West Marine's Buyer Is Getting a Heck of a Bargain

 | Jun 30, 2017 | 9:00 AM EDT
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Another small, deeper-value name has bitten the dust -- but not in an entirely negative context. Boating retailer, former net/net and current member of my 2017 Double Net Value Portfolio West Marine (WMAR) has agreed to a deal to take it private for $12.97/share. That's a 34% premium to yesterday's closing price, but for me as a WMAR shareholder this deal is bittersweet, because the acquirer, Monomoy Capital Partners, is getting a heck of a bargain at that price, in my opinion.

At $12.97/share, Monomoy would be getting WMAR for just over 1.5 times net current asset value, 1.09 times tangible book value per share, 0.47 times trailing 12-month revenue. While not exactly cheap at 18 times next year's consensus earnings estimates, WMAR's operating performance has been on the upswing; plus, companies trading as cheap as it does relative to net current assets are often not even profitable.

As a beneficiary of this deal, I assume I am supposed to be happy about it; instead, I believe that the takeout price is simply too low. At two times net current asset value, this would be a $17/share deal. Unfortunately, specialty retail is not exactly hot these days, and Monomoy stands to benefit.

I won't hold my breath, but wonder whether more interested parties will emerge, similar to what happened around this time last year with another double net, Skulcandy. Ultimately, the bidding war for that company was won two months later by Mill Road Capital, and the price represented a 60% premium to where shares were trading in early June 2016.

In any event, WMAR's acquisition would represent the latest in a series of double nets (companies trading at between one and two times net current asset value) that have been taken out over the past year and a half. It would not surprise me if there were more deals in this space for some of the small, underfollowed, cash-rich names that occupy this space, but the supply is dwindling.

In December, I offered a few potential candidates, all of which I hold, including FreightCar America (RAIL) , the much-hated Fitbit (FIT) and Kulicke & Soffa (KLIC) , but none have come to fruition. A year ago, I held out AVX Corp (AVX) , Benchmark Electronics (BHE) , and RetailMeNot (SALE) as potential candidates; in April the latter was acquired for $630 million.

By my count, that's six double-net acquisitions in the past 18 months, in a market where acquirers have cash and are looking for cheap candidates. There is definitely something to this. However, don't expect to find the term "double-net" anywhere else but within my body of work. It is a self-coined term that could only be conjured in the crazy mind of a deep value investor.

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