Kev10 -- Good catch, looks like you may be right. Looks like the article is about the ebix that is at ebixinc.com. Looks like a different company from our Ebix. Very strange and coincidental indeed!
Not sure I can post a link here but find this article. Looks like this is ebix's entrance to medical billing services. Says other acquisitions targeted by ebix for 2017. Robin mentioned this sector on the last CC.
Badger Billing Services to close
Ebix acquires clients and hires 15 new employees
by Molly Dill September 22, 2016, 12:31 PM
Sentiment: Strong Buy
Stuart is describing the old system, where favorable analyst ratings were dangled in front of clients in order to secure the investment banking and capital markets business. This was particularly juicey for IPOs where the underwriting fees are large. Spitzer and regulation put a big stop to that stuff and now research division is chinese-walled from the bankers. As a result over the years many banks have reduced or eliminated their equity coverage and many independent research botiques have emerged succesful as being less biased.
Riverbank, legit public companies would never be permitted to pay for research (pump and dumps do this though). The coverage is free for a company like Ebix. Then that research is sold to institutional or retail investors, or given away to the same to lure their trading or brokerage accounts. So if you open and fund an account at Craig-Hallum you can get their ebix coverage for free.
The benefit ebix gets is increased attention by investors which can leas to getting a better valuation or a more diversified (less volatile) shareholder base. All good things for employee comp and morale and great for stock based acquisitions to have a strong currency. Ultimately increased publicity could lead to extra revenue for ebix but that is more an indirect secondary effect.
I think Coal154 may be some kind of chatbot created by the Sovereign Citizens Brigade sent here to steal the cream from our crop as it rises to the top.
Stuart, good thoughts on RR.
Also worth mentioning that it's hard to look at one component of compensation in isolation without looking at the total comp package, and then looking at that package relative to comparable companies' CEOs and shareholder value creation. I haven't undertaken a review of RR's comp, but from the bits I've seen I'm not sure his equity or LTIP is too excessive, and he has done a great job in the last several years. Also, the fact that he has not been selling shares at all makes me feel better about the company giving him some liquidity in the form of cash comp. Hopefully that keeps him satiated enough to keep his equity intact.
Lastly, and perhaps a more controversial issue, is what is happening in the Delaware Court of Chancery with respect to his ABA. I haven't kept up with any recent developments, but around the early parts of this year it seemed there was a chance that Robin might have his massive golden parachute stripped or significantly modified by the courts. This would be great for shareholders but hurt RR. If this happens I have less of a problem with the board introducing other forms of compensation.
ncc53 -- The best place to get a corporate history of PN is in its IPO prospectus and 10-K filings on the SEC website. Mariano built these businesses from scratch starting in 2003. In 2014 he reorganized these non-carrier businesses under one umbrella in contemplation of the IPO. Immediately prior to the IPO he owned 85% of the company, and some management and private investors owned the rest. What the filings don't really tell you is how much personal money he invested over the years to build these businesses or if he was able to build them using internally generated funds, debt and sweat equity (ie, hard work). The company raised approximately $100 million of cash at its IPO which diluted Mariano's ownership down to 58% after the IPO. The company than took that $100 million and basically went on an acquisition spree the first year it was public. Unfortunately that didn't really go as planned, because the public lost faith in the strategy and when they went to raise money again in late 2015 they couldn't get it done and pulled the follow-on offering, which led to some desperate and convoluted capital raises using warrants to keep the company going, and eventually led to the invitation and review of "strategic alternatives" like the Ebix deal. That's at least my basic understanding.
Stuart, just to be clear I think it is perfectly reasonable, appropriate and normal for someone in Mariano's shoes to get some kind of personal compensation in his capacity as a departing CEO. Transitional consulting agreements certainly are common in mergers. I was just saying that there is a point when such an agreement becomes too rich and starts to look more like greenmail for his vote than bonafide remuneration for services rendered. That probably happens when the value of such a contract goes from a couple hundred thousand dollars to the millions of dollars range. Legally Ebix can't explicitly offer more per share to Mariano than they offer the other shareholders (even though his vote is more important), so to get around that the market tends to scrutinize any other forms of consideration/compensation conveyed in the deal. The self-dealing I was referring to is Mariano's issue, not Robin's. I only mentioned the prior Ebix-Goldman deal as an analog; you are correct that Ebix, as the buyer, would not be accused directly of self-dealing in this case. That said, you know there are a lot of law firms (and our favorite shorts and that Bloomberg reporter) who love to call out these deals and scream bloody murder, and they all seem to have Ebix on speed dial from the last big deal, so extra scrutiny exists already. I just hope Mariano doesn't push too hard on his own deal given the intensified environment of scrutiny all around. The market has learned not to trust special committees of independent directors so much anymore, and more and more of these deals end in litigation, unfortunately.
I agree that Mariano is probably the biggest uncertainty and wild card of getting a deal done, and he will probably need a little bit of greasing to get the deal done. Giving him a transitional consulting package with some stock options would not be unreasonable. That said, Ebix may be a little hesitant to do anything too extraordinary with his personal compensation given the self-dealing debacle of the Goldman buyout. If PN shareholders think that Mariano's deal is too rich, and the buyout price too low, they may sue or vote against the deal. Another interesting point to watch will be if Mariano is offered the same mix of cash/stock consideration for his shares as the public. There could be an issue where Mariano insists on getting all stock for his equity (because tax free and upside) and RR tries to push more or all cash consideration at the public. Usually the public is okay with getting a lot of cash in these deals since some institutions aren't tax driven at all, but once again you can look to the failed Goldman deal to see what happens when insiders get all stock and the public is offered only cash.
Wenmoose, you are conflating the legal structure of the transaction with the post-merger business strategy. They are separate ideas. Usually the legal format of the transaction is driven by tax optimization. Any legal entities can be operated with no employees by a parent company or by an affiliate with a service agreement, so keeping or not keeping the legal entities has no bearing on what staff are let go or consolidated, or what offices are closed. Anyway, RR will probably consolidate a lot of the staff and offices for expense efficiency, and he will keep any recognizable brands or trademarks known in existing markets, but for the technology acquisitions embedded within PN he will probably just consolidate under the Ebix umbrella. That seems to be what he has done in the past. It will be interesting to see if Mariano is able to get a board seat or what kind of deal he is able to cut for himself as a consultant or part-time employee post closing.
Hey Riverbank, I seem to recall RR mentioning that the revenue from the PPL deal was fixed over its 5-year term, at approximately $75mm in the aggregate. I think it was always intended that PPL would be rolled out to all major lines in the London reinsurance market and suspect that the $75mm already includes these other lines. In any case however, the success of PPL is still hugely important to Ebix's future deal flow and reputation in the big picture. Firstly, its success will ensure that PPL gets renewed again in 5 years and continues to be a major revenue center for Ebix in perpetuity. Secondly, RR has already talked about working with the London market to create an accounting system as an complement to PPL. Lastly, surely there are a number of other insurance/reinsurance markets around the world that are also evaluating setting up and exchange. The global insurance market is looking at London to be the trend setter. The success of PPL will solidify Ebix as the de facto technology provider for many of these projects as they launch.
Per Insurance Insider...
Marine next PPL class as finpro discovery phase ends
18 August 2016
The Placing Platform Limited (PPL) board and market governance groups have agreed that marine will be the next class of business to use the technology following the rollout of financial and professional (finpro) lines.
The International Underwriting Association (IUA), London & International Insurance Brokers' Association (Liiba) and Lloyd's Market Association (LMA) will be recruiting members for the PPL marine working group in preparation to commence work on the class in September, they announced this week (16 August).
In the same...
Sentiment: Strong Buy
Traditional merger arbitrage involves deals that are already announced or signed, in the period before the deal closes. Taking the example of a simple cash deal, the target will trade at a discount to the buyout price. There will be a time-value component to the discount and a risk component. Merger arbitrage specialists try to analyze the risk premium and weigh that against whether they think the deal will close or not, or in some cases whether a richer competing deal will come in. A lot of merger arbitrage involves legal analysis of antitrust risk (or recently, banning tax inversions) as that is the biggest factor that kills a deal.
Stock for stock deals are more interesting/complicated from an arbitrage point of view. In order to lock in the discount to the deal price, you need to go long the target and short the buyer, otherwise you are exposed to the fluctuations in the buyer's stock. There is some extra math involved here to get the hedge right, and can be complicated by collars and other restrictions in the share exchange ratio. So merger arb is why you often times see the buyer's stock fall when a deal is announced, it's the hedge funds trying to lock in the exchange ratio. Though sometimes the market is so impressed with the deal that both stocks go up.
What you guys are talking about here with Ebix and PN is a lot more speculative than normal arbitrage. It's more merger speculation than merger arbitrage. Not only is the offer price difficult to calculate given the limited info disclosed and a complicated capital structure at PN, but no one really knows if the PN CEO will play ball and vote for the deal. Just for that reason alone, there would be a huge risk premium placed on the "arbitrage." I would estimate that people taking their chances buying PN stock probably want to see a 15%-25% return for taking the risk at this point. So you can do the math and the market is looking for a deal around $10.50 to $12.00.
All you guys are forgetting the massive amount of warrants that PN has, held across a couple different tranches of different series of warrants. As a back of the napkin approach, you can add the Warrant Redemption Liability of $48.8 to the company's debt in figuring out the remaining equity value of the offer. So $475 enterprise value minus $181.6 of debt minus $48.8 of warrants, equals $293.4 equity value, or $10.47 per share based on 28mm shares. However, the more exact way of doing this is to model the warrants dynamically based on their redemption rights (cashless vs actual execution); the modeling is complicated because it is an iterative calculation (the value of the warrants increases the higher the offer price). The result would probably be more aggregate equity consideration spread across a greater number of shares, but you probably get back to a similar place. Also worth noting that the $48.8 Warrant Liability number on the 3-31-16 balance sheet is probably understated since the stock price during that period was a lot lower than the deal price. So it's possible that the warrants are an even bigger overhang than that. I'm not surprised to see PN at $10 right now pre-market. That seems about right to me.
Riverbank, it is actually not illegal to disseminate inside information in the context of when it is disclosed to the media, when no benefit is received by the tipper. Theoretically you could run into some Reg FD issues with the SEC if you are a corporate insider, or ethical issues if you are an outside professional working on the deal, but obviously not a big concern since info always seems to leak. PN has been surprisingly quiet.
Before this tear in the matrix of the Internet inevitably disappears, I wanted to reveal my true identity as Robin Raina, the King of Convergence.
July 12th, 2016: London Market Group (LMG) is pleased to announce that the first standalone terrorism risk was bound on PPL – the London Market’s electronic placing platform – within the first hour of trading yesterday morning. The broker was Marsh and the underwriter was Chaucer.
David Ledger, Chairman of the PPL Board said: “The success of PPL is always going to be based on the market coming together behind one system. The fact that a risk was bound less than an hour after we opened for business is a great vote of confidence that we are going in the right direction.”
Mark Weil, CEO of Marsh UK & Ireland, said: “This represents an exciting step as we push to increase the speed and efficiency of our marketplace to the benefit of our clients. We look forward to extending this across further lines of business.”
John Fowle, Chief Underwriting Officer at Chaucer said: “We are delighted to have bound the first risk on PPL. We have been keen supporters of this initiative since the beginning, and firmly believe that this is an essential new tool for enabling underwriters and brokers to provide a better and more efficient service for clients.”
Sentiment: Strong Buy
Definitely PPL launch related. Lots of positive buzz in London market. The strong bull market conditions help too.
Sentiment: Strong Buy
There is a new article out today in the Financial Times regarding PPL, coinciding with the launch tomorrow. No new info as far as I can tell, but good summary, and has an optimistic tone to it. Should be available through Google if you search for "Lloyd’s market takes tentative steps online"
Sentiment: Strong Buy