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This is written with serious investors in mind, though sometimes they're just drafts in progress. I'm a former reporter, private investigator and institutional equity analyst who digs deep to find niche undervalued and undiscovered securities. I manage money for individuals, institutions and family offices via my business Long Cast Advisers. This blog is part decision-diary, part investment observations and part general musings about Philadelphia sports. It should not be viewed as a solicitation for business or a recommendation to buy or sell securities.

Tuesday, April 28, 2015

$ARIS - brief thoughts on TASCO acquisition ... and the frustration of feeling like I'm missing something

$ARIS announced another acquisition today, a small one worth $2.75M in the wheel and tire space. Details below. 

Not really sure where it's going or what it's purpose is or why they're so fond of the wheel and tire space. I need to figure this out ... How big is the wheel and tire market? What makes it so interesting and attractive? The flat fixes / tire dealers here in bklyn are generally small cash only businesses of families and immigrants. Maybe I should stop by mine and see what they use to manage inventory. It always seems like they call a distributor in the warehouse district with regular deliveries. Something I need to understand for sure.  

I continue to compare / contrast with MAMS which builds everything in house vs ARIS which does the opposite, acquiring verticals and components and customers. Given the valuation differential I guess the market prefers the in-house build. I can see pros and cons and both of strategies but not enough on the face of it, and I feel like I'm missing something that explains the valuation differential. Something I NEED to find out. ARIS has a good, but not pristine, integration history but if there's cash flow ... and positive returns ... I just don't know. 

ARIS is paying $2.75M comprised of $1.75m cash upfront, a $200k holdback and 242k shares. The additional shares represent 2% dilution. 

Deal adds $2M in revenues and 55 customers in 380 locations. That infers 1.4x revenues, which is about where ARIS trades on a TTM basis and ~$50,000 / customer. The deal is expected to be accretive in FY2016. 

TASCO's revenues are lumpier than ARIS b/c of the way their recognition policy. TASCO recognizes revenues as "perpetual license sales" meaning new sales and renewals are front loaded vs ARIS', which recognizes revenues ratably over the term of a contract and smooths the recognition. I imagine there will be a transition going forward. 

Barry D. Reese, who was the founder and named principal when TCS was acquired in October will remain VP and GM of TCS Technologies, an ARI Company. 

Aidan J. McKenna, TASCO founder and CEO, will assume the role of Executive Director, "TireWorks, TCS Technologies, an ARI Company" and report into Reese. 

FWIW, TASCO recently built brand new headquarters in Wexford, PA, so something is going right. 

8K on the deal here >> http://goo.gl/8nqvuS 

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