West Marine Gets Acquired; Don't Miss the Boat on These Other Double-Nets

 | Sep 13, 2017 | 12:00 PM EDT
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cdi

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Yesterday, unsurprisingly, shareholders of boating retailer West Marine (WMAR) officially approved the acquisition by Monomoy Capital Partners, which takes the 250-store chain private at $12.97 a share. Frankly, I was disappointed with the price, which equates to 1.38x net current asset value (NCAV) and 1.01x tangible book value per share, but it would be useless at this point to get into any more detail about why this name is worth more than $13.

Beggars (sellers in this case) apparently can't be choosers -- especially when it comes to retail these days, and all of the challenges presented by this changing landscape. I'll also admit that I've seldom been thrilled with the payoff when other names I've owned have been acquired, most recently Krispy Kreme, and previously auto repair name Midas, and defense name Force Protection (FPVD) .

The sale of WMAR removes it from my 2017 Double Net Value portfolio, but as I've done in the past in such cases, the sale proceeds will remain in cash for portfolio-tracking purposes. It was meant to be a static portfolio, and will remain as such.

Frankly, for me as a value investor, the thrill of identifying a takeover candidate and then having  takeover come to pass is at least equal, if not better, than the potential monetary rewards. Of course, that leaves me always looking for who might be next -- not easy in terms of accuracy, but even a blind squirrel gets a nut now and then.

But the fact remains that companies trading at relatively low multiples to net current asset value, including WMAR, can be compelling to acquirers. In July, former net/net CDI Corp (CDI) agreed to be taken private for $8.25 a share. That one, I'll admit, was a bit of surprise: Although it looked cheap on some metrics, I would not have pegged it as a top candidate for takeover.

In April, double-net RetailMeNot  (SALE) was acquired for $630 million. This was among three candidates I named in June 2016, which goes to show that these situations do not necessarily play out quickly. The other two named in that column, Benchmark Electronics (BHE) and AVX Corp, (AVX) remain double nets, trade at 1.73x and 1.84x net current asset value, respectively, and are up 49% and 32% since that column ran. But neither has been acquired, nor have I heard of any intelligence that suggests they are in the crosshairs.

Last year there were four double nets acquired, Ingram Micro, Rofin-Sinar Technologies, Skullcandy and Steel Excel. Others I held out as potential acquisition candidates in June 2016 included FreightCar America (RAIL) , which currently trades at 1.33x NCAV and has $10.76 in net cash on the books, and Kulicke and Soffa Industries  (KLIC) . KLIC, which is up nearly 60% over the past year, trades at 1.89x NCAV and has nearly $8.00 per share in cash and short-term investments. A sizable portion of that cash, however, is held offshore, so the company stands to benefit if tax reform ever happens -- and if it entices cash repatriation.

In December, I added the much-maligned Fitbit (FIT) to the list.

So, with WMAR gone, it is time to go back to the well and identify some more potential acquisition candidates, which I'll endeavor to do in upcoming columns.

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