Yelp runs a review site. It's just text and pictures. how can that all cost $100M/year?
if goldman can barely scratch out a 10% return, cowen won't manage to do any better on morgan stanley's scraps. more money thrown down the rat hole.
not really as bad as it looks. now it's churning through subs but once corporations start adding backup care as a bennie, the basic coordination problem (everybody wants a marketplace but nobody wants to pay for it) will be solved by a third party payer (the employer). crcm is a form of insurance, and employers are really good at buying insurance (distributed costs vs. uncertain, concentrated benefits). the roi case for using care is clear cut, employers will start forming a line at the right now that care has the right solution.
Radiant added about 16M shares and 30M of debt. So lets say it sold 16M shares at $4.25, the cost of the wheels shares. Addign in the debt that's $100M. in total all the acquisition added about $12M of ebitda. So that's about a 8x multiple on the acquisitions. That's not so great. basically crain does a deal, announces x in ebitda, and usually x gets a 20% haircut when all is sorted out. so a deal at 5x turns into a much less about 6x or 7x or 8x deal. the ebitda attrition is usually covered by subsequent deals where the numbers aren't announced. in other words, announce a deat at x multiple. then the deal underperforms . . . make a few smaller deals, make up the deficit, declare all projections have been met. this happens over and over again. if all the initial ebitda estimates were met, radiant would be doing better than $4OM of ebitda. crain has said that radiant can do 20m of ebitda in acquisitions but again, that will get watered down to $16m of ebitda once the forecasts come out. it's pretty clear that there is little in the way of margin expansion in these deals, in fact there is leakage. what about the margin expansion from the line haul network? no evidence so far. $4 seems like a decent price but the stock and the roll-up model appear to be broken unless radiant can show there is even a tiny shred of margin or revenue growth.
and as a former sap rep I can tell you that switching from cargowise and epicor to sap tms (not their greatest module by the way) is going to be a nightmare. it will cost multiples of what crain estimated.
that looked like a vanity business for a long time. his long-term return (before this year) was 8%. the other partners (or whatever it is) probably regret included him in the partnership.
the stock has been sliced in half from top to bottom. that has nothing to do with the sector, has to do with the fact the roll-ups have negative cost savings. 2 + 2 = 3.5.
there are two parts to the wheels deal, canada and us. canada is profitable and high margin 3pl and is more or less selfcontained. us is a money-losing truck brokerage. the idea was to improve margin by merging the LA truck operations (where wheels was big) and get some of the truck brokerage on the linehaul network and expand margin. but we've seen none of that.
the problem with valuing radiant at any multiple higher than 8 is that it isn't growing. look at the proforma numbers in the 10k, there are revenue declines. this could trade at 8x the midrange of ebitda. there are only so many times crain can sell the rollup/margin expansion story before people begin to wonder if it's not working.
crain's estimate include zero margin expansion in truck brokerage. but truck brokerage/line haul is now a $200M business that generates very low margins. there should be margin expansion in those businesses or else why be in them?
let's take a step back. first, if you listen to crain, he never talks about pricing or demand or the economy or anything like that. that stuff pales in comparison with the intra-industry competition that's going on. what's happening in the industry? big firms are succeeding (EXPD and CHRW) and small firms are getting driven out of business (all of RLGT's acquisition targets). radiant is buying failing businesses. look at the sba acqusition. the philly station abandoned sba, left for radiant, and then sba sold out to radiant for about 4x ebitda. that doesn't happen if the business is thriving. look at the other station on-boards - they are coming from failing competitors. so radiant is running up a down escalator - these stations are losing customers and radiant hopes to either stem the losses or outpace the losses with more acquisitions.
remember that every deal is done with the promise of cross-sell or margin expansion. those never happen. there isn't margin expansion or cross-sell, there's only margin contraction and revenue declines. that's because radiant is buying failing businesses. I remember looking at the stats for one of the texas statoins, for some reason it was broken out. the numbers were in decline. that's what happens. the entrepreneur retires, the customrs slowly leave, and radiant moves on to the next acquisition. that's what's happening under the hood. it's only concealed by the furious pace of acquisitions.
let's say that radiant is making deals at 5x. wheels and ote weren't made at 5x, and that's the vast majority of the capital committed. but let's go with 5x. that's a pretax return of 20%. that's not very good. when you figure in all the legal and other costs, it kind of sucks. it only begins to look good if there is synergy etc. but those aren't happening. now crain will say that there are earn outs so the deals price in poor performance. that's true. but again, more running up the down escalator. hard to build a thriving business out of failing businesses. it can happen but there is no evidence so far.
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!!!!!!!!!!!!!!!
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.
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.
doesn't that mean that the cost of capital is higher than the after-tax return on the deals? hmmmmmmmmm
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.
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.
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.
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.