It's been quite a while since we've seen a double net or former double net (company trading between 1 and 2 times net current asset value or NCAV) acquired. Between 2016 and 2017, however, this was very fertile ground for takeovers, and we witnessed several, including West Marine, CDI Corp, RetailMeNot, Ingram Micro, Rofin-Sinar Technologies, Skullcandy and Steel Excel taken out.
If there were any commonalities among these names beyond the fact that they traded at very low multiples of NCAV, it was that they were cheap, had lots of cash, and/or fairly strong brand names. So, once again, I thought it would be an interesting exercise to identify some additional prospects with similar attributes.
Staring with one of the uglier sectors, retail, there are a handful of names that could be in play. The first, Vera Bradley (VRA) , currently trades at 2.12x NCAV, and ended the year with $157 million or $4.50 per share in cash and investments and no debt. The brand may not be as popular as it once was, but there still may be some value there to a bigger fish, and the enterprise value or EV (market cap - cash + debt) is very small at $250 million.
Fossil Group (FOSL) currently trades at 2.42x NCAV. There were some takeover rumors last year, and shares went on a wild ride between late 2017 and 2018, rising from $7 to $31, but the stock has since fallen back to earth at about $13. The company has been "right-sizing", closing stores (one NJ store I visited a few times over the past six months among them), and has halved its debt since 2016. FOSL ended the latest quarter with $403 million, or $8.16 per share in cash, but $396 million in debt, and has an EV of around $630 million. (Note: I don't capitalize operating leases for purposes of the NCAV calculation.)
This next one should come as no surprise, I've mentioned it previously as a takeover candidate - Fitbit (FIT) - which trades at 2.57x NCAV, and has been routinely shunned by the markets post it's brief cult stock status. The company ended its latest quarter with $724 million or $2.89 per share in cash and short-term investments and no debt; current EV is around $650 million. FIT has put up a couple of consecutive positive quarterly earnings surprises, but overall, markets remain skeptical of whether it can ever turn sustained profits. It's hard to argue its brand name status, however.
Finally, a perennial player, which I've held out previously, Benchmark Electronics (BHE) trades at 1.87x NCAV. The company ended its latest quarter with $458 million, or $10.63 per share in cash, and $154 million in debt. Current EV is about $875 million. The company started paying a 15 cent quarterly dividend last year and currently yields 2.2%. I'd have thought that initiating a dividend and thus reducing cash might tend to remove a name from contention, but look no further than West Marine, which somewhat surprisingly initiated a dividend in April, 2017 just two months before its acquisition was announced.
I'm not done yet as there are a handful of other potential candidates - which I will explore in a future column.
