PN Receives Enhanced Offer from EBIX

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http://ir.patnat.com/file/Index?KeyFile=35310199

Patriot National Receives Enhanced Offer from Ebix, Inc.; Commences Strategic Discussions

Patriot National, Inc. (NYSE: PN), a leading provider of technology and outsourcing solutions, today announced that the Special Committee of its Board of Directors (the “Special Committee”) has agreed to consider an enhanced offer for a potential acquisition by Ebix, Inc. (NASDAQ: EBIX), a leading international supplier of On-Demand software and E-commerce services to the insurance, financial, e-governance and healthcare industries.

As previously reported by Ebix on June 15, 2016, the Special Committee received an unsolicited offer from Ebix to acquire 100% of the outstanding stock of Patriot National for $9.50 per share. The Special Committee has now received a revised and enhanced offer from Ebix to acquire Patriot National for a total enterprise value of $475 million, which the Special Committee expects will yield a price per share that materially exceeds Ebix’s initial offer, after payment of Patriot’s related transaction expenses, all outstanding debt obligations, and certain accounts payable.

Ebix has also signed a confidentiality agreement with Patriot National and has begun comprehensive due diligence with the Company. Patriot National does not expect to make any further announcements regarding this offer until the Special Committee has concluded its ongoing consideration of all value-enhancing strategic opportunities.

Cheers,
Mj

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Of course, I sold out last Wed.

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Of course mate. Bummer!

I tried to sell on Thursday but when I submitted my sell order at $8.40 it was only partially filled before the price went down. At the time I was moderately annoyed. I just sold the unfilled remainder today on this news. I’m good with taking the profits and running on this trade. I don’t think I could be that confident that PN would pass due diligence and a profit’s a profit.

I’m going to definitely look at investing in Ebix though.

Ant

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The Special Committee has now received a revised and enhanced offer from Ebix to acquire Patriot National for a total enterprise value of $475 million

The current market cap is about 266M if I’m reading things correctly (9.50/share x about 28M shares). Doesn’t that mean there’s 80% upside still?

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I think you need to take into account the debt and the offer is inclusive of costs of doing the deal. I think that means the offer is around $10.50 to $11 a share. There is still some upside, but I sold today.

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Enterprise Value is the $475 number, not market cap.

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FUN WITH NUMBERS!!

The Special Committee has now received a revised and enhanced offer from Ebix to acquire Patriot National for a total enterprise value of $475 million, which the Special Committee expects will yield a price per share that materially exceeds Ebix’s initial offer, after payment of Patriot’s related transaction expenses, all outstanding debt obligations, and certain accounts payable.

OK, I thought I’d take a stab at this just for fun. The premise of the calc is to take $475 EV and back into Market Cap, and thereby, what the stock price would be using the definition of EV = Market Cap + Debt - Cash & Cash Equiv.

+475 EV Offer
-149.3 Debt
+11.8 Cash&Equiv
=337.5 sub total (Mkt Cap)

337.5 / 28m shares = $12.05 share price

Note this is a rough calc and is missing “Patriot’s related transaction expenses and certain accounts payable”.

PN had $37m in accounts payable at Q1 2016. For fun, let’s say “certain accounts payable” equals half of their A/P balance, including transactional costs, which are typically a couple of million (depending on size of the deal).

The resulting calc would then be:

+475 EV Offer
-149.3 Debt
+11.8 Cash&Equiv
-18.5 A/P and transax costs
=319.0 sub total (Mkt Cap)

319.0 / 28m shares = $11.39 share price

PN closed at $9.49, which means, if you believe “certain accounts payable” is less than half their A/P balance, that there’s still a potential 20% upside.

Of course, this calculation could be way off base and completely non-sensical, in which case, not. Or it could be kinda sorta in the general neighborhood ballpark area, in which case, maybe.

Cheers,
Mj

***FULL DISCLOSURE: I HAVE NO IDEA WHAT I’M DOING - BEWARE!!

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Somewhat more simplistically, but in agreement with you, you could take the ratio of mkt cap to enterprise value as it is now and assume it stays the same. For simplicity I’ll use Yahoo’s numbers: 257M for mkt cap and 377M for EV. So mkt cap is 68% of EV.

68% of 475M = 323M.

At roughly 28M shares, share price would be ~11.50.

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You forgot to factor in the warrants for PN which are quite extensive and complicated. There is a Warrant Redemption Liability on the balance sheet of $48.8 million.

Simplistically you could just bake in that figure as a reduction in the equity value. On the one hand, that might understate the liability since the prevailing stock price during Q1 is less than the presumed deal price. On the other hand, there is time-value component baked into the liability modeling which might overstate it based on a redemption event (depends how far out the warrant expiration goes). So there are some judgement calls on whether you just take the number as is.

The more accurate and complicated way to calculate it would be to analyze the terms and conditions of the warrants to figure out which warrants are cash settlement, vs cashless exercise vs full exercise. Then you can actually model the warrants by series/tranche. Cash settlement warrants become a liability and a reduction against equity value. Cashless exercise will not impact the aggregate equity value of the company but they will bump up the share count, diluting the per share equity value. Full exercise warrants will bring some cash into the company (increasing aggregate equity value) but also bring more significant share dilution. It’s a complicated, iterative calculation.

Overall if you take the warrant liability as given you are somewhere around $10.50 per share I think.

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