Joseph Stilwell & KFS

I missed this piece until today. I had been digging into Stilwell’s portfolio, and I came across KFS and could not understand what was going on there, but that was early January. KFS fell off my radar, until it came back this week.

KFS has basically paid down all its debt, has $1B of NOL and is doing a rollup of small-time but successful owner-operated businesses that, basically, have “Boomer” owners that are ready to retire. The NOL’s shield the whole thing for a long run and buying back stock is the main game?

Anyone else following KFS and want to talk about it?

Hi rtichy,
My seeking alpha limit has been reached. Can you give a summary of earning or equity value or anything that helps me understand this story. I love these under the radar type asset acquirers.


1 Like

The basics are that KFS has strong cash flows via warranty contract businesses, its history is that it imploded under other poorly underwritten insurance business in the GFC and now still retains $1B of NOL which can be used to avoid paying taxes for a long time. Now, what KFS has moved onto is a “platform” this author describes as the “search fund model” which essentially means the management focuses on finding well-run, capital light businesses that are thematically owned by a principal who wishes to retire, but also wishes for his employees not to get laid off by a larger buyer in a more traditional M&A where a merger is more of a grab at the business flows and the existing employees (members of the retiree’s community) just get downsized. Instead KFS looks to bring in a younger “future-CEO” type that is hungry to prove him/herself and coach them through upscaling the business and using the KFS executive supports to control costs at the same time. Using the NOLs means that KFS can acquire many more businesses and bulk them up in a period of time where cash flows are high and there are not taxes impacting the larger enterprise’s ability to roll new cash flows into more investments.

This is very similar to the business practice of from 2014 to 2020; they had NOL and would acquire and rollup software platforms that had NOL that were all within the relatively narrow area of freight and shipping (postage, too) calculation. Long before was a RB pick, it was a company several members and junior advisors of MDP “Deep Value” tried to pitch to Ron Gross as a “Value Investment”. It had giant levels of cash flow, high margins, an efficiency was being acquired as each software company was acquired as to the support of the carrier data and the understanding of the pricing tiers on the backend. It scaled revenues much faster than costs because of the knowledge/expertise on the backside being centralized and used by all the sales channels. I was buying STMP at $13 or $23 (I cannot remember offhand) and it sold for $330/sh.

KFS, though, has the attraction of Joseph Stilwell being a 31% owner of the company and an experienced effective insider…


Thanks, Rob. Stilwell has been in KFS for quite some time. Great to see them get to a better position.


Hi Rob!

Interesting special situation. Thanks for sharing this find.

Since I am almost exclusively into dividend growth stocks, while I find KFS tempting, I’m ambivalent about dipping my toe in on KFS. I am impressed with the insider ownership, and the Seeking Alpha’s author’s valuation calculation at roughly double the current stock price is tempting. But I’m skeptical of the author’s suggestion that KFS might be worth around $40/share. And KFS is a micro-cap that most institutional investors are loath to touch. Isn’t it more likely that KFS is taken private at somewhere around the $16 to $17 price level?


1 Like