Fools have experienced this before. Any sage advise you care to impart?

Cheers,
Mj
Enjoying the PN ride but not sure when to jump off

The offer seems to be a combination of cash and stock:

http://finance.yahoo.com/news/inplay-briefing-com-055139997…

7:28 am Patriot National: EBIX (EBIX) announces sending letter to Patriots’ board outlining offer to acquire 100% of its outstanding stock for $9.50/share (PN) :

Ebix intends to pay for at least 55% of the purchase in cash and the balance (45%) in cash or stock, as mutually agreed upon, and expects the transaction to be immediately accretive to EPS for Ebix shareholders.
In view of this proposed offer, Ebix has postponed plans for a 3-for-1 stock split and related special shareholders meeting until further notice.

I am not sure how firm that makes $9.50. If could potentially be depend on how EBIX stock does. Also, there is no agreement yet, it just a offer letter was sent.

Has PN accepted the offer? If not, I’d imagine there’s a chance the offer could go up? $9 is a nice exit point if you bought in around $4, but not if you’ve held since the IPO (like I assume Mariano has…and he has soooooooo many shares). So maybe PN rejects the offer? And maybe they come back for more? I’d love to hear what others think about this.

All that said, I’m definitely taking some profits now. May even sell most of what I’ve got. But I think I’ll hold on to some of my position and see what happens.

I’m just imagining PN feels like they can grow and pass $9.50 themselves, so they decline the offer, sending share prices down below $8 a share. Maybe I’m wrong though.

I’m just imagining PN feels like they can grow and pass $9.50 themselves, so they decline the offer, sending share prices down below $8 a share. Maybe I’m wrong though.

I think that is very possible, which is why I sold 3/5 of my position today. But isn’t it also very likely at EBIX makes a better offer? PN is still very cheap at 9.50 – a PE of 11.7 and a forward PE just above 8. That’s crazy cheap for a company who is growing revenue at a 50% clip. The more I think of it, PN would be crazy to accept 9.50.

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I’m just imagining PN feels like they can grow and pass $9.50 themselves, so they decline the offer, sending share prices down below $8 a share. Maybe I’m wrong though.

This is the first public offer and will likely end up being sold higher in the next few months. If you were EBIX, would you give your best and final offer first? I agree if they decline the stock will drop. There best response would be something like this offer is being considered along with potential other offers and options that would best benefit shareholders.

That said, I did sell half this morning and letting the other half ride. This allows some profit taking and lowers my risk without eliminating possible further upside.

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I was very tempted to sell although usually the buyout pop leaves shares within 5% of the acquisition price and PN are still well away from that. In the end I sold at $9.00.

I actually think if they reject this the SP could go up as it will likely raise the potential of a revised bid or leave management open to endorse a competing bid. If they accept it then we may not see much further gains given the upside cap and the potential exposure to SP weakness of EBIX with general market falls.

Management have sounded desperate to do a sale but this price seems low.

What I would be interested in is whether we feel EBIX is a stock worth owning. If they get PN for a steal and EBIX itself is a fast growth profitable company then it could be worth having them in the portfolio.

That’s 2 buyouts this week for me with LinkedIn as well but I’m hoping I will still have some sort of a portfolio remaining at the end of the week.
A

It is interesting that after 2 days, PN still hasn’t acknowledged that they received a buy-out offer. Normally I would have thought they at least do a press release stating that they received the offer and that the BOD will review and consider it as it is their duty.

From Ebix official release: http://www.ebix.com/PressRelease/PressReleasebyID/368

Ebix reserves the right to reduce its offer if it does not receive a positive engagement response in a timely manner or if any subsequent steps are taken by the Company that could have an adverse impact on its future value.

I am not sure if they were in talks or not or this was a way to force the BoD if they couldn’t agree on a price

after 2 days, PN still hasn’t acknowledged that they received a buy-out offer. Normally I would have thought they at least do a press release stating that they received the offer and that the BOD will review and consider it as it is their duty.

M&A are not things I know a great deal about, so I would appreciate anyone (Saul?) who would be willing to weigh in with anything from general experiences from the past, to possible directions the story could go from here, to rampant speculation.

I sold more PN shares, and I now hold only a 1% position or so, compared to the 6.6% position I had at the end of May. I was thinking maybe they would reject the offer and the stock would drop and I could buy back in. Obviously there are about 1,000 other things I could imagine happening (they decline the offer and the stock actually goes up, they negotiate directly with EBIX and get a higher price and the stock shoots way up), but I don’t really have a way to weigh the probability of any of these possible futures.

Hoping to hear from some more experienced guys and gals.

M&A are not things I know a great deal about, so I would appreciate anyone (Saul?) who would be willing to weigh in

Sorry Paul, I don’t have a clue as to what is going on, or to the eventual outcome.

Saul

which is why I sold 3/5 of my position today

Paul, probably a wise approach. Don’t be 100% greedy. If it is really $9.50, then there is a good arbitrage to make between today’s close of $8.60 - that seems to indicate a lot of caution or skepticism, so taking profits quickly might look better each day.

Would PN be crazy to accept the offer? Maybe, but that was a 50% premium and the people that run PN may be more willing to run off with a quick profit than do that hard work to get it there. We shall see.

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the people that run PN may be more willing to run off with a quick profit than do that hard work to get it there. We shall see.
Yeh I got that impression with the fast buck options business and the desperateness to sell the company.

I guess the company is doing 1 or more of 3 things:

  1. Evaluating the offer
  2. Preparing its defensive position
  3. Making a very fast attempt to Go Shop itself to any players who may have a competing offer that might have been in process or sparked by the bid

Frankly at this level of arbitrage, it might be worth getting back in. The SP reached these levels (~8.60-8.90) a month or so back - did folks sell out then? If not then why now when there’s a 20% uplift on the table if accepted or alternatively the organic growth the company offers.

I would say that if it doesn’t go through the SP could drop a long way as it had fallen below 2 support levels of 7.10 and 8.20 very easily.

Still it is growing fast and the management is interested in making a transaction and clearly there is interest in acquiring PN out there as we have now established and with a price point in play.

I would expect PN to make a statement by Monday trading start. If they haven’t then I’m prepared to re-enter (as a profitable trade having sold out at 9 and take the arbitrage or face the risk of potential short term downside until they trade their way to a higher rating or establish another offer).

The only other risks are: a broad market slump which reduces the 9.50 offer value due to EBIX stock dropping affecting the paper component and the potential of holding EBIX itself. I took a look at EBIX’ company performance and it doesn’t look bad at all. It isn’t as lowly valued as PN and it isn’t growing as fast but it isn’t bad and might be an acceptable holding in its own right in the end.

Ant

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One point that could be agonizing PN in preparing their response is the paper component. It is no wonder why there is a paper component. The EBIX stock chart is amazing. It has risen 20x in 10 years and has gone up 50% YTD so essentially accepting the bid would be accepting paper at an all time high for a price that values PN at 1/3rd less than its floatation price a year or 2 back. That’s tough to get your head around even if it is still only priced at a p/e of 19.

We should have discovered EBIX back in 2006!

Ant

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I have zero idea what will happen with a very small position in PN. I bought in based on valuation and potential growth. My GUESS is the following:

PN will not sell at the current offer.
I’m sure I’ll be proven wrong, but here is my point.

Assuming no nefarious activities are at hand, PN is worth more than this offer.

Am I totally off base?

My company has bought many companies in the private market and I know logic is only part of the equation. Many other factors play into deciding whether to sell a business. As was mentioned; the CEO may just want out and that is reason enough.

Since we are throwing stuff on the wall to see what sticks, I say PN sells for 50% higher around $14.

The stock is in a rut. If the business is that good, why sell at this multiple? Just my opinion.

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Well quite Phoolio18

Since EBIX is saying that the deal would be instantly accretive it kind of sounds as though it is very under priced…

Ebix president and CEO Robin Raina, commented, “We believe that Patriot National’s products and services are complementary to Ebix in the insurance industry and a combination of the two companies would lend itself to significant synergies and the creation of the global insurance industry’s largest end-to-end software services company. We see substantial synergies, economies of scale and expanded growth potential for the combined business. Our interest in making an offer for Patriot National is also borne out of our firm belief that a combination of the two companies could be substantially and immediately accretive to Ebix’s EPS.”

Synergies also sound a painful euphemism for PN which can’t be an attractive proposition for their team - under priced and with employment cuts.

Ant

I also believe PN will sell out, but at a higher price. And as Ant said, I also like the idea of holding EBIX thru to see how well the integration goes. The insurance sector seems to have high demand for software automation to lower labor costs and expedite the speed of doing their business. The EBIX price didn’t have much of a reaction to the buyout offer - which many times the buyer takes a temporary hit. For those of us still in or going in at this point, let’s hope for more suitors.
And congrats Ant on having Linked-In during it’s pop.

“The stock is in a rut. If the business is that good, why sell at this multiple? Just my opinion.”

I had wondered why PN was looking for suitors if business and outlook was so good. Typically, A CEO will say we are concentrating on building our business and are not for sale. Here on the face of it business is good but they are looking to be taken out. I don’t recall a similar situation.

Rob

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Thanks F1Fun - would have preferred to have seen LinkedIn through all the way but yep it was great RoI for a month of exposure.
Ant