On 4/7/19, the company announced a merger with privately held Hire Quest Holdings, effectively structured as a reverse merger where Hire Quest management will run the combined company and Hire Quest shareholders will own 68% (76% after the tender) of the proforma company's stock. Temporary staffing is a fragmented industry with several large players and then many "mom and pop" type operators. Hire Quest's business is structured as a franchiser, they provide the back office support and negotiating scale on workers compensation insurance (a significant expense for this industry) to its franchisees under the brand names Trojan Labor and Acrux Staffing. After the merger with Command Center is complete, the company plans on franchising the 67 Command Center branches to mirror the Hire Quest business model. Interestingly, Command Center previously operated under the franchise model but bought out their franchisees in 2006.
In tandem with the reverse merger, the combined company will be conducting a tender offer of up to 1,500,000 shares at a price of $6 (versus a price of $5.45 today), in the proforma financials provided in the proxy, it shows the current cash on CCNI's balance sheet of $7.5MM being withheld for the tender offer. They're a little short of the $9MM necessary for the tender, but given the cash build since the Q1 financials came out, I'm going to assume the company is essentially both cash and debt free. Additionally, since the company will be franchising the current 67 Command Center locations, they should see some cash inflow from those sales. The 2006 acquisition of 69 franchised stores which formed Command Center was done for 13.2 million shares which traded at roughly $1 at the time of the announcement (data is a bit hit and miss, this was an even tinier OTC stock at the time so my figures could be off), or we'll call it $180k per location which sounds reasonable as the buyers are going to be the store manager or someone looking to own their own job. If correct, that's another $12MM in additional cash that could be used for buybacks/tender offer or expansion.
In the press release announcing the reverse merger, management provided the following pro-forma commentary:
"If Hire Quest revenue were determined on a similar revenue for the year ended December 31, 2018 would have been approximately $189 million. Based on our current projections, after some period of integration and normalization, we believe the combined entities will produce annual EBITDA in excess of $15 million, exclusive of growth opportunities."Following the tender offer, the company will have 12,968,678 shares on a diluted basis, at today's share price of $5.45 (and the assumption of zero net cash/debt, no value to the franchising), the enterprise value for the proforma company is approximately ~$70.5MM. Against a post deal (could be messy the first year or so) estimated EBITDA of $15MM, the new Hire Quest is trading for roughly 4.7x EBITDA, well below the large publicly traded staffing companies.
Disclosure: I own shares of CCNI