Well, duh! A little late to be telling him that now, Johnny come lately! He's probably figured that out by now, you reckon?
I don't have a finance 101 book, I never took any finance classes. completely wikipedia trained. if you're saying I'm wrong, it's up to you to make the case. the cost of the equity is higher than the preferred because it's lower in the capital structure.
I don't really care what the cost of capital is because I don't have an MBA but if you can buy the preferred and get a better ROIC than the common is getting, that's a problem.
OK I don't even know what to say at this point. cost of capital =/ cost of debt. and no not of revenues, of ebitda.
a couple pts -
1) True on cost of capital, but you haven't done the calculation - the preferred is only about 10% of the capital structure. Also you should use the YTM on the preferred, assuming a late decade call date. Taking all that into consideration cost of capital is fairly low.
2) Are you saying RLGT will be sold at a high multiple of rev? If that's how it plays out I would think this is a pretty attractive price here - even if you discount that takeout five years at a fairly high discount rate, it would imply substantial upside.
so now you're evaluating the relative merits of my posts? that's weird. how much am I getting paid for this?
the hurdle rate is not the cost of the bank debt, it's the cost of capital, and radiant's cost of capital is above 10%.
of course at some point an acquiror will buy the revenues at some generous multiple, maybe even in the 13-15x range. discounted back to the present, and for uncertainty, that's not terribly relevant right now. and if radiant can't find a way to find more cheap shares to suckers, it will continue to buy assets earning less than its cost of capital. that's uneconomic and unsustainable. it's a bad business, and radiant hasn't shown any indication that it can do better.
some of your original comments were good - at this point I think you're really reaching. New deals will be financed on the AR line - the preferred will probably be redeemed once it's callable for additional accretion.
the growth is there because crain sells shares at a premium to firm value. he sold shares at 6.75 for company that is now worth $4. he's selling hype and turning it into ebitda. so yes, in that sense, it worked. but the hype is over. he massively disappointed investors with the recent share dilution - nobody is going to bid the stock up again just in the hopes there will be another lousy deal. the wheels deal was premised on the idea that wheels alone, at industry typical margins, would generate $16M of ebitda or more - now, after the sba/skyways deal, the accretion is $11.5M. what happened? rollups have great arithmetic on the way up and #$%$ economics if they can't sell more overvalued shares to pay for more overhyped deals. paying 10x ebitda for franchises in terminal decline can only be sustained on selling more to greater fools. ultimately the share price will reflect the real economics of the business.
anyway, 20% pretax is not great. it's less than 15% post-tax, and that's not including debt issuance, integration, legal, severance, broken leases and working capital. it kind of sucks, actually.
it's not 20%. did you read the earlier posts? do the calculations. $11.5M of ebitda added, $115M of net stock and debt and earnouts. that's 10x!!!!!!!!!!!!!!!
think you're veering into hyperbole - the acquisition driven growth is there over the last few years. Could it be even better? Absolutely. Is it better than most other businesses? Yes. And there is an earn out, so if the acquisitions disappoint, the price drops, so there is some natural hedging. EXPD isn't knocking out of the park either glancing at stock and recent results.
at this point think we have to agree to disagree and see how 2016 plays out. My guess is a year from now the stock is higher. Hope I'm right. We'll see.