Pivot Technology Solutions (Pivot Technology Solutions Stock Quote, Chart, News: TSXV:PTG) needs an auction process to maximize the value of the company for shareholders, says Cantor Fitzgerald Canada analyst Ralph Garcea.
In a press released issued in January, Pivot Technology announced it had entered into an arrangement with PTS Holdings Corp, a company controlled by a group of investors that includes two of the company’s founders. Under the terms of the proposed agreement, current holders of Pivot shares would receive one preferred security with a face value of $10.00 for every 14.286 common shares of Pivot, representing $0.70 a share. The company said a fairness opinion from Deloitte said the deal was in it best interest.
In the time since, Toronto-based investor Torrent Capital, which owns about five per cent of Pivot said it “vehemently opposes” the arrangement. And in a research update to shareholders following the news, Garcea said the PTS offer “significantly undervalues” the company.
Today, Garcea issued another update on Pivot Technology. This time he pointed to the recent news that Ingram Micro had entered into agreement to be acquired by Tianjin Tianhai for $38.90 a share. The analyst says he would look for a strategic or private equity buyer to step in on Pivot and provide a superior proposal or for management to up its bid in an all-cash offer. He says the all-time high on the stock price should act as a minimum valuation.
“Ingram Micro is the #1 global technology value added reseller (VAR),” notes Garcea. “Tianjin Tianhai has now developed from a traditional marine shipping company into a modern logistic industry investor and operator. The offer values IM at ~$6B, or ~7x 2016 EV/EBITDA, and easily takes out the 5-yr high on IM. This takeout valuation would put PTG at anywhere between C$0.75 and C$1.50 (with 2016E EBITDA between $35M and $50M). This is why we want a formal auction – who would have thought a Chinese logisitics company was looking for a global IT VAR?”
Garcea says that with more than $1.5-billion in revenue, Pivot has the scale to be meaningful to an OEM or to a potential acquirer. The analyst today reiterated his “Buy” rating and one-year target price of $1.50 on Pivot Technology, implying a return of 206 per cent at the time of publication.