- Magnet continues to justify the transaction based on outdated, misleading information
- Four software acquisitions at higher premiums since Magnet’s acquisition announcement
- Nellore urges shareholders to follow the recommendation of leading independent proxy advisor Glass Lewis for comments on ISS
- Nellore recommends that shareholders read the latest notes from brokers cited by Magnet
PALO ALTO, California., March 17, 2023 /PRNewswire/ — Nellore Capital Management LLC (“Nellore”) issued closing comments today to explain its rejection of the proposal C$1.8 billion Acquisition of Magnet Forensics Inc. (“Magnet”) LIKE from the private equity firm Thoma Bravo.
Sakya DuvvuruFounder and Portfolio Manager of Nellore Capital, said: “The software PE market continues to be strong and Magnet stands out as a particularly weak negotiation in comparison. Magnet’s presentation today is further evidence that the Select Committee fails to understand the company’s value, which continues to be justified by outdated and misleading information.”
We’ll end where we started: Magnet is a special company that creates enduring shareholder wealth
Magnet’s operating and financial model envisages converting revenue into free cash flow (“FCF”) approximately every 4 years. For example, the company generated revenue of $27 million in 2018 and FCF of $33 million in 2022. The company had sales of $50 million in 2020 and expects FCF of $65 million in 2024, based on management guidance. The company is expected to achieve sales equivalent to 2022 sales, $99 million, in 2026 FCF -> a compounding machine! So you could pay up to 20x sales in 2023 (>100% above current asking price) and still get a double digit return over 4 years.
Materiality of Q4 FCF in fair value realization
It seems like Magnet (and his select committee) either don’t know or don’t know how FCF can increase returns for the buyer. Take that into account by waiting 9th Marchth instead of January 19thMagnet’s Last Twelve Months (“LTM”) FCF doubles and at…
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