Private Equity Stock Review, Tuesday 5/31/2011.
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2011 Reverse Merger Conference.
1. Adding Alas International Holdings (VDSC) to Private Equity Stock Review Watch List.
2. Why IPO's Get Underpriced (NYT).
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1. Adding Alas International Holdings (VDSC) to Private Equity Stock Review Watch List.
Finally, our first client in the Private Equity business.
This is about as "venture capital" as it gets. We might also call it "mini-Private Equity," when compared to giants like the Fortress Group (FIG), who could take down any sized corporation -- if they put their mind and dollars to it.
With a $0.20 stock and modest financial backing by contrast, the companies that Alas (VDSC) can target to acquire, have a natural limitation in size. Nonetheless, if you know what your doing and you have good "deal flow" and the patience to wait for the "right deal," you can make this model work and work big. This is venture capital for the little guy.
The company is quite eclectic, in our opinion, in that it appears they only recently got both feet planted on the ground -- with a tremendously exciting acquisition of a company called SAENZ. Prior to this acquisition, it was pretty much an "idea stage" company, even having undergone a couple of strategy and name changes.
Vought Defense (they acquired a UMV company) to
Alas Defense to
Alas International Holdings (ALAS)
In short, we think they've finally figured out what they want to be when they grow up (acquisitions in the beleaguered leisure sector, which is overflowing with bargains) and we're excited to have them as a client and are equally excited to see what additional acquisitions they may cook up, in the months and years to come.
As of this very second, assets in their targeted sector can be purchased for a fraction of replacement cost -- and when you can make the acquisitions with stock -- it creates a powerful vector for when the things recover (and they always do). This is in essence "the story." Buying companies and assets cheap and buying with stock
Once before we came a cross a company like this (2002), which was trading at $0.10 a share, called Circle Group Holdings. At first, people laughed at us. The incubator model (perception-wise) was broken. The stock had fallen from $3.00 to dime. Financing had dried up on Wall Street (again). And any financing at that level would be prohibitive. And it was 2002. And nothing was working.
However within two years of our discovering it, one of its "portfolio" holdings (a fat substitute) gained traction and the shares traded to $9.00. Like we said, when properly executed, the model can work and can work big. And the funny thing -- or good thing -- is you never know which of the portfolio holdings turns big and get investors enthused.
Original Report on Circle Group: http://goo.gl/6PBbk
We've always liked the "incubator" model. We were early on with CMGI and Rare Medium (1999), both which later rose twenty fold and we got famous following the group, via our Incubator Stock Review.
Today they're called Business Development Corps., (BDC's) or Private Equity Funds-- which differentiates itself by using cash (or borrowed cash) as cash for acquisitions, rather than stock. But at the end of the day we still think they're all doing the same thing -- which is to buy low, develop and sell high.
Before we get much further, this write-up is a short "heads-up," look what we found. We originally spoke with management about a year ago when it was trading at $0.25, but despite our liking the growth-by-acquisition model, we decided to back burner it until they made a significant acquisition. That "significant" acquisition just occurred on May 11th, of 2011.
After reading about the SAENZ acquisition, we felt there was a chance the shares could take off before we could issue a full report. The shares ran from $0.10 to $0.25 without much volume in early May, which kind of scared us -- so we thought it would be best to "time-stamp" Friday's closing price of $0.16 as our "Watch List" price. If you remember, we did a similar thing (time-stamp) with another light trader last fall, Vertex Energy (VTNR) which has recently traded from $0.40 to $2.00, with very little fanfare.
Before the "big" SAENZ acquisition there were only 27 million shares outstanding. The company appears to have essentially been born on February of 2010, with the issuance of shares to founders and the conversion of notes to equity.
ALAS International (VDSC) had a 545 to 1 reverse split in April of 2010, which is why there are so few shares outstanding (a good thing for us). Their previous acquisition was an manufacturer of lightweight UAV's (Unmanned Aerial Vehicles) which didn't really float our boat (personal opinion) which is another reason why we held off initiating coverage until now.
In February of 2011, the company announced that its attorneys and auditors were moving ahead and in the final stage of their preparation for filing the required documents with the SEC and expects to be current with SEC Reporting requirements and they noted that the completion of the audit and filing with the SEC, represented a major step toward becoming a fully reporting company. Of course with the "significant" acquisition announced -- that can will probably get kicked down the road a bit more.
Legal Counsel is Sichenzia, Ross, Friedman, Ference in Manhattan. We coincidentally met with Gergory Sichenzia in his office a couple weeks ago and they appear to be one the top legal teams in the country, for mid-sized publicly traded corporations. Just good to know.
2655 Ulmerton Road
Clearwater, FL, 33762
Edwin Salmon (CEO)
Okay so what's all the fun about.
On May 11th, ALAS announced that they acquired 100% of SAENZ Corp., which has a reported $20 million in assets. SAENZ has offices in England, Greece and Turkey and has operated successfully and profitable for 25 years in the Mediterranean area, chartering their own fleet of Yachts. SAENZ also stated it would "reposition" their operations to Florida, in order to begin operating their Yacht charters in the Bahamas, Turks and Caicos Islands.
Yesterday we mentioned the acquisition was "somewhat" out of the blue. To be accurate, it's better described as "totally" out of the blue. It's what we call "stop the press" type news. Say what? Mediterranean Yachts? And they're bringing the boats to Florida?
We're all in !
This started a flurry of calls from us. We needed to know what was going on and we needed to know fast. We know a lot of deal makers and anytime we hear of a company pulling off a $20 million acquisition with a sub $1 stock, we're interested. This is alchemy at its finest.
First we called the head of a Venture Capital firm in Chicago, who initially told us about the deal a year ago and who coincidentally is an investor in the shipping business (Maritime shipping -- big time tankers), then we called a hedge fund manager who is a large shareholder -- but he was on his way to see the company. Next we were on the phone with the CEO.
Here are bullet points of what excite us.
#1. Ships and we don't care what kind -- are selling for half of surveyed costs and one quarter of replacement (new) cost. We mentioned last year we were part of a group which purchased a 50 foot Yacht last year, which is now berthed in Florida. It was easily half of what it would cost in normal times.
#2. The Mediterranean is under siege. It's not a question of if Greece will default, but rather when. And when that happens every bank in Greece will instantly go insolvent. The Greek government will nationalize every bank in Greece. The Greek government will forbid withdrawals from Greek banks. If you own $20 million worth of Yachts there or anywhere near there, you need to get them out and you need to get them out fast. And they did.
#3. ROI. Buying a Yacht to Charter out for 50% off, is not unlike buying an apartment 50% off. Important thing to note is the rental prices don't get cut in half, so rents get magnified to the bottom line.
Further, the SAENZ charters are first class, high quality, luxury charters for the well heeled, coming off Carnival Cruise type vessels. This is for the demanding customer who after arriving from an ocean voyage, wants to enjoy the day cruising around the islands on luxury yachts with diving and snorkeling. You must admit, this is interesting. Who wouldn't want to pull a deal like this off.
Press Release: http://markets.financialcontent.com/demo/?GUID=18420401&Page=MediaViewer&Ticker=VDSC
Then further news came about the acquisition, eight days later on May 19th.
#4. Past Profitability. Peter Villotis, CEO of SAENZ stated, "Our revenue from operations in 2009 was $4.357 million US dollars with $894,348 US dollars net profit and operating revenue in 2010 was $4.502 million US dollars with a net profit of $1,006,743 US dollars from operations." Again, who wouldn't want to pull a deal like this off.
(Of course it's difficult to forecast how this will all translate once the vessels are moved to the US, but he last time we checked -- fuel cost were about double in Europe and there seems to be no shortage of wealthy vacationers in throughout Florida and the Caribbean each time we visit. In addition, the company has been operating successfully for over twenty plus years -- so they seem to know what they're doing.)
#5. Strong management. Peter Villiotis has served for the last 18 years as Director of Technical operations of Carnival Cruise Line. Pretty much we can stop there.
Captain A. Karavias, President and founder of SAENZ served as a Captain in the Navy for fifteen years, a ship owner for over 40 years that included several freighters and tankers. He also has owned mega yachts for over 40 years and recently built five super yachts of 32 and 41 meters.
The "deal-makers" at the parent company are two former Senior executives from Honeywell Information Systems. It's nice to see a couple "non-Wall Street" guys, show the "Wall Street" guys how to do it.
Ed Salmon CEO, held senior executive positions at Honeywell in charge of Virginia, the Carolinas, Florida and the Caribbean with offices in Tallahassee, Jacksonville, Tampa, St. Petersburg, Orlando, Miami and San Juan Puerto Rico.
Alvin Ayers CFO, served as a Regional Director for Honeywell covering 13 states. Both men have over 40 years work experience. The announced acquisition of SAENZ in our opinion speaks volumes for their capabilities. And as we said earlier, if you know what your doing and you have good "deal flow" and the patience to wait for the "right deal," you can make this model work and work big.
Press Release: Leadership Team at ALAS - SAENZ: http://markets.financialcontent.com/demo/?GUID=18535049&Page=MediaViewer&Ticker=VDSC
We're are dying to see what's next on their agenda. And we'll of course be here to share it.
Our track record in Private Equity:
Och-Ziff (OZM) $14.55 up 133%
Fortress (FIG) $5.12 up 127%
The Blackstone Group (BX) $17 up 120%
GLG Partners (GLG) $4.50 up 81% (acquired)
MVC Capital (MVC) $13.19 up 65%
KKR Finacial (KKR) $9.87 up 58%
Rodman & Renshaw (RODM) $1.28 up 29% (China woes)
Ares Captial (ARCC) $$16.50 up 23%
American Capital (ACAS) $9.80 up 6%
Harris & Harris (TINY) $5.65 up 6%
ALAS International Holdings (VDSC) $0.16
And last but not least, don't forget out track record with stocks starting with the letter "V."
"V" for Victory: http://iaspecialsituationresearch.ning.com/profiles/blogs/v-for-vic...
What are the odds we don't perform well on this one (yes, that's called a tanut) ? Only time will tell.
SEC filings: http://www.otcmarkets.com/stock/VDSC/financials
Why IPO's Get Underpriced (NYT).
(form the oh pulease department)
In his op-ed column in The New York Times, Joe Nocera wrote on Saturday that LinkedIn "was scammed by its bankers," who underwrote LinkedIn's initial public offering. The evidence: the money LinkedIn "lost" by underpricing its I.P.O.
(Note to Joe, it's call sharing the wealth.) http://dealbook.nytimes.com/2011/05/27/why-i-p-o-s-get-underpriced/
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Disclaimer: VDSC. Safe Harbor Act Disclaimer: Statements regarding financial matters in this press release other than historical facts are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and as that term is defined in the Private Securities Litigation Reform Act of 1995. The Company intends that such statements about the Company's future expectations, including future revenues and earnings, technology efficacy and all other forward-looking statements be subject to the Safe Harbors created thereby. The Company is a development stage firm that continues to be dependent upon outside capital to sustain its existence. Since these statements (future operational results and sales) involve risks and uncertainties and are subject to change at any time, the Company's actual results may differ materially from expected results. Client, we have been retained by the company for five hundred thousand restricted shares and ten thousand dollars.
Going Concern Statements.
We would like to point out that the majority of companies listed on the
OTC Bulletin Board have factors which create an
uncertainty about the their ability to continue as a going concern. These
concerns are typically related to financing (or lack of), competitive
environments, lack of operating history and operating at loss levels which
is typical of most start-ups.
These statement can usually be found in their most recent 10Q filings and
typically you don't have to dig to far down past the financial tables. We
like to use http://www.pinksheets.com
for quick and easy access to SEC
filings. We think it would be wise for most investors to assume that all
companies listed on the OTC Bulletin Board (and many on NASDAQ) have going
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