A Takeunder at 1x EBITDA?

Activists are already pushing back, and required shareholder approval gives them real leverage to demand a higher price.

This is a pretty bizarre example of a lowball management buyout. The situation is very fresh, but it has already drawn two activists who published open letters to shareholders and the board.

The chairman is buying the company’s operating business at a 1x EBITDA multiple. Peers trade at 7–8x NTM EBITDA. The company’s operating business may be of somewhat lower quality, but it is certainly worth more than 1x EBITDA.

Management owns a third of the company. Given how egregious the offer is and the fact that stockholder approval is required, there is a reasonable chance that shareholders will be able to force a higher price. The activists are demanding a higher offer and encouraging shareholders to bombard the board with letters. The company currently trades at the offer value, so the potential downside seems limited while waiting to see how the events will unfold.

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