tag:blogger.com,1999:blog-2080506270244832638.post1838794127457938238..comments2024-03-28T07:17:13.573-05:00Comments on Clark Street Value: Command Center: Reverse Merger with Hire Quest, Tender OfferMDChttp://www.blogger.com/profile/10679835609782815537noreply@blogger.comBlogger11125tag:blogger.com,1999:blog-2080506270244832638.post-22475624147010290042019-07-26T08:31:21.086-05:002019-07-26T08:31:21.086-05:00Count me as surprised too, usually these are well ...Count me as surprised too, usually these are well over subscribed. FWIW, I didn't tender my shares.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-36917707410726635172019-07-26T08:25:28.888-05:002019-07-26T08:25:28.888-05:00surprised that the tender was very slightly under-...surprised that the tender was very slightly under-subscribed vs 1.5m share repurchase objective. I think this highlights that despite the underselling of the merger by the company, the proxy hinted that the combination was going to be undervalued vs the $6 tender price. wabuffohttps://www.blogger.com/profile/17265376419403776293noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-80856654546494137932019-07-02T13:55:31.779-05:002019-07-02T13:55:31.779-05:00Cheers - this is helpful.Cheers - this is helpful.MCWhttps://www.blogger.com/profile/07628648231829162413noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-83556909864111964562019-07-01T06:33:44.472-05:002019-07-01T06:33:44.472-05:00Thanks for the assistThanks for the assistMDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-22429766935367491702019-06-30T21:39:08.370-05:002019-06-30T21:39:08.370-05:00I don't really understand the downplaying ince...I don't really understand the downplaying incentive. HQ is paying with shares of their own company. As an example, if they make the case that they are worth $1 billion, they would only need to have dilution of a couple percent. This would be good for them right?vttnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-41881016087491859622019-06-28T16:36:34.759-05:002019-06-28T16:36:34.759-05:001) Receivables: This is due to the nature of the ...1) Receivables: This is due to the nature of the franchise business model. The franchisee branches make thin margins, but don't have to deal with the high working capital requirements. <br /><br />The working capital requirements are borne by HQ corporate (ie, temp employees get paid daily, weekly) but payroll receivables are collected in 30-45 days from the hiring company. HQ rebates all but a portion of the collections back to the branches but carries the large receivable balance to be collected. You have to match most of that $20M+ receivables with the total systemwide revenues (including franchisees) of $90M+ (and not the HQ corporate annual revenue of $13M+).<br /><br />2) the tax liability is an artifact of the difference between tax reporting and GAAP reporting. Part of it is the goodwill creation and part of it is due to the switch from cash accounting for expense recognition for HQ to accrual accounting (thus creating a prepaid expense asset and matching tax liability from the delayed profit recognition for GAAP purposes). I'm not sure its something I'd worry about. HQ mgmt has pledged to cover the delayed tax liability due to the cash to accrual switch.wabuffohttps://www.blogger.com/profile/17265376419403776293noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-75100888200407633062019-06-28T13:15:53.343-05:002019-06-28T13:15:53.343-05:00Good write up. I'm also long CCNI into this tr...Good write up. I'm also long CCNI into this transaction. Curious to get your thoughts (or others) on two items: (1) large amount of receivables at Hire Quest (> 1.5x 12-months of royalty revenues -- are these really collectible?) and (2) creation of $11.5mm deferred tax liability upon closing (what's driving this and how are you thinking about it?). Curious your thoughts - cheers! MCWhttps://www.blogger.com/profile/07628648231829162413noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-62948078814544825292019-06-27T08:55:30.401-05:002019-06-27T08:55:30.401-05:00Good points - but curious how much underselling is...Good points - but curious how much underselling is really necessary, I assume the tender will be fully subscribed easily given where the shares are trading, but maybe that's because of the sleepy outlook.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-3147947775840279952019-06-26T13:46:10.345-05:002019-06-26T13:46:10.345-05:00I purchased some after the inital proxy announcing...I purchased some after the inital proxy announcing the reverse merger came out. This setup does look like HireQuest is using this merger for their principals to go public. I wonder if the change in the US federal corporate tax rate is providing some incentive for HQ to flip its structure from a pass-thru entity for IRS purposes to a corporation.<br /><br />I also think that HQ mgmt has incentives to downplay what the real pro-forma financials will look like. The pro-forma financials presented in the proxy really don't show things like the change in the legacy CCNI financials, the corporate SG&A synergy savings, etc.<br /><br />Finally the financial advisor's fairness opinion on legacy HQ's value based on their business plan is rather opaque but hints that HQ's 2019-2022 annual EBITDA standalone will be $10-$15m per year.<br /><br />All of this makes sense if you are trying to buy out the legacy CCNI shareholders - you have no incentive to sell hard.<br />wabuffohttps://www.blogger.com/profile/17265376419403776293noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-37597044367849785462019-06-24T08:49:29.162-05:002019-06-24T08:49:29.162-05:00Possibly, take it for what it's worth manageme...Possibly, take it for what it's worth management does say "exceed $15 million", I think the main question is when that will be accomplished, refranchising the locations will take some time, integrating the platform, etc.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-32796273753358416792019-06-24T06:49:17.669-05:002019-06-24T06:49:17.669-05:00That $15mm EBITDA assumption might be a little opt...That $15mm EBITDA assumption might be a little optimistic no?timidbidhttps://www.blogger.com/profile/11606303869402287925noreply@blogger.com