Wednesday, August 21, 2019

Industrial Services of America: Tiny Liquidation, Assets Sold to Nucor Sub

Another small personal account type idea:

Industrial Services of America (IDSA) is a nanocap ($9MM market cap but trades on the NASDAQ) metal recycling and auto salvage business headquartered in Louisville, KY doing business as ISA Recycling.  On August 19, the company announced the sale of substantially all of their assets to River Metals Recycling, a subsidiary of the large steel producer Nucor Corporation (NUE), for $23.3MM and following the sale, the dissolution of the company with proceeds being distributed to shareholders.  IDSA's balance sheet is a bit of a mess and the company was facing de-listing, but following the liquidation, IDSA expects to distribute $1.15-$1.35 per share, with the stock trading at ~$1.10 that's an attractive 13.5% spread to the mid-point.

The sale is expected to close late 4th quarter or early 1st quarter 2020, IDSA will likely need to reserve some cash following the sale to handle any final wind down expenses and other contingencies but I would expect the bulk of the distribution to happen alongside the asset sale with River Metals.  River Metals is a subsidiary of The David J Joseph Company which is Nucor's scrap metal recycling business, they're in the same business as IDSA so this deal makes plenty of strategic sense, clean tuck-in transaction.  IDSA is heavily owned by insiders including over 20% of the shares owned by the former CEO's family trust, perhaps the family was disinterested and wanted to cash out?  IDSA shareholders will need to approve, but again, it is a fairly tightly controlled company.  It's worth mentioning there is also a closing contingency around a storm-water drain, hard to handicap that.  Anyway, seems like an attractive situation, any thoughts welcome.

Disclosure: I own shares of IDSA

7 comments:

  1. New to this stuff - interesting to see the share price over the last six months. Obviously the right day to buy was August 19th! Don't have any insights on stormwater drains sorry...

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  2. Per page 7 of the proxy which just came out, it looks the storm water drain mitigation terms have already largely been hashed out with the relevant regulatory body in Kentucky. I doubt the deal is scuttled over something like this, particularly since Google tells me that storm water drainage issues are common in Louisville. May just be a routine thing and not corporate malfeasance.

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  3. https://www.sec.gov/Archives/edgar/data/4187/000089710119000938/maindocument.htm

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  4. Q3 results are out with a loss of 0.17 USD per share:

    https://www.sec.gov/ix?doc=/Archives/edgar/data/4187/000089710119001013/idsa-20190930.htm

    Is this going to reduce the distributions, or is this already baked into their liquidation estimates?

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    1. As far as I can tell it has no impact, the uncertainty in the final liquidation estimate appears to be the $700k in escrow and the $2.25MM being held back for contingencies

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    2. I think it does reduce the distribution though. From the filing, description of the $2.25M contingency: "Represents contingencies for unidentified costs, estimated purchase price adjustments, additional wind up expenses and estimated operating losses from August 16, 2019 through the date of closing of the Asset Purchase Agreement". So if the operating losses are higher the contingency reserve is used for that.

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    3. Thanks - that's probably the right read, shareholder vote is tomorrow, deal probably closes within a few weeks. Operating results are worse than the estimates in the proxy, so the liquidation value does likely come down, but there is a fairly wide range and still could be an attractive result.

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