Company Perion is an ad-tech company which consists of three business units: Search (acquiring customers to Bing and Google); Ad-tech (a platform that allows marketers to follow and track campaigns live across different social platforms, devices, and operating systems); and Advertising.
Identification Perion was first identified through Being and investments' proprietary value-identification algorithm. We subsequently followed the company (without investing) through it's transiton towards a new CEO and strategy, and decided to invest when the new CEO impressively delivered on his first key initiative regarding cost cuts and working capital release.
Significant undervaluation When we first identified Perion, it had previously lost one big client, through its own malpractice, loosing 25% of its revenues in one go. 50% of the remaining revenues had to be cleaned up from malpractices and was thus expected to continue to decline. It had also bought another company for a very steep price, which in turn did not deliver as expected. The stock went from being a growth company to a detested company. A new CEO (Doron Gerstel) was hired in April 2017. Shortly after this is when we first idenfied the company. At the time of investing in Decemebr 2018, the new CEO had been at the helm of the company already for over a year, delvering on his first key initiatives. Yet the company was still trading at depressed prices, with a 40% FCF/EV yield, with no net debt, and flat to negative growth. Our view was that it was significantly undervalued. Previous mistakes were self-inflicted by the previous CEO, and in the past, but were hurting today's market value. What is done is done. Fundamentals on the other hand, and the initial success of the new CEO's agenda, pointed to a significantly higher value of the company.
Strong operational and strategic value creation agenda The company's new CEO initiated a three-step sequential operational and strategic agenda: 1) "clean-up" (cut costs, release working capital and eliminate mal-practices) 2) "integration" (integrate the acquired advertising company with the company's ad-tech platform), 3) growth. In December 2018, we invested when the first step had been implemented: working capital of about 1/3 of market cap had been released, SG&A had been cut as much as historic EBITDA, and the expected decline of revenues was decelerating.
Other owners Benchmark Capital Management 12% (VC), EA2K Ltd. 7% (Activist).
Outcome The stock was upgraded to a strong buy with a target price that fit neatly into our assumptions. This, plus return to growth in the Search business, resulted in a 145% return from first to last investment, with a blended return of 105% in four months.
This is Being and investments' third exit after Telepizza (with KKR) and Xerox (with Carl Icahn). The strategy currently holds three others investments; AMC Entertainment (with Silverlake), Senvion Debt (with Anchorage) and Blue Bird (with American Securities).
Email us at email@example.com if you are interested in investing behind our Public Value-Creation Strategy.
Note: Historic returns are no guarantee for future returns. The value of invested capital may fall as well as rise.