In what has been a stellar year for acquisitions within the deep-value ponds that I fish, yet another name is about to be acquired. On Dec. 7 Steel Partners (SPLP) announced that it would acquire the remaining shares of Steel Excel (SXCL) that it did not already own in exchange for $17.80 per share in Steel Partners' 6%, nine-year preferred units.
At the time of a late October column on the name, SXCL was a net/net, trading at just over 50% of tangible book value per share with nearly $12 per share in cash. Since then, shares have risen about 30%, driven by the acquisition. This is still a very cheap acquisition of a small, under-the-radar name; at the current price, shares still trade at just 1.2x net current asset value.
This caps off a banner year of acquisitions that included three double-nets (companies trading at between 1x and 2 X net current asset value). In February, Ingram Micro (IM) agreed to be acquired by China's Tianjin Investment Company for $38.90 a share in a deal that was completed two weeks ago.
In March it was Rofin-Sinar Technologies' (RSTI) turn, when the company agreed to be acquired by Coherent COHR for $32.50 a share. That deal closed last month.
In June, it was a beaten-down Skullcandy (SKUL) that became the object of a bidding war between Incipio LLC and Mill Road Capital that ultimately was won in August by Mill Road for $6.35 per share. That represented a 60% premium to where SKUL shares traded in early June.
Given the lack of opportunities that the deep-value ponds offer these days, I've sought to identify other acquisition candidates that exhibit some of the same attributes as those that have been acquired in 2016. Those still include Kulicke & Soffa (KLIC) , itself a cash-rich double net. KLIC currently trades at 1.91x net current asset value. The shares have risen more than 20% since the election, partially due to the rising tide of the markets, but also due to speculation that the Trump administration will reform the tax laws, specifically as it applies to the repatriation of cash, as much of the company's cash is offshore.
FreightCar America (RAIL) is another name that still fits the bill. It has been a rocky year for the name, which has seen a slowdown in business. However, it has rebounded nicely since the election, and shares are up more than 30%. Currently trading at just 1.35x net current asset value, the company has no debt and yields 2.3%. It is benefitting from positive post-election economic sentiment and would make a nice acquisition candidate given its relatively small, $150 million enterprise value.
I've also added Fitbit (FIT) to the list and recently took a position. Now all but shunned by investors, the company itself is surprisingly a double-net and trades for 1.94x net current asset value. It also has $3 per share in cash and no debt. This is not the type of company I'd typically own, but it has been overly punished in my view. Time will tell whether it's a falling knife or good buy at these levels. Honestly, it could go either way, so be careful out there.
