It's nice to see some new names cropping up within the population of "double-nets," my self-coined term for companies trading at between 1x and 2x net current asset value. All else being equal, a multiple of net current assets (current assets minus all liabilities) that low can signal opportunity.
It has been a prime hunting ground for acquisitions this year; while acquirers are not specifically targeting double-nets per se, some exhibit characteristics that happen to attract interest. Those characteristics typically include solid balance sheets with relatively healthy amounts of cash, as well as compelling price/earnings ratios. While hunting in double-net land is not always a ticket to riches, it is an interesting place to generate ideas.
Electronic components name Avnet (AVT) new to double-net land, is in a transition, after recently announcing the sale of its technology solutions business to Tech Data (TECD) for $2.6 billion in cash and 2.8 million shares of TECD. (Ironically, Tech Data is itself currently a double net, and has been for ages.) In addition, AVT also recently acquired U.K. electronic components name Premier Farnell for $868 million. As if those moves weren't enough, two weeks ago AVT purchased a majority stake in Hackster for an undisclosed amount and will acquire the rest of the company in early January.
AVT currently trades for 1.71x net current asset value. It ended last quarter with nearly $1.2 billion, or $9.38 per share, in cash and $2.7 billion in debt. Admittedly, with all the recent acquisition and sale activity, it is too early to tell exactly what the balance sheet will look like when the dust settles, but AVT likely will have a much smaller debt load as it intends to use cash from the TECD deal to reduce leverage. The deal reportedly will also be accretive to book value. Perhaps more importantly, however, it is changing AVT's focus toward electronics distribution, which has higher margins than the technology solutions business.
AVT trades for about 11.5x 2018 consensus estimates (June year-end) and yields 1.5%. This is one to keep an eye on as it completes a major transition.