Ok, here’s a new one for you deal junkies after the wknd. I've seen very little chatter about it bar a few posts on Twitter. At first glance, this is just another CEO proposing to take his company, InMode, private for $16.20 a share, a 20% premium. But, if you look a little closer, it’s one of the more cheeky (read: nonsense) attempts I have seen in a while. That doesn’t mean it won’t succeed, though, the market was not pricing it like a done deal.

Steel Partners got the ball rolling in Jan with an $18 bid, but for just 51% of the company. The board was forced to act, but quickly ended the process without sharing much, other than the bids were inadequate (said to be between $16/17). That’s when CEO & co-founder Moshe Mizrahy swooped in with a.. lets say interesting proposal for $16.20, (below the previously rejected bids). Two activists (Steel Partners & Doma Perpetual) own ~8.5% of the company & aren’t happy about the CEO’s bid or the process. In fact they say he heavily influenced the board to reject the previous bids.

Now late last week - one has just come over the top ! It’s a fun one.. grab a coffee… or a beer & lets dig in..

The Company

I confess, I knew very little about this subject - so I would like to thank my editor (read: lovely wife!) for the background. InMode is an Israeli based medical device company that sells products used for energy /radio frequency based treatments like body or face contouring, aesthetic treatments & women’s wellness - like skin rejuvenation, tightening, fat removal etc. Marketed as a range of non or minimally invasive surgical medical treatments. Basically alternatives to proper surgeries. InMode’s customers are plastic & facial surgeons, aesthetic surgeons, dermatologists & OB/GYN’s. Their 285 sales reps sell their products direct in the US & additionally they sell through 73 distributors in over 101 countries. International sales account for 46% of total revenue. (38% in 2024). Essentially, the pitch is surgical-grade results (w/ small or no incisions) under local anesthetics while significantly minimizing risks of scarring, downtime, pain & other complications that would typically accompany going under the knife. No need for general anesthetics, less risk to the patient & most importantly it’s cheaper.

What I find particularly interesting is the capex spend. It’s much lower than I would have expected. Capex is predominantly made up of the initial buy of the molds to build the machines. From what I can gather, that’s because manufacturing is primarily outsourced to three subcontractors located in Israel. Two are identified: Flextronics (Israel) Ltd., or Flex, and (BY) Medimor Ltd., or Medimor. InMode has a 12% stake in Medimor. We’ll come back to this later..

Results / Financials

InMode had a few years of incredible growth as the Covid hangover boosted sales 75% in 2021 & 25% in 2022. Since then, we’ve seen a gradual decline in revenue & with it, free cash flow. Like many businesses during Covid, revenue was pulled forward & then subsequently declined. I think the recent decline is because buyers stocked up post Covid & sales tapered off after as a result. But unlike many businesses, InMode didn’t lever up at the wrong time assuming demand would continue to explode. So, this may prove to me a somewhat normal level of revenue as I don’t see the business going away - both surgical & non surgical treatments increased ~40% since 2020. Granted, that was likely an unnatural bottom (lol, excuse the pun !) - but I’m very confident that the aesthetic space will continue to grow & InMode will have it’s slice. The business generates lots of cash because capex is so low, gross margins are so high & there’s no debt to eat away at it. Revenue should stabilize & this will continue to be a cash machine. I think the CEO knows this & wants it for himself.

Most importantly to the thesis here is that the company has a bunch of cash on it balance sheet ($537m to be exact) & no debt. We’ll come back to this later too.

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So, how did we get here ?

In Jan 26, Steel Partners published a press release making public an $18 offer for 51% of the company. Clearly they had been trying to engage management but to no avail.

Over the past several months, we have made multiple attempts to meet with the Company to discuss ideas for creating shareholder value.​ We have also recently attempted to engage in a private dialogue with InMode’s leadership around our attractive proposal, but have so far been rebuffed. Therefore, we believe it is imperative that you, the Company’s true owners, are made aware of this opportunity.1

This forced the boards hand. Feb 2nd, InMode filed an 8-k & announced they were evaluating potential strategic alternatives, established a committee to oversee the process & retained legal & financial advisors. What was interesting to me at least was the wording - it was all past tense ! And, they snuck in the fact that they were already considering proposals from management !2

They also mentioned “and recent statements attributed to the Company’s Chief Executive Officer.” This looks to be a reference to the CEO;’s comments about Keeping InMode Israeli.3

Initially the article (in the Globes) reads like the CEO leaning hard on the company’s Israeli roots in what looks like a attempt to solidify support - but quickly turns into a rant about not having full control, a finger pointing exercise & a clear desire to take the company private.

The Doma fund’s belligerency, Mizrahy says, affected the InMode board. “It takes time but in the end it penetrates. The desire to go back to being a privately-held company arises from, among other things, the desire to get them off our backs. Running the company has become unpleasant.”

Feb 10th, on the Q4, 2025 earnings call the CEO took a pop against Steel Partners that dismissed the $18 a share offer saying..

We do not have 51% of the company to sell. So the only way to buy 51% of InMode is to do a tender offer, hire a bank, put some money in an escrow account and offer it to the public, not to the CEO. I don’t have 51% to sell and give them. But they didn’t do it. They just sent a letter to me and to the Board of Directors.

Feb 23rd - Just three weeks later the board killed the process.4

Following a careful review of the final proposals received in connection with the potential transaction, the Committee has concluded that none of the final proposals is adequate and in the best interests of the Company and its shareholders. Accordingly, the Committee has determined to discontinue the process at this time.

With the process dead, the stock proceeded to fall from ~$15 to the high $12’s over the following days.

April 9th - The CEO filed a 13D revealing that as it sank, he bought 800,000 shares in the open market ! 4,299,226.00 / 7.06 %5

The very same day, Michael Kreindel, the firms co-founder & CTO filed a 13D. He had never previously filed a 13D. He owns 3,114,762 shares / 5.11 % of the company. 6

Take Private Proposal

June 24th - the CEO, Moshe Mizrahy updated his 13D & announced that M.N. Business Strategy (the buyer group) delivered a letter to the board prosing to take the company private for $16.20 a share.7 The buyer group is comprised of Moshe Mizrahy, the CEO & co-founder, Jeffrey Royer, who owns Medimor Ltd - InMode’s largest supplier ! & Bedo Eghiayan, & Michael Avedissian, who together own Wigmore Medical; InMode’s largest distributor ! Also, Meir Shamir, a prominent businessman & likely financial backer. Interestingly, Kreindel the CTO is not mentioned in the filing. What strikes me immediately is that the group is not your typical PE buyer but they likely know the business intimately.

The proposal is almost trying to make it sound like its already a done-deal. Note the language used - “binding proposal”. I very much doubt this is a typo, though its possible as there are a few. It just reads to me like there’s nothing left for the board to do bar approve it. Some excerpts below.8

M.N. Business Strategy, Ltd. hereby submits this binding proposal to acquire all of the issued and outstanding ordinary shares of InMode Ltd. that are not already owned, directly or indirectly, by the Buyer and its affiliates.

We confirm that we have completed all due diligence we deem necessary

We are prepared to proceed on an expedited basis and to coordinate with the Company to prepared and execute definitive documentation for the Transaction promptly following the acceptance of this Proposal.

We confirm that all internal approvals required for submission of this Proposal and to proceed to signing and closing have been obtained.

We look forward to hearing from you and completing the Transaction in a timely manner.

This Proposal shall remain open for acceptance until July 15, 2026, after which time it shall automatically expire, unless extended in writing by the Buyer.

Purchase Price & Valuation

The mental gymnastics needed to get anywhere near $16.20 is truly extraordinary.

First of all they use an expected EBITA figure of $65m !! Given the company guided for income from operations to be $75m at the midpoint - this seems like the group chipped off $10m just for kicks ! EBITA should be above this, not below gents.

Next, they’ve applied a 2.6x multiple because some of their competitors have filed for bankruptcy - which is hardly relevant & so settled on one company. They’ve ignored InMode’s market leading margins, ignored transaction multiples / precedent transactions & ignore AbbVie. Look, AbbVie is probably the wrong comp here too. It’s behemoth - but it is mentioned in the 20-F competition section & the proposal did not want to mention AbbVie as this was not convenient.

The buyout group also points to analyst targets as additional foundation of the bid. Unfortunately analysts price targets don’t account for control premiums. Sigh….

Finally, they’ve taken a haircut to the cash ! They’re telling us that they'd pay 25% div withholding - which of course, they don’t have to do. This nonsense is supposed to shrink the equity value further & reduce the amount they would have to pay. They’re also saying net cash was $489m - not $537.2 as of Q1. That’s another $48m poof ! The very cash that will be used to buy the company !!

Doma Perpetual Capital - ~3m shares / 4.6%

June 26th, two days later Doma Perpetual came out publicly against the deal & raised serious concerns about the obvious conflicts & governance. Doma argued that management are responsible for the poor share price performance while now benefitting from it. They called the $16.20 proposal conflicted & said they would vote against it. 9

Doma had already publicly voiced their concerns back in 2025 after getting nowhere with management. They highlighted the CEO’s negative public comments & partly attributed the declining stock price to them. They also called for the removal of the CEO.

Steel Partners - ~1.7m shares / 3%

June 30th. After the CEO’s take private proposal Steel Partners, in a press release slammed the CEO & Board. They highlighted the CEO’s public comments expressing a pessimistic view of the company’s performance - that it was designed to condition the market for his group’s low-ball bid. The letter points to the bleak picture that the CEO painted of the company, all the while buying the stock behind the scenes while likely having material non-public information. Allowing the CEO to buy the company & even entertaining an offer below rejected bids would be a travesty for shareholder & they called upon the board to run a “real” process, free from his influence. They also pointed out that the board was rife with conflicts & allowing these so called ‘independent’ directors to be allowed part of the strategic committee was problematic.10

If Mr. Mizrahy wanted to own InMode, he could have competed in the open process like any other bidder. Instead, he watched where bids landed, let them die, bought stock for himself, enlisted the Company’s own manufacturer and distributor as partners, and now relies on a Board he plainly considers friendly, and which appears to be under his control, to wave it through. That he could expect such a reception is itself an indictment of this Board.

Steel Partners Offers $16.75 !

I was wrapping this post up & was pretty close to hitting send when the Steel Partners $16.75 bid came across the desk. They’ve bumped the CEO’s bid by $0.55 & offered a rollover option. Most importantly it calls out the board to do the right thing. 11

Steels paints a pretty damning picture of Mizrahy & hammers home the point of the CEO driving down earnings, making negative public comments about the company & then attempting to take advantage of the gap he has created.

The Summary

Ok, so I think the CEO has been purposely negative. I think a take private was always on the cards, but Steel forced the boards hand in Jan. The CEO thinks it’s his company & he managed to convince the board, the first time, that the offers, for whatever reason, weren’t good enough or couldn’t get across the finish line. Hence the “Keep InMode in Israel” comments.

But now Steel Partners & Doma have shone enough light on the situation that it will be very hard for the board not to look beholden to the CEO & not to approve the best proposal. Most importantly, this time, Steel bid for the whole company. That said, I find it hard to think that the CEO will let Steel Partners have this. Also, I don’t really think Steel Partners want it - as much as they need to force management to pay up. A management bump to $17 might even get it done - but that’s 10% more from here & a free look at a bidding war should things escalate. There’s also the possibility of a Korean conglomerate coming in over the top - as we know Centroid, a South Korean private equity firm were in the mix last time.

On Friday, in a 6-k InMode confirmed they received the acquisition proposal from Steel Partners & quietly noted that the expiration date of the CEOs proposal was extended until Sept 15th. All to play for here ! 12

Other Interesting Things…

Buybacks

Historically the company has bought back quite a bit of stock. From 2022 through 2025 they bought back 27.3m shares for $508m. However in early 2025 the CEO appeared to be frustrated with the stock price enough to stop buying back stock.

This stance changed in 2026 when they bought back ~$34m in the first quarter alone & $52.7m YTD through March 6th…… right around the same time the CEO was in the market.

Potential Violations of Securities Law / MNPI

Both Activists alluded to pretty serious governance concerns & more importantly potential insider trading alleging the CEO managed expectations down ahead of his own bid & that the ~800k share purchase comes awfully close to trading on material non-public information. The CEO may even have to get this done just to get out of the spotlight & the reach of the SEC.

Steel also pointed out something interesting & potentially damning for the board here, that the CEO offer was made on June 15th - three days before the AGM per the Proxy - yet there was no mention of the proposal in the AGM docs. This is definitely the sort of thing that ISS/ Glass Lewis will focus on when advising proxies.

Mr. Mizrahy drives the earnings down, inserts himself into what should be an independent strategic review and then comes back and reaches for the lowest number possible in order to steal the Company from its shareholders – the rightful owners. That is a clear breach of fiduciary duty and is one more reason he is no longer the right person to lead InMode.

Israeli Corporate Actions / Tax Considerations

Israeli withholding tax procedures can complicate how & when you receive the proceeds - so you may receive net & have to file a bunch of forms to get your wht back. Just something to note.

Razorblade Model

I find it hard to think of reasons why they haven’t pivoted to a razorblade model - where the initial machine purchase would be less & the recurring revenue would be driven by some sort of applicator sales. Perhaps its because their capex is low enough not to have to. But I don’t have a good answer. Perhaps that’s in the future & the CEO wants to own it outright first.

CTO

Michael Kreindel, the firms co-founder & CTO filed a 13D. He had never previously filed a 13D. He owns 3,114,762 shares / 5.11 % of the company. I would have to assume that he is in the buyout group - but he is not mentioned. Was he left out, so as to be able to vote (for management) as part of the minority ?

Brand Recognition / Celebrity

InMode has attracted some big celebrities in recent years with the likes of Kim Kardashian & Eva Longoria endorsing the products. Should any of their newer products gain organic celebrity endorsement, sales could quickly climb.

The Disclaimer(s)

Disclaimer #1: You should know by now, I am Jon Snow, I know nothing. I could be & probably am, missing a bunch of reasons why this doesn’t work.

Disclaimer #2: As always, please, if in any doubt, please refer to disclaimer #1, I am Jon Snow. I know absolutely less than nothing. Don’t listen to me. In fact, put all your money into an index fund & laugh at the rest of us. I make mistakes, lots of them, in fact. Please feel free to point out if, or how many, I may have made above.

Disclaimer #3 : This commentary is for informational & personal opinion purposes only. IT IS NOT FINANCIAL ADVICE ! (let’s face it, it’s basically comedy), and I am not your fiduciary. You should do your own research and consult a qualified financial advisor before making any investment decisions. DYODD !! & DO NOT TAKE INVESTMENT ADVISE FROM PEOPLE ON THE INTERNETS THAT FOUND INVESTMENT RELIGION DURING COVID … or me for that matter !! I may buy or sell at any time…. most likely the day before a Korean buyer pays an uneconomical price of $19. You do you.

Sumant Sinha, the Founder, Chairman & CEO of ReNew wants to take the company private. He’s already tried once, this is his second bite at the cherry. Now he’s come back to the table with a better offer… Wait a minute, no he hasn’t !!

In Dec 24, Sumant Sinha, the Founder, Chairman & CEO of ReNew proposed to take the company private. Dubbed ‘Project Rainbow’, he formed a consortium with large holders of ~70% of the stock to buy out the remaining investors.

The consortium increased their offer from the initial $7.07 to $8.15 when the stock peaked. At the time, some doubted the certainty of closing. The spread looked juicy. However at the 11th hour Masdar withdrew from the consortium & the deal collapsed, sending the shares plummeting.1 Arbs rushed for the exit & were badly burnt. This scar tissue is likely the reason for any spread, over & above what we would expect from a CEO & controlled shareholder base take-private bid. If anything, you could expect this to be trading above the bid as the markets recognized the chance of a bump. Add to that the fact that large shareholders publicly backed the previous $8.15 bid. Since then, the company has put up record numbers & continued to de-lever. The business is inflecting, debt is coming down, the rating agencies will upgrade the debt resulting in lower interest expense & improved cash flow. The owners do not want to share the economics with us mere peasants. However this time, investors are understandably wary. Fool me once…

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The Pitch

Sounds like an interesting business to own for the future, right? But hey, what do I know ? Don’t listen to me. How about the guy trying to buy the business? On the most recent earnings call, the CEO lays out the investment case for the business. At the same time he’s behind the consortium trying to buy it before it re-rates.2

It’s a great story. I’d encourage you to read the whole thing. It’s got some bangers !3

Fiscal 2026 has been a landmark year for ReNew, marked by strong execution record profitability, reduce leverage and continued progress in strengthening our platform for long-term growth.

Given that India does not have too much oil and gas reserves, and with growing power demand renewable energy becomes even more important than before. Renewables seeing the highest ever installations at 51 gigawatts in fiscal 2026 and accounting for 90% of new capacity.

Solar remains the dominant growth driver and increasing power demand, particularly during non-solar hours, is driving accelerated adoption of battery energy storage systems. Policy support, and matching incentives and a continued push for energy security are further strengthening the long-term growth outlook for the sector.

I also wanted to highlight that it has been a wonderful year for us. Not only have our financial results improved in spite of the global macroeconomic volatility, our project execution stood out as well. This shows that the entrepreneurial speed with which I founded renew remains as strong as ever after 15 years.

Of the 20.2 gigawatts of our committed pipeline, our C&I business comprises 2.7 gigawatts being 1 of the largest in India and having grown 7x in the last 5 years. In our C&I business, almost 50% capacity is tied up with large technology companies and hyperscalers. We see our C&I business and specifically technology companies and data centers to be big drivers of power demand growth.

We continue to see strong demand for renewable energy in India with peak demand increasing and expected to grow further in FY ‘27.

Importantly, demand growth during non-solar hours is increasing which is driving the need for hybrid solutions and battery storage.

Here’s the part that tells us what we need to know, at the very end of the Q&A..

And there’s 1 last question from [indiscernible]. This question is and I’m paraphrasing is new Indian peers trade at a higher multiple than renew? Is the management considering an India listing for the business or an ESP subsidiary businesses again for you, Kailash.

Kailash Vaswani - Yes. So it’s a valid observation. I think we have noticed that, too. In that spirit is where I think some of the investors were looking to take the company private at some point because the multiples in the U.S. market are not really reflecting the value of the company compared to the peers. Given that the transaction didn’t go through, we continue to remain listed in the U.S. At this point in time, we are not considering any listing in India.

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The Company

ReNew Energy Global Plc (RNW) develops, builds, owns & operates utility-scale wind solar, hydro, firm power projects & corporate energy projects. Founded in 2011 by Sumant Sinha & incorporated the UK, ReNew went public via SPAC in 2021. Originally funded by $250m from Goldman Sachs4 & his former employer Sulzon, to buy one 25 megawatts (MW) power producing asset, ReNew has since grown to 150 projects with a committed portfolio of 20.2 gigawatts (GW).

“Our total committed portfolio now stands at 20.2 gigawatts, including 1.7 gigawatts of battery storage with a pipeline, which includes projects where we have won auctions, but not signed PPAs yet. exceeding a total of 26 gigawatts, which is up 2.5x -- more than 2.5x -- 2.6x in fact, since listing in August 2021.” CEO, Q4 Earnings Call.

To give you a sense of scale here, that’s around ~8% of Indian entire peak demand ! 5

It also now sports an impressive roster of heavy hitter shareholders. Patient capital, with access to billions of dollars looking for a home & a mandate to find long term investments in Infrastructure & Renewable energy, amongst other sectors. Among them, the Canadian Pension Plan Investment Board - (CPP), the Abu Dhabi Future Energy Company (Masdar), JERA Power (Japan’s largest power producer) & Platinum Hawk (a wholly owned subsidiary of the Abu Dhabi Investment Authority, (ADIA).

ReNew’s operating business - based in India, is one of the largest independent power producers in the country. India’s power demand is growing rapidly & the country is heavily reliant on energy imports. As a result, the Indian government have made energy security a top priority for the country. The country currently has ~220 GW of total renewable installed generating capacity & has announced a target of 500 GW by 2030.6 Renew aims to capitalize on this energy transition. It’s contracts are covered under long-term (~25 years) Power Purchase Agreements (PPAs) with purchasers such as state electricity utilities & government agencies (59% of net income), with the remaining coming from private industrial & commercial consumers in India, the C&I business. (41%) (Amazon, Microsoft & Google collectively account for ~50% of contracted offtake in the C&I business).

Business Segments

ReNew technically has five reportable segments: Wind, Solar & Hydro power (The Core) as well as Transmission Line & Manufacturing.

The core sells electricity under long-term power purchase agreements (PPAs) therefore revenue is generally relatively predictable. Within the core, Wind has historically been their largest segment, however ReNew is transitioning away from wind & will focus going forward on solar & battery energy storage. This is where they are seeing the majority of their future growth.

Commercial & Industrial (C&I) - the C&I platform (~50% tied to hyperscalers & large tech names, which is the bit everyone wants exposure to right now). This is backed by high quality cash flows from the likes of Microsoft, Amazon & Google. In fact, they just sold 11.3% of the business (ReNew Green) for $95m to a consortium led by LeapFrog Investments, implying an $840m valuation for the business. 7 Dig into these guys & you can see the blue chip names betting on ReNew’s C&I business. 8

Manufacturing. ReNew supplies >50% of their solar panels & equipment. Its become one of the most interesting parts of the business given it was initially likely just a hedge / support function, but now is a key revenue driver on its own - contributing ~14% of 2025 revenue. In May 2025, British International Investment (BII) made a $100 million investment for ~10% the solar manufacturing segment (ReNew Photovoltaics). That implied $1bn valuation was before the segments stellar year !9

Fiscal 2026 (March) was ReNew’s strongest ever. The fundamentals of the business are clearly inflecting. Revenue grew 38%, Adj. EBITDA grew 24% & net profit jumped 126% !

Net Debt was $7.3bn at a blended cost of 8.79%. So every 100bp of interest rate improvement would drive an $70m reduction in interest expense. The debt on the balance sheet does looks daunting at first, but the majority of this is non-recourse project level debt. Leverage has declined dramatically too. Net Debt to EBITDA has come in 1.1x in 2025 to ~7x. They recently re-fied 2026 7.5% bonds with $600 ‘Green Bonds’ at 6.5%. Gotta love ESG ! Management is targeting 5.5x before 2030. At that point they’ll get an investment grade credit rating & with it reduced interest expense which will ramp cash flow. But of course, why share this with minority holders?!10

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Discount to Peers

The trouble with ReNew & what makes it the perfect candidate for a take-private, is that it has no natural home or logical investor base. Structurally, its complex. It trades on the NASDAQ, but it’s a UK holdco. with an Indian Op co. For US investors, it reports in INR under IFRS, so screens & models poorly. Add to that - jurisdiction/ EM risk which carries its own baggage. Indian investors have more visibility into the likes of Tata Power or Adani Green & US investors are more likely to know Brookfield Renewable.

An interesting tidbit from the same call. They are telling us that the business is not being valued correctly. They are going to take advantage of that discrepancy.

Take Private - Attempt #1

The first bid came Dec 10, 2024 from a consortium including the CEO/Founder, the Canadian Pension Plan Investment Board - (CPP), the Abu Dhabi Future Energy Company (Masdar), & Platinum Hawk (subsidiary of the Abu Dhabi Investment Authority, (ADIA). The initial proposal of $7.07 was walked up, culminating on Oct 14, 2025 with a best & final offer of $8.15. ReNew’s board & the special committee recommended the transaction & importantly JERA Power, the largest minority holder owning approximately 11.6% of the company & more importantly, 25.7% of the shares not already owned by the consortium, noted that they were ‘minded to vote in favor’ of the deal. Two months later, the deal fell apart when Masdar withdrew from the consortium. The stock dropped nearly 30% as arbs got run over.

Was Masdar unwilling to support the previous valuation? Perhaps the last bump in 25 was one too many ? I can’t find any info that supports any of the theories, but what seems to be clear is that they were integral enough to the financing, that: when removed, caused the whole thing to come down.

Take Private - Attempt 2 - Transitioning to a new bid

Fast Forward to May, 28 this year & Sinha is back. But the dynamics have changed. The bid is $6.75, lower than the initial bid of $7.07 (that got walked up to $8.15). Additionally, there's no sign of Masdar or ADIA in the consortium, only the CPP. Together they own ~54% of the company.

The proposal specifically mentions the option for existing investors to roll over their listed equity into the private entity. This looks to be squarely aimed at ADIA & possibly even JERA. Will they rollover into the consortium? JERA didn’t the first time & from what I can gather, they were only agreeable to the bid at $8.15.

In fact, in the proposal they explicitly call out JERA & ADIA. The consortium needs their support to get this over the line. If either or both want cash, it’s good for minority holders.

The Consortium expects to receive hard irrevocable undertakings from JERA and ADIA as a condition to signing the Transaction Agreement.

Under a UK scheme of arrangement, the consortium will need 75% of the minority to vote for the transaction to get it done so if ADIA joins the consortium, JERA will be the deciding shareholder again.

The company’s response was mostly boilerplate- but did note that they would ‘explore and evaluate all strategic capitalization and financing opportunities’.

The Special Committee’s mandate is to rigorously explore and evaluate all strategic capitalization and financing opportunities available to the Company, including the proposal received from the Consortium, and to act in the best interests of all investors. To assist in these efforts, the Special Committee has retained an independent financial advisor, Rothschild & Co and independent legal counsel, Linklaters LLP.

So far, there’s been no comments from external investors outside of the consortium.

The Summary

I like RNW here - the current discount to the bid is mostly made of scar tissue psychology more than deal break risk, I think.

ADIA (previously in the consortium) & JERA (‘minded to approve’ the prior transaction) control enough of the minority vote to block a low bid outright, & neither has signaled support for a price below the prior deal.

There’s a couple of ways at looking at this. Either or both can rollover & join the new consortium which would reduce the cash outlay & may allow the bid to be raised. Alternatively, if they both want to remain shareholders & both rollover into the private entity, they have an incentive to keep the bid low.

The business has materially improved since the original $8.15 offer. FY26 was the best on record. Leverage dropped, the company got & will continue to get better financing & as a result drive cash generation. All this makes it really hard for any special committee or valuation advisor to accept a lowball bid.

I think a lot will depend on ADIA & JERA. If they roll, this may get done at $6.75. If either want cash, I think we see ~$8. I don’t think we’re paying much for that option.

Not to tempt fate here, but I like the business. Ok, it would suck if it went back to ~$5, of course, but I don’t think it would stay there for more than a few quarters before the direction of results buoyed it.

Other / Misc.

Political Capital

ReNews business model requires heavy engagement with both local & central government regulators, policy makers & administrative units. Sinha has deep political ties from his fathers time, both as former finance minister & former leader of the Bharatiya Janata Party (BJP) - the primary political party in India. There’s no doubt that this deep political capital helped Sinha navigate the bureaucracy to get ReNew where it is today.

Reverse Auctions / Disciplined Bidder

Projects in India are organized & ultimately won through competitive bidding via reverse auctions. The buyer, usually a state utility, will RFP their needs & developers will then submit bids - the lowest of which will win. As a result, tariffs nosedived & eroded margins. ReNew notably bid less aggressively in many large tenders. Throughout the earnings calls you’ll hear management speak to discipline, clearing their hurdle rate & cost of equity & not chasing volume at any price. 11

We will continue to be disciplined and highly selective in our approach towards bidding for future growth and we look to secure projects with a lower risk and higher return profile.

disciplined in our approach towards capital deployment.

We have a very disciplined approach when it comes to bidding as we have demonstrated over the last many years. And so unless we make our required rate of return, which is our hurdle rate, we are happy to not win any capacity. But I would say that we have also a very good pipeline that we are sitting on.

The Disclaimer(s)

Disclaimer #1: You should know by now, I am Jon Snow, I know nothing. I could be & probably am, missing a bunch of reasons why this doesn’t work.

Disclaimer #2: As always, please, if in any doubt, please refer to disclaimer #1, I am Jon Snow. I know absolutely less than nothing. Don’t listen to me. In fact, put all your money into an index fund & laugh at the rest of us. I make mistakes, lots of them, in fact. Please feel free to point out if, or how many, I may have made above.

Disclaimer #3 : This commentary is for informational & personal opinion purposes only. IT IS NOT FINANCIAL ADVICE ! (let’s face it, it’s basically comedy), and I am not your fiduciary. You should do your own research and consult a qualified financial advisor before making any investment decisions. DYODD !! & DO NOT TAKE INVESTMENT ADVISE FROM PEOPLE ON THE INTERNETS THAT FOUND INVESTMENT RELIGION DURING COVID … or me for that matter !! I may buy or sell at any time…. most likely the day before ADIA announce that they’ll rollover or join the consortium & the offer gets bumped to $8.50. You do you.

Ok, so I was slow in getting this out & yesterday, the company came out with an 8-k announcing a 50% RIF to preserve cash, amongst other things. For transparency, I’m gonna keep my write up as is. Where I’ve added new info based off yesterdays filing, I’ve made it clear. It’s currently trading at $1.77, but was above that a few days ago, so I don’t think it’s materially different from where it was when I started writing it up.

TLDR

June 13th. Ok, so I wasn’t planning on posting this one, as I’m actually working on something else & it had run up a little. But its come back in some, as these things tend to do. It’s not as clean as FULC, but enGene is trading at a ~56% discount to it’s net cash. Ok, it’s nowhere near as clean as Fulcrum. They haven’t waived the white flag, there’s debt & leases to contend with & they’re even enrolling more patients. That said, there’s enough to get me interested. Lets dig in…

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The Company

enGene Therapeutics Inc. ($ENGN) is a a clinical-stage biotechnology company developing ‘detalimogene’ as a monotherapy to treat non-muscle invasive bladder cancer (“NMIBC”).1 Part of enGene’s pitch is (was, 😉) that detalimogene was well suited to administration in community settings (hospitals, urology departments, private practices etc.) The drug would be easier to store, easier to administer, have less side effects & cost less to manufacture than competitor drugs.

On May 7th the company announced interim results from the pivotal cohort of its ongoing, Phase 2 ‘LEGEND’ trial.2 The data was not what the market was looking for & the stock got pummeled. Adding insult to injury, a bunch of ratings downgrades followed. The stock finished the day down about 80% ! Not great, Bob….

They held a call to discuss the results. Here’s my very basic understanding of the prelim data. (Remember, I’m Jon Snow!)

By month twelve, only 13% of patients were still cancer free. That is sub optimal when compared to other drugs on the market from J&J & Ferring (Adstiladrin was specifically referenced in the deck). This was also a much reduced number when compared to their initial trials. Additionally, the latest enrolled 32 person cohort showed lower CR rate, or ‘complete response’ rate - meaning a lower instance of the cancer being no longer detectable. Worryingly, they tell us that they don’t know why. Again, not great. 3

So what does this mean. Essentially, they were going for the most convenient drug over being the best in class. But the current results show they’re too far away. As a result, analysts cut their price target based on a potential peak sales figure from $1bn to $350m. (based on a reduced market share & a reduced likelihood of coming to market.)4 The data so far is preliminary, the data set is not ‘mature’ as they say. They’re going to try a bladder rinse. They’re going to enroll potentially up to 80 patients. After they’ve had more time to properly analyze the results, they were aiming to file a BLA (Biologics License Application) before year end. This is the full submission to the FDA for drug approval. Now their language has changed from ‘planned’ filing to ‘potential’ filing, in H2 26.5

To me, that’s all free optionality (at the cost of some cash burn of course) but I’m taking the view that the drug is a bust. All the questions on the call were drug/ trial related. No one asked about go forward costs, cash runway or capital allocation. Everyone is still focused on the science. For now, I’m focused on the balance sheet.

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Balance Sheet

Here’s my quick & dirty & a couple of assumptions. They’ve got a bunch of cash, mainly from a $200m PIPE ($10), a $60m private placement & $125m public offering ($8.50) in 2024 & 2025. Not a great return so far. They’ve also drawn down $25m of a possible $125m under their Term Loan.

Shares O/S. I’m using the 66,989,466 o/s as of Feb 26 & 2,735,295 prefunded ($0.01 strike) warrants. There’s also 8.5m warrants outstanding ($11.50 exercise) from the SPAC combination, ~12m stock options exercisable (~$7 strike) & ~62k ($7.21 exercise price) warrants as kickers to the Term Loan. I’m including none of these for now.

The company also has ~5.9m shares reserved for future issuance under the 2023/25 employee stock purchase plans. You would assume all of these could be exercised - given the 15% discount offered.

I’m assuming two quarters of cash burn at the same run rate as Q1. Unsure if this is conservative, but they’re making $2.7m interest income against $750k in interest expense. Over a couple of quarters this should probably offset any remaining SBC above.

I’m probably early here. I’ve got a bit of time to see if they waive the white flag & wrap things up, or if they decide to throw good money after bad. But there’s also been a few other signals/ filings that caught my eye. Current discount to net cash is ~56% but after a couple of quarters will be closer to the ~40% above. That gives management plenty of time to figure it out or wrap it up. But will they ?

June 15th - Strategic restructuring announced “to preserve shareholder capital”. Approx. $13m for severance & retention bonuses including..

board .. approved performance-based cash retention bonus awards for certain executive employees and the non-executive employees of the Company. …, aggregate cash retention bonus awards of approximately $1.7 million will be paid upon the achievement of two milestones: (i) the completion of the pre-BLA meeting with the FDA relating to detalimogene on or prior to December 31, 2026 and (ii) confirmation from the FDA that the Company’s filing of the BLA with the FDA with respect to detalimogene has been completed and accepted by the FDA, provided that such confirmation is received by the Company from the FDA no later than September 30, 2027.

June 15th - 50% RIF including executives which should dramatically reduce the burn going forward. Includes CMO, CFO, CLO & COO.

Q2 was slightly elevated at $32m. Trials narrowed to main cohort (12 month) & bladder rinse (LEGEND Cohorts 2a, 2b and 3 stopped). However they are still planning for BLA in H2.

Cash & cash equivalents now sit at $285m. Less $55.3m liabilities still gets us $3.39 in net cash. Adding in two more quarters of cash burn still leaves with a ~40% discount to cash. Expenses will look lumpier than Q1, but should come down significantly.

Insiders

The c-suite don’t own a whole bunch of stock. They have large amounts of options but the strikes are way out of the money. In a CiC the CEO gets 18 months, 1.5x bonus, full vesting & healthcare with the remaining NEO’s getting 12 months, 1x etc. Likely they’ll get a nice golden handshake to wrap this up. The board are made up of highlight experienced ex-CEOs, venture capitalists, investment bankers & tenured directors. They have multiple exits between them. This is a pretty strong tea leaves signal. There are a couple additional interesting things that stand out to me.

The CEO is a seasoned operator in the space. He sold Albireo Pharma to Ipsen in March 2023. Prior to that, he spent nearly 30 years at Bristol-Myers Squibb. Additionally, directors Hastings & Joustra have, by my count, eight company sales between them with Grossman, Heffernan & Glickman all presiding over company sales at one time or another. Most of these were a strategic acquisition but of particular interest is Essa Pharma that would fit more into the broken biotech basket strategy. It was taken out by Xoma after announcing strategic alternatives - that’s a similar ‘failed drug’ / ‘return cash to shareholders’ theme.

June 15th - An interesting detail here..

Constantine Chinoporos, appointed as interim Chief Business Officer. He previously served as Chief Business Officer at Albireo Pharmaceuticals, Inc. from 2021 until its acquisition by Ipsen S.A. in 2023. This was the same company that current CEO Ron Cooper took public & sold to Ipsen in March 2023. This could signal he’s getting the right people together to sell the company.

External

The register is full of what I would call biotech / life sciences specialist funds. I would imagine, they’ll want this to work but management will be on a tight leash now. Interestingly, Cormorant was fully out as of Q1, but as the filing was only released on May 15th (normal quarterly timing), it looked to many, as if they dumped the whole position within a week of the trial results (though the actual exit predated the results by weeks — the filing timing just made it look that way). Probably didn’t help.

BML Capital Management (Braden M. Leonard.)

Most importantly for me though is the arrival of BML. They filed a 13G on May 13th reporting an ownership of 7.8% of the company. They kept buying & updated the filing the next day reporting an ownership of 6,669,908 shares / 9.95% of the company & stopping just under the 10% threshold which would trigger additional regulatory obligations for the fund.

BML has appeared in many of my broken biotech’s/ special sits over the last few years. Mostly the same playbook. Buys below cash, and aggressively pushes for a realization event such as a return of capital, special div, liquidation or sale. A great example of it is BML’s letter to Aadi Biosciences. 6 - Excerpt below.

Unsurprisingly, current insider Avoro Capital Advisors signed up to participate in the PIPE and agreed to purchase 8.333 million pre-funded warrants as disclosed in a Schedule 13D filed on December 23, 2024. BML likes buying shares at less than one half of cash as well. Who wouldn’t?

ACHL, ACRS, ANTX, AVIR, ATHA, TECX, ELEV, ELYM, EPIX, IKNA , TIL , KZR, LVTX, PMVP, QNCX, RAIN, RPHM, TLIS, THRD

Most importantly, BML stepping in adds credence to the ‘broken biotech’ angle. The math is attractive enough that we have a decent margin of safety & the free optionality of better trial results.

CMO Employee Agreement Amendment

Most interestingly to me was just two days before the trial results, (And not even nine months after the original) the company amended Chief Medical Officers employee agreement allowing him to resign “on or after June 1, 2026… for any reason or for no reason upon five business days’ prior written notice and shall remain entitled to receive his post-termination severance benefits”… & “waives any obligation of Dr. Sweiti to repay the value of his sign-on bonus”. This may hint that they know they don’t have many shots on goal left. If they have no viable drugs, they don’t need a CMO.

On June 13, 2026, Dr. Hussein Sweiti notified the Company of his resignation from his position as Chief Medical Officer…. stepped down from his position to pursue a new professional opportunity.

This sounds more like a pre negotiated exit than the CMO being hired away.

ATM

They have an ATM o/s with Jeffries & Leerink for $100m. I don’t think they’ll tap this, but it’s worth mentioning.

The Summary

There’s a couple of ways we can win here. The company realizes the drug can’t compete & waives the white flag. Announces they are discontinuing the trial & announces strategic alternatives to maximize shareholder value.

Or… the bladder rinse or full cohort performs better than expected. The science works, the stock reverts back to pre announcement levels. The BLA filing is submitted & the stock re-rates.

June 15th. Looks like we got a hybrid solution today. Not exactly what I was hoping for (maximizing shareholder value or something to that affect), but there is some shareholder friendly signaling here. The market has grown increasingly impatient of late. Everyone wants a deal TODAY! It would not surprise me in the least if this sells down over the next couple of sessions & we get another entry. I don’t think there’s many natural buyers here on the biotech side & if anything it’s probably more likely we’ll see them exit.

The Disclaimer(s)

Disclaimer #1: You should know by now, I am Jon Snow, I know nothing. I could be & probably am, missing a bunch of reasons why this doesn’t work.

Disclaimer #2: As always, please, if in any doubt, please refer to disclaimer #1, I am Jon Snow. I know absolutely less than nothing ESPECIALLY WHEN IT COMES TO BIOTECH. Don’t listen to me. In fact, put all your money into an index fund & laugh at the rest of us. I make mistakes, lots of them, in fact. Please feel free to point out if, or how many, I may have made above.

Disclaimer #3 : This commentary is for informational & personal opinion purposes only. IT IS NOT FINANCIAL ADVICE ! (let’s face it, it’s basically comedy), and I am not your fiduciary. You should do your own research and consult a qualified financial advisor before making any investment decisions. DYODD !! & DO NOT TAKE INVESTMENT ADVISE FROM PEOPLE ON THE INTERNETS THAT FOUND INVESTMENT RELIGION DURING COVID … or me for that matter !! I may buy or sell at any time…. most likely the day before Tang lobs in an offer of $3.60. You do you.

If you opened this, read “Therapeutics” & thought, ‘Whoa this guy is really stepping outside of his box’.. I don’t blame you, but stay with me. I won’t pretend to understand the science here, but to the generalist….. or rather opportunist, you don’t need to. If you’re familiar, please feel free to skip to the next part. If not - welcome to Broken Bio-techs.

Here’s an example of what happens. A company has a promising drug. They sell stock to cover, perhaps up to phase three trials. The drug fails. The stock crashes. They end up with a bunch of cash & no viable drugs or path forward. They have two options here.

Go spend the money on a new science project / in-license a new drug/pipeline. Continue to collect their salaries & maybe they get rich if the next drug hits.

Or..

Do the right thing - Return Capital to Shareholders. This usually involves, announcing strategic alternatives, a RIF (reduction in force) a return of capital, a dividend, a sale of the business or an outright liquidation of the company.

There’s a few usual suspects here that load up on shares when the stock crashes after the failure announcement. Cue Kevin Tang via his Concentra Biosciences or XOMA. They will usually scoop up ~9.9% & engage with management, push them to sell or liquidate or offer to buy the company around net cash & a CVR for the remaining IP.

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The Company

This part won’t take long. Fulcrum’s lead drug, ‘pociredir’, failed in sickle cell disease. The stock crashed. On June 1 they announced the discontinuation of the program & the initiation of a comprehensive review of strategic alternatives to maximize stockholder value. Three days later, the board approved an 85% reduction in force — 57 employees down to 9. They engaged Leerink Partners as financial advisor to run a formal strategic review.1

That’s it. That’s the company. They’ve thrown in the towel. Fulcrum Therapeutics, Inc. is worth more dead than alive.

The remaining nine employees exist to run the process & keep the lights on. There is no pipeline. There is no plan B science project. There is a cash pile & a banker.

The Positives

Before putting capital to work in these situations, I look for some signals. Fulcrum checks a lot of these boxes. When so many of these boxes are checked, the situation is about as clean as this strategy gets.

✅Drug failed — stock crashed

✅ Net Current Assets> Market Cap

✅Strategic alternatives announced

✅85% workforce reduction — skeleton crew only

✅Banker hired — Leerink Partners engaged

✅Positive Language in 8-K: “maximize stockholder value”

✅Clean balance sheet — no Leases to break.

✅Nearly all options deeply out of the money — no meaningful dilution risk2

❎Known Activists on the Register. Not yet, but I think we’ll see a 13D shortly.

✅CEO Founder / Scientist / Owner. Generally not what you want. Rather a career executive, ideally having sold previous companies. In FULC, Sapir has the receipts; CEO at ReViral (acquired by Pfizer, 2022) & Dova (acquired by Sobi, 2018). Look like he knows how to sell a company.

✅And of course…. Incentives

The Cash Box

Here’s how I’m thinking about the balance sheet.

A few notes on my assumptions: I value the IP at zero. Remember, I’m Jon Snow. Anything recovered from the pipeline is a bonus. If this gets taken out for cash + a CVR' then we might get a few cents down the road.

Shares Outstanding - 66,633,321, 9,611,193 common stock issuable upon the exercise of pre-funded warrants & 90,093 RSU’s.

Liabilities - deducted in full as stated on the Q1 balance sheet.

CiC Severance as disclosed in the proxy. CEO Alex Sapir ($2.4M), CFO Alan Musso ($783K) & CLO Curtis Oltmans ($775K). Not yet on the balance sheet but a near-certain cost of any transaction. The recent 8-K cited ~$4.2m in restructuring charges. I’ve got $5.1m is the conservative case.

Cash Burn - I assume (hope) operations wind down mid-year. I’ve halved a quarter’s run-rate & applied it to Q1 & Q2. I think this is fairly conservative given the RIF is already underway & they’re down to 9. This should also cover financial advisor fees ($2.5m).

Options - weighted average strike of $7.37. Most are well above any realistic liquidation price. I have an additional ~$1m expense baked in, as the $2.58 & $3.27 strikes that are in the money & should get exercised. I'm assuming for cash- no dilution.3

The Insiders

CEO Alex Sapir has a $4.6m check waiting for him… if a transaction closes. That’s a pretty powerful incentive to get a deal done. (27 months salary, 2.25x Bonus, I’ve thrown in $100k for healthcare & 201k shares of stock worth ~$780k & $1.4m if the options hit at $3.90). Adding in another $1.7m between the CFO & CLO gets us $6.5m for the NEO’s if they can sell this thing.

The Bankers

Leerink Partners likely only gets partially paid upfront & the majority contingent upon consummation of a successful deal. That aligns them pretty well with shareholders who want a clean, fast outcome. Leerink are a familiar name on EDGAR when it comes to biotech strategic reviews. They know this world & they’ll have Kevin Tang on speed dial.

The Activist

I think this is probably the most interesting incentive part in the ecosystem. Kevin Tang -via his Concentra Biosciences is probably the most well-known player in the space. The playbook is pretty simple but effective. They accumulate a stake & push for a wind down / sale either through their own vehicle or another strategic bidder.

Having an activist improves the odds for us, especially with Tang. They can get it done & fast. They’re experts at it by now. This reduces the timeline & so the cash burn.

The Risks

The bear case is not that the cash disappears. It’s that management doesn’t return it efficiently.

New Science Project - management, for whatever reason, decides the show must go on (& they need to keep getting paid) & redeploys capital into a new drug program. Unlikely here given the 85% RIF. But not impossible. Looking at you KROS !!!

Reverse Merger - they use the cash shell to acquire a private company. The market’s reaction to these is in my view unpredictable. Sometimes it works. More often we end up diluted into something we didn’t sign up for & know nothing about how to value. A few of mine went this route with mixed results. The good ones were probably luck.

Time. No timeline has been set for the strategic review (standard language), but every quarter of inaction costs us cash in burn.

Excessive Costs - A deal gets done but the fees paid to Xoma or whoever winds it up is excessive & reduces our NAV.

The Crypto (Or meme craze de-jour) Pivot - Ok, this one is pretty rare, but it happens. A company decides the best use of its cash pile is a Bitcoin or Litecoin treasury strategy or AI Pivot, or whatever. See: MEIP. It sounds absurd until well…

NOLs

As with most clinical-stage biotechs, due to R&D spending, the company has incurred significant operating losses since inception. As such, it has a bunch of NOLs. In some cases its worth digging in further to see what these could be worth to an acquirer. In this case, I’m giving them zero value. Any change of control transaction could also possibly trigger Section 382 & render them worthless.

Intellectual Property

They do also have a discovery program that they used to identify drug targets for rare diseases. This may be worth something to someone. As above, maybe we get a fews cents down the road.

The Summary

This has run back up a little since I started this, but depending on how quickly we either see a 13D filed or the market has a wobble it may come back in some.

FYI, these (obviously) don’t always work, so I tend to use a basket approach & hoover up a few at a time.

If you got this far - thanks for reading - I am absolutely rubbish at promoting this eh, blog, Substack.. whatever this is, so if you like it, please share. I’ve met some really cool & smart people while doing this, so I’d like to keep at it. If you enjoyed this, or even made some $’s please please consider becoming a free or paid subscriber.

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Here’s some familiar tickers if you want to have a dig. I also own a couple of other live ones (not disclosed) . ACRS, ALVR, AVRO, BLUE, CRGX, ELEV, EPIX, KNTE, KROS, KZR, LIAN, MEIP, RPHM, RPTX, SAGE, THRD, THRX. Most worked ok, some better than others, but it’s a interesting / +EV way of allocating capital.

There’s been a bunch of write up’s on these over the last few years - Clark Street Value / MDC is the goat here but more recently Andrew Walker & even some bigger funds have been getting involved - Sheep/Adar1 & Soleus. There was even talk of a fund launch by Alis Biosciences to target specifically these situations - buy them out below cash & either fund or liquidate the IP.4

The Disclaimer(s)

Disclaimer #1: You should know by now, I am Jon Snow, I know nothing. I could be & probably am, missing a bunch of reasons why this doesn’t work.

Disclaimer #2: As always, please, if in doubt, please refer to disclaimer #1, I am Jon Snow. I know absolutely less than nothing ESPECIALLY WHEN IT COMES TO BIOTECH. Don’t listen to me.

Put all your money into an index fund & laugh at the rest of us. I make mistakes, lots of them, in fact. Please feel free to point out if, or how many, I may have made above.

Disclaimer #3 : This commentary is for informational & personal opinion purposes only. IT IS NOT FINANCIAL ADVICE ! (let’s face it, it’s basically comedy), and I am not your fiduciary. You should do your own research and consult a qualified financial advisor before making any investment decisions. DYODD !! & DO NOT TAKE INVESTMENT ADVISE FROM PEOPLE ON THE INTERNETS THAT FOUND INVESTMENT RELIGION DURING COVID … or me for that matter !! I may buy or sell at any time…. most likely the day before Tang lobs in an offer of $4. You do you.

Oportun, a sub prime lender, is on the cusp of an inflection. Findell believed Oportun was undervalued and mismanaged. Now the company is returning to profitability with net income up $100m in 2025 vs 2024, & $200m vs 2023.. with profitability carrying through to Q1 26. 1 They've done all the hard work & now some familiar faces are starting to take notice. The current situation made me think of the ‘Jaguar in the Tree’ analogy by Marc Cohodes.

“To use an analogy, I’m not interested in climbing into a tree and wrestling the jaguar out of the tree. I’m interested in someone shooting the jaguar out of the tree, and then I will go cut the thing apart once it hits the ground.”2

Ok, so that ones’ about short selling, but in some ways, its saying - “let someone else do the heavy lifting for you, let them take the risk”. And in this case, Findell has done the hard work already. Findell wanted Oportun to do four main things:

1. Overhaul the board (by adding lending experience) - ✅

   Two additions to the board with backgrounds in consumer lending. Additionally, a legacy board member will not stand for re-election.

2. Replace the CEO - ✅

   Raul Vazquez stepped down April 3, 2026. Replaced by Doug Bland, a 30yr veteran in consumer credit.

3. Cut costs - ✅

   Significant cost reductions enacted. OpEx down ~32% since 2023 & 40% since 2022

4. Concentrate on the lending business - ✅

   Empire Building phase over. Focus on core business.

Oportun is no longer a broken fintech story; its a cleaner story now. The CEO has been replaced, the board overhauled. The business is inflecting. The 2026 story is about a consumer lender with activist-backed governance credibility, lower costs, earnings power & a path to better unit economics. All of this should attract renewed investor attention.

The Company

Oportun Financial (OPRT) (Delaware-incorporated) is a niche non bank lender /credit provider to those not well served by mainstream financial institutions. Usually due to lack of or limited credit history. Oportun markets itself as providing responsible & affordable credit to their ‘members’. (They refer to customers as members.) They aim to ‘meet their 2.8 million members where they are’ & as such, the primary channels for onboarding & serving customers is through their 126 physical retail locations, as well as their mobile app, website & telesales teams & direct mail.

Historically their main customer demographic is blue-collar workers, low to moderate income consumers w/ median gross income of approximately $50k, heavily represented by Hispanic & immigrant communities. As of Q4, 25 - their members had an average of 5.7 years at their current job, 6.4 years at their current residence & 91% had their loan proceeds dispersed to their U.S. bank accounts, rather than a check.

Oportun generates revenue primarily through interest income & fees on their loan portfolio. (93% of revenues) & also non-interest income which includes subscription revenue from users of its platform, servicing fees (Oportun retains servicing rights on sold loan portfolios, basically ordinary administration of the loan/ payments etc), gain on loan sales, debit card income on reloadable debit cards & interest on member’s accounts (7% of revenues).

Competition

Oportun competes with a mish-mash of other consumer finance lending companies, fin-tech & other non bank lenders serving the same consumer demographic. i.e. those who do not have access to mainstream credit. These include online lenders, point-of-sale lending, payday lenders, auto title lenders & pawn shops focused on underserved borrowers. Generally, these competitors provide much more expensive financing relative to borrowers’ ability to pay.

Products/ Services

Unsecured Personal Loans are standard, simple-to-understand & more affordable than payday lenders. An installment loan has fixed payments throughout the life of the loan. Interest rates are usually fixed & have a cap of 36%. Loans range in size from $300 to $10k over 12 to 54 months & the average loan size in 2025 was $3k. Currently offered in 2 states through Oportun & in 39 states through a partnership with Pathward.3

Secured Personal Loans, similar to the above, these are personal installment loans but secured by an automobile. These tend to come with larger loan sizes & range between $2.5k to $18.5k over 24 to 64 months. Average loan size in 2025 was $6.5k. Currently offered in 8 states. Losses here tend to run lower (~500-600bps) & can generate twice the revenue per loan due to higher average loan sizes.

Set & Save is designed to understand a customers cash flows & help them set aside an amount to save on a regular basis. Members link their bank account with the platform and Set & Save utilizes machine learning to analyze a member’s transaction activity and build forecasts of the member’s future cash flows to make small, frequent savings decisions according to the member’s financial goals in a personalized manner. 4 This serves two purposes for Oportun. Firstly, Oportun earns interest income on cash balances & secondly, Oportun gets valuable data on their end customers.

They also have ‘Lending as a Service’ (lead generation) partnerships with other companies. Essentially, this is another channel through which Oportun can originate the personal loans by offering lending services to new members. They currently partner with Dollar Express & Western Union. WU seems particularly interesting given WU’s huge base of cross-border remittance customers.

Spread Game

At it’s most basic, this is a spread business. Borrow at 6%, lend at 36%. Sounds great, right ? Not so fast… operating costs matter, credit quality matters, the macro environment matters, customer acquisition costs matter & obviously Oportun’s cost of funds matter. All of this eats into Oportun’s net interest margin. A business like this needs to be efficient, otherwise the spread narrows, quickly.

Credit Performance

Oportun has maintained a somewhat conservative / tight lending posture of late. Partly by refocusing on larger amounts of small loans & also by focusing on repeat borrowers - customers that they know & so feel more confident lending to. This is what they’re good at. They don’t need to chase prime borrowers, they don’t need a tech stack. Additionally, they have focused on Secured Personal Loans, as losses there have been lower & generate ~2x the revenue per loan when compared to unsecured personal loans due to the higher loan sizes. In the short term NCOs will stay somewhat elevated, but these should come down over time to the 10% range. This should be one of the the biggest drivers in solid net interest margin.

Funding

Oportun funds itself primarily through securitizations, warehouse facilities & secured borrowing backed by its loan portfolio. As of Q1, they had Loans receivable of $2.7bn financed by $2.8bn of debt. The debt stack is made up of a mix of relatively cheap asset backed financing but also some pretty expensive corporate level borrowings.

$199m Secured financing backed by personal loans Oportun has made to its members. Weighted avg interest rate ~6.44%

$263m Asset-backed notes backed by personal loans made to its members. Weighted average interest rate ~2.3% * These deals were done in ‘21 when rates were much lower.

$2.2 billion of Asset-backed borrowings ; pools of asset-backed notes via SPVs that are consolidated in the financial statements. Weighted average interest rate ~5.2%

And finally, $135m of corporate-level debt paying a hefty 15%.. which leads us nicely into their 2024 refinancing.

2024 Strategic Review

In late 2024 Oportun commenced a strategic review to enhance profitability by simplifying the business. They evaluated different strategic options for the company & ended up with the below. 5

Sale of Credit Card Business

In Nov, they closed the sale of their Credit Card Division. Though the board suggested the sale would be “highly accretive for our shareholders” & would add $11m of, ‘eh, cough heavily’, adjusted EBITDA for 2025. It reads as though no consideration was paid by the buyers (Continental Finance) & the net benefit would be reduced cost of maintaining the $100m book. The credit card sale was a necessary condition to the refinancing.

2024 Credit Agreement & (further) Warrant Issuance

The company also refinanced the existing corporate financing facility with a 4 year, $235m, 15% term loan from Castlelake & Neuberger. The credit agreement is secured by the assets of the Company & its subs. In addition to the pricey coupon, they issued 4,860,706 penny warrants (issued at $0.01) for approx. ~10% of the company. And apparently this was “the least dilutive financing option available”…

Prior to that, the debt at corporate level was split between two tranches paying SOFR +11% & 12% & was akin, to me at least, of distressed death spiral transactions, especially given the multiple amendments, principal payment deferments & the combination of repeated warrant issuance (penny warrants!). In all, Oportun issued 9,046,459 warrants with a strike of $0.01.

Through April 26, Oportun has repaid $100m of the principal & replaced with cheaper (sub-6%) ABS financing. But what was hailed as the “Next Step to Optimize Capital Structure and Drive Improved Profitability” wasn’t really much more than a refinancing to ensure covenants weren’t breached & extension of maturity… at a pretty severe cost to equity owners. (remaining corporate debt principal balance $135m.)

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The Activist(s)

Findell Capital (~3m shares / 6.6%)

Brian Finn has been involved since March 23 when Findell issued a statement to the board & reported owning 4% of the company. In the letter, Findell’s main gripe was the bloated costs associated with CEO Raul Vazquez trying to make Oportun a tech company, rather than concentrating on its competencies: lending to underserved communities. In particular, they highlighted Oportun’s purchase of a digital bank in 2021 for $212m, which was subsequently was written down by $108m the next year. Findell also lamented the board for allowing management to massively overspend on G&A, highlighting the huge disproportionate amount of senior level employees & size of SBC relative to the company’s size. They also highlighted the lack of lending experience on the board.6

In early 2024, Findell filed a 13D & nominated a slate of three candidates for election to the Board. A cooperation agreement soon followed, with Oportun in April agreeing to appoint Scott Parker to the board & Richard Tambor as an observer. These appeared to exactly what Oportun needed. Parker was previously EVP & CFO for OneMain Financial & CIT Group & Tambor had been EVP & Chief Risk Officer at OneMain Holdings & JP Morgan. Findell agreed to the customary conditions, non-disparagement, standstill, voting commitment etc. At this point Findell was up to about 9% of the company.

However, once the cooperation agreement had expired (thus avoiding a proxy fight), the legacy board moved to reduce Findell’s influence by removing Parker from the board.

Round II - In March 25, Findell responded with a scathing press release calling the Oportun board out for awful corporate governance & questioned the degree of independent oversight being exercised. Again Findell ran a proxy, & formally nominated two director candidates (with lending experience) to the board.

In July 25, Findell got a big win when ISS recommended voting with the activist & against the current CEO.

Institutional Shareholder Services Inc. (“ISS”) has recommended stockholders vote FOR the election of its nominee, Warren Wilcox, to the Company’s Board

ISS also recommended stockholders vote WITHHOLD on Chief Executive Officer (“CEO”) Raul Vazquez

Findell has taken some off around the ~$7 level. This could be redemptions, risk management, whatever. I’m not sure its where he sees fair value, but it is worth noting.

Leadership Transition

April 3, 2026, Mr. Vazquez stepped down from the CEO role & from the Board. Findell wanted his nominee Warren Wilcox to become CEO, however he would have to settle for Wilcox to join Oportun Board of Directors. Two weeks later, Doug Bland was appointed as CEO & board member. Bland, a 30yr consumer credit & financial services veteran should tick most of the boxes for Findell.

Findell has been instrumental in driving change here. He’s the one who got the Jaguar out of the tree. He’s been very vocal & public about the opportunity. You can find some great interviews with Brian here & here on YABV, here & here on SumZero. But what’s somewhat less known is that there are a couple of other sharp elbowed shareholders on the register.

Bradley Radoff (undisclosed / ~1%)

Bradley Radoff is a value-oriented activist investor who tends to push for governance, management & strategic changes when he believes shareholder value is not being maximized. More often than not, pushing for a realization event or sale. He’s been increasingly busy of late. See $GCO, $SEER, $INVE, $CERS, $FARM. I’m mostly aware of him from a couple of years back when Tang, BML & Radoff were scooping up a bunch of broken biotechs & pushing for liquidations, sales or reverse mergers.

He seems to have been involved in Oportun since early 2024. Radoff first penned a letter to the board of Oportun in early 24 calling for many of the same changes alluded to by Findell. Most recently though his stance has hardened, in March 26 he published a letter to the board calling for the immediate removal of legacy director Ginny Lee. 7

What’s most interesting to me is that he ran an activist campaign against QIPT Medical. QIPT was subsequentially bought by Forager & Kingswood Capital.

Forager Capital Management (3.6m shares / ~8%)

Forager have been pretty active of late too. Forager are a small-cap value & special-sits hedge that looks for mispriced companies & is willing to push for change when it sees a catalyst. See my Repay write up here for more on them.

They first appeared on the register via their Q3, 25 13F with just under 2m shares <5%. As of Q1, they own 3.3m shares / ~8% of the company. So far, these guys have been pretty quiet & look, maybe it stays that way….. maybe it doesn’t.

Castlelake (2.4m shares / 5%) & Neuberger Berman (6.6m shares/ 14%)

Both Castlelake & Neuberger are deeply familiar with Oportun. Over many years, they have purchased whole loans, provided structured financing & more recently the corporate financing. In addition to this, both still own own significant amounts of equity. It may well be in their interest to help refinance the corporate level debt given the considerable accrual to the equity a refinancing would provide. I would point to each time Findell came close to a proxy fight, Oportun caved - ultimately knowing that they wouldn’t have the votes. Findell mentions that they have spoken to other shareholders who were/ are in his corner. My guess is that he’s talking about these guys.

Chief Executive Officer Appointment

Bland, 58, is seasoned executive & while I would have preferred someone whose C.V. told me he was gonna sell the business, his experience in consumer finance should give investors confidence that he’ll be focused on what Oportun does best. Bland’s offer letter & equity awards, while generous, do not overtly tell me the business will be sold. That said unvested RSUs will accelerate & vest in full upon a Qualifying Termination under a CIC scenario. All NEO’s would do very well for themselves, but I’m not sure that’s the strategy here. Findell has done the hard work, I think they want the business to inflect.

OpEx

Operating expenses have been slashed over the past couple of years. Clearly there was A LOT of fat to trim, as Findell rightly pointed out. Tech spend is down 35%, Personnel cost down 34%, Outsourcing & Professional down 24% & G&A down a whopping 53% !!! That said, I think there’s likely some more to come here given the CEO had likely not trimmed many of his inside supporters. Brian Finn mentions on a YAVB podcast that there were 27 VP’s in the business & when questioned about it - mgmt. couldn’t explain why they had so many overlapping roles. Instead they just scrubbed the website ! Opex was down 12% in 2025 alone.

Valuation

One way to look at valuation here is book value. The stock trades roughly at 0.75x book value & 0.63x tangible book value. Peer groups generally trade significantly above this with OneMain Holdings, Inc. ($OMF) commanding a premium because it has a more established earnings base, better management, lower NCOs, & a leaner operating structure - which all lead to lower funding costs. To explain the disconnect: OMFs NCOs are hanging in at ~8%, considerably less than Oportun’s ~12%. OMFs OpEx ratio stands at 6.6% vs Oportun’s ~13%. Lastly, OMF just issued $1bn 2033 Notes at 6.75%. That’s a far cry from Oportun’s 15% cost of corporate level debt.

There’s also a question to be asked, as to whether the loan book is marked conservatively, or whether fair-value marks may inflate book value somewhat. That said, for me, I think the more important issue is whether the loan book can earn enough spread after charge-offs, interest expense & operating costs. If macro conditions continue to improve, Oportun should be able to grow the loan book, while further debt reduction or even a refinancing should flow through to equity value & close the gap to peers.

With continued execution over the next few quarters driven by new management & board experience & continued progress on cost management - getting to book value ($7.15) seems very reasonable in the short to medium term.

The Summary

Findell has turned this from a being a cash burning fintech-wannabe to a now profitable consumer lender. The board has been refreshed & they’re in control. The hard work is done. They will execute & control the controllable. The market hasn’t taken notice yet. Upside will be driven by :

Portfolio Yield - driven by increased APR’s on risk based pricing. Increased origination fees as the book grows.

Lower interest expense - Oportun already saw a $15m run rate benefit from paying down $100m of their corporate level debt. I think they’ll refinance this asap.. hopefully with sub-6% ABS! This’ll have a big impact on net income. The stock could re-rate sharply if they announce something positive here that brings down that headline number… this time, without diluting shareholders. Avg cost of funds currently sits at 7% below their 8% target.

Lower OpEx costs - Continued expense discipline & additional cuts should come in further from the current 12.7% & longer term should approach 10%.

Loan Growth & NCO reduction - For now, they are in a defensive posture with regard to their loan book. Likely they’re managing the Net Charge Offs on the older loan vintages while expanding the secured personal loans which drive more revenue & experience lower losses. They’ll conservatively grow their loan book & run with tighter expenses, more appropriate to their revenue.

Foragers entry into the register is super interesting as these guys have priors (Looking at you QIPT & RPAY) & can be super aggressive accumulators in relatively short periods of time. There’s a small chance these guys come over the top rope & bid for the whole thing.. especially if Oportun stays cheap.

The Bear Case / Risks

Deterioration of Loan Book. Oportun is currently being conservative with it’s loan book, letting time run it’s course & slowing origination. However if NCOs continue to increase the market will notice, especially if not in line with peers.

The Economy / Fuel Costs / Inflation / Unemployment Rate / Labor market blue-collar workers. All these make a big difference in borrowers’ ability to make payments. Inflation coming down gives more breathing room in the budgets of borrowers. However any sustained pressure on the economy, gas prices or inflation would all likely hit NCOs & we may see a spike above 12% which would impact valuation.

Pathward - Partnership - A LOT of concentration risk here, as Pathward are relied upon to originate 99% of Oportun’s loans.

Risk Based Pricing / Removal of the 36% Lending cap could cause reputational harm & the company could lose it’s certification as a Community Development Financial Institution (“CDFI”) from the U.S. Department of the Treasury.

Other / Misc.

Ok, this has run a bit long. Some other tidbits below. Thanks for reading.

Data / Machine Learning / AI

Oportun go to great lengths to showcase their use of AI & ML & how the use of alt data, paired with machine learning (since inception), differentiates the company from its competitors- that still lean more heavily on traditional credit bureau scores. That allows Oportun to screen & score more applicants, especially thin-file or ‘underserved’ borrowers, while at the same time, tailoring their pricing, fraud detection & cash-flow behavior to minimize risk. In a nutshell, Oportun says they can “assess credit risk more effectively compared to other companies and traditional scoring models”

“we use billions of proprietary data points to score 100% of our loan applicants and offer our members responsibly designed and affordable credit products”

“Oportun uses algorithms that learn the financial habits of our members such as when their paychecks are deposited and for how much, the timing and cost of their recurring monthly expenses,….. & deposits that are not regularly recurring. Through machine learning, Oportun gets a comprehensive and personalized profile of our members’ cash flow and very quickly learns how much a member can afford to set aside each day, without impacting their ongoing obligations and daily spending needs.”

Cap Removal - “Risk-Based Pricing”

As mentioned above, back in 2020 Oportun announced a self imposed 36% cap on lending pricing as part of their mission driven campaign to bring financial inclusion to traditionally underserved low-to-moderate income communities. While portfolio yield is in the 32/33’s, the APR’s previously could have exceed 36% due to the short term nature of the loan. However this essentially priced some customers out of the market & prevents the company from pricing risk adequately.

Findell pushed to have the cap removed & from 2024 comments in the earnings call started walking this back in regarding a ‘return to risk-based pricing’. In line with this, they also talk about retention, specifically return customers who are extended better terms as their credit (with Oportun) improves. I think this is a smart move, as it should improve the credit profile & offset some of the credit risk associated with the higher risk short term 36%+ loans.

“I’m also pleased to share that we are advancing a new initiative designed to enhance our unit economics and progress towards 20% to 28% annual GAAP ROEs while expanding access to responsible credit. In partnership with potential new bank sponsors and warehouse providers, we are exploring the reintroduction of risk-based pricing above 36% APRs for select higher-risk segments on shorter-term loans. This creates a meaningful opportunity to extend our mission of financial inclusion by responsibly serving customers that we would otherwise not serve while better aligning pricing and term length with risk in order to improve portfolio returns.”.. Raul Vazquez, Q4 2025, Earnings call.

“At the same time, we are selectively testing modestly lower APRs for certain higher-quality returning members to maximize lifetime value where competitive dynamics warranted.”

We have made good progress with this initiative, including signing a letter of intent with a new bank partner. And as a result, we continue to expect to roll this initiative out in the second half of the year…. Paul Appleton (Interim CFO), Q1, 26 Earnings Call.

Customer Acquisition Cost

Oportun’s CAC has been trending down consistently over the past few years from $192 in Q1, 23, ending 2025 at $117. This is more in line with what it cost pre 2020. Some of that is consistent with a maintaining a conservative credit stance of late, but much of it is efficiencies stemming from reduced focus on fintech & more focus on core customers. This figure will fluctuate as marketing spend ramps - but with focus on core drivers of profitability - namely secured personal loans to their core customers, core customer retention & risk based pricing.

Returning to Growth / Expansion

Oportun are currently in 8 states in secured personal loans. I think we’ll see this number expand in 26 as more focus is put on secured lending.

One of the things that we’d like to do is to really put down some physical locations in some of the states where we don’t have locations today. The bulk of our locations today are in California and Texas, but we’re able to lend in over 40 states…

So, one of the things that we’re looking at next year is putting down some physical locations in states like Georgia, Pennsylvania, Ohio. Think of all of the large populated states that were just a focus in the election, in this last election. We think there’s an opportunity for us with physical locations to drive awareness, consideration and growth of our portfolio. On top of that, the Lending as a Service opportunity, like you said, DolEx, Barri, and now Western Union, we think that’s also a great opportunity and something we’re going to lean into next year. Raul Vazquez, Q3 2024 Earnings call.

Tax Refunds

Tax refunds are expected to be bigger this year. The average amount returned: $3,462. That’s up $346 (or 11.1%) from the same period last year. This should help to bolster members ability to service their loans & reduce NCOs for Oportun. 8

Rates

In some ways this is a bet on lower rates, as Oportun can benefit from a lower cost of credit while still charging high APR’s. On the downside, this may preserve unit economics even if NCOs don't come in as expected. However, on the upside, should rates decline & NCOs too, the operational leverage would be significant. Conversely the opposite would negatively impact the spread.

Gas Prices

Oportun’s customers are particularly sensitive to fuel costs, so an increase of prices at the pump can quickly impact customers ability to service their loan payments.

The Disclaimer(s)

Disclaimer #1: You should know by now, I am Jon Snow, I know nothing. I could be & probably am, missing a bunch of reasons why this doesn’t work.

Disclaimer #2: As always, please, if in doubt, please refer to disclaimer #1, I am Jon Snow. I know absolutely less than nothing. Don’t listen to me. In fact, a smart guy reminded me last week, “Nobody knows nothin’ !”.

Put all your money into an index fund & laugh at the rest of us. I make mistakes, lots of them, in fact. Please feel free to point out if, or how many, I may have made above.

Disclaimer #3 : This commentary is for informational & personal opinion purposes only. IT IS NOT FINANCIAL ADVICE ! (let’s face it, it’s basically comedy), and I am not your fiduciary. You should do your own research and consult a qualified financial advisor before making any investment decisions. DYODD !! & DO NOT TAKE INVESTMENT ADVISE FROM PEOPLE ON THE INTERNETS THAT FOUND INVESTMENT RELIGION DURING COVID … or me for that matter !! I may buy or sell at any time…. most likely the day before Forager lobs in an offer of $7. You do you.

The Footnotes

1

Repay was rumored to have tried to sell itself to PE in 2023/24. No takers. Announced a strategic review in March 25. Nothing came of it. The CFO of 11 years left the company, the co-founder retired. So, they de-levered & bought back a chunk of stock. The market didn’t care. Add to that, recent negative sentiment in the payment space. What began as a seller’s story has turned into a levered up M&A story, much to shareholders’ frustration. Veradace & Forager aggressively built large stakes & are agitating for change. Veradace wants two seats on the board. Management quickly instigated a poison pill & shut the door on nominations. The CEO owns ~8%. Forager lobbed in a bid at a 75% premium !

The Company / Business Overview

Repay Holdings Corporation (RPAY) was founded in 2006 by John Morris & Shaler Alias. It was backed by Corsair Capital before coming public via a SPAC with Thunder Bridge in July 2019. John Morris remains CEO since 2010, whereas Shaler Alias resigned from the Board in February this year. Repay is a payments technology company. They provide integrated payment processing solutions to various ‘verticals’ such as personal loans, automotive loans, receivables management & B2B payments. The general idea is to reduce friction & complexity in the payments process. Essentially, it helps clients & consumers send & collect money electronically, rather than cash or check, which have historically been the primary methods of payment in these verticals. Repay makes money by charging fees for processing those payments. It also provides settlements & ancillary services for which it charges, such as document processing, billings, statements etc, on that flow. It’s the volume that matters here.

Repay reports under two Business Segments.

Consumer Payments (85% Revenue) provides payment processing solutions (including debit/ credit card processing, Automated Clearing House (“ACH”) processing & loan disbursements) that enable clients to collect payments & disburse funds to consumers. Verticals served include personal loans (purchases financed with installments), auto loans, receivables management (debt collections), credit unions, mortgage servicing, consumer healthcare & retail.

Business Payments (B2B) (15% Revenue) similarly provides payment processing solutions (such as accounts payable automation, debit/ credit card processing, virtual credit cards & ACH processing) that enable businesses to collect or send payments to other businesses. Vertical served Business Payments include retail auto, education, local governments/ municipalities, healthcare, media, HOA & hospitality.

Repay aims to embed their payment processing tech into their clients’ workflow software for payment collection. These clients or ‘software integration partners’, of which they have 297, have Repays payments solutions ingrained in their workflow & so can be looked upon as central to their payments & collection processes. Essentially, they want to be the infrastructure that lets consumers pay & clients accept via a multitude of methods, whether it be debit, credit & virtual cards, e-cash, digital wallets & ACH.

KUBRA Acquisition

On March 30, 26, Repay announced it would be acquiring KUBRA for $372m. Far outstripping previous acquisitions, Kubra almost doubles their annual revenue overnight & should add a certain amount of predictability & stability to their revenue streams adding utilities, government & insurance verticals. In addition, it should both cement their already strong position in verticals like auto finance & allow them to expand into new verticals where they previously didn’t have a presence like waste management. Kubra is a provider of bill payment & customer communication management solutions. Kubra’s clients are some of the largest utilities & government entities in the US & CA, apparently “touching over 40% of households in the US & CA”. The Investor Deck points to $239m revenue & $49m in Adjusted EBITDA.

KUBRA offers an embedded technology platform comprising six core solutions across multiple verticals. Their highly reoccurring business model serves over 250 clients today with a deeply integrated offering to ERP providers across their core verticals.

Repay will finance the acquisition with a new $500m term loan facility & $100 revolver. Repay currently has a $397.5m of long term debt outstanding made up of $287.5m of Convertible senior notes due 2029 & $110m drawn on their revolver in Jan 26 to repay $146.5m of the remaining 2026 convertible notes. Leverage will be pretty high, >4x by my calc’s, but the company aims to reduce that to ~3x within 18 months.

Prior to the closing, Repay, for Q1 standalone, are guiding 2026 Revenue to $343m at the midpoint, $143.5m of Adjusted EBITDA & $65m for FCF (at 45% margins). For 2025, Kubra generated $239m of revenue & $49m of EBITDA. They also hope to attain $20m in synergies. Management state on the deck that they expect Kubra to be free cash flow accretive by 2028. If they can maintain this level of free cash flow conversion after the Kubra deal the business would remain capable of rapidly de-levering even after funding a large acquisition & taking on a large amount of new debt.

Often, a company’s futures can be dramatically changed after a significant corporate event. Is this potentially such a transformative transaction ? Well, that remains to be seen.

The Activists

Veradace

Veradace Capital Management, based in Dallas was founded in 2019 by Alex Vezendan & John Conlin & styles itself as a concentrated, long-term fund that takes a “constructive approach with companies and partner management teams”. Repay looks to be their 3rd Largest Position. They first turn up on the register in a late 2025 filing reporting a 5.1% holding in the company. (3,798,164 shares of common & options to purchase 562,200 shares).

However, on April 8, 2026, they flip to a D & report now holding 8.60% of the company (7,245,104 shares & options to acquire 110,400 Shares (w/ $7.50 strike). Cost basis is approx. ~$4.26. They raise concerns about company performance, shareholder opposition to the Kubra Acquisition & the lack of shareholder voice on the board. Change is needed & they want two shareholder supported directors appointed to the board.

The following day (April 9th), Veradace publish an open letter to the board calling on the company to abandon the acquisition. Repay responded pushing back & highlighting the positives of the deal.

April 27, 2026 Veradace filed an amended 13D & announced it would be nominating Alexander Vezendan & William Jacobs (Chief Executive Officer of Green Dot Corporation and a Former Independent Board Member at the Issuer) for election at the 2026 Annual Meeting of Stockholders. Veradace knows they have missed the window for nominations & so appealed to the board to waive the deadline for nominations. In the recent proxy, the Board denied Veradace’s request as it failed to comply with the Company’s Bylaws.

Veradace now owns 7,370,490 shares / 8.6%. Cost basis ~$4.25

Forager

Forager Capital Management, based in Birmingham, Alabama runs a concentrated book of about 12 stocks. They invest “in securities believed to be deeply undervalued, offer downside protection, and possess a catalyst for higher valuation.” Forager recently came to my attention when they took QIPT Medical private for $3.65 a share up from their original bid of $3.10 ($260m EV). Nice win for me there - thanks guys!

Forager first appeared on the register via their December 31,2025 13-F filing reporting a holding of 3.99m shares. They kept buying, crossing the 5% threshold in Jan 26 reporting ~5m shares or 5.90% of the company. They crossed 10% in March amending the 13G (8.6m shares) & flipped to a D a day later. Through the course of March & April Forager continued to hoover up the stock eventually reporting owning ~12.9% of the company on April 13th.

The following day, Repay announced a poison pill “in response to the significant accumulation of the Company’s common stock”.

The 12.5% trigger stopped the accumulation, but it didn’t stop Forager from offering to buy the company! Forager offered $4.80 a share, a whopping 75% premium to the company’s 30-day avg. In the accompanying, letter they detail how they reached out to the board about exploring an acquisition but were disappointed that the board instigated a poison pill less than 24 hours later. Since their proposal, Forager piled on the pressure issuing two press releases. On May 4th, Repay rejected the proposal, determining that the proposal “significantly undervalues the Company”. The stock was down ~10% on the news. Conveniently, Repay raised 2026 guidance to cushion the blow.

Forager own 11,106,648 shares / 12.90% of the company. Cost basis ~$3.33

Parthenon Capital

In 2021, Repay acquired BillingTree, an Integrated Payments Provider from Parthenon Capital for $503m. The acquisition was funded with $275m cash & the remainder of the consideration via 10m Repay shares ($228.25m). Though I’m sure they did fine on the BillingTree sale, it’s safe to say it hasn’t been a great ride for Parthenon LP’s on the equity stake. Parthenon had to file a 13G due to the size of the stake, so it was notable when in Feb 24, they flipped to a D. The filing wasn’t hugely surprising, but further hinted at the company shopping itself. Likely Parthenon want an exit & could be a useful stake in the hands of Forager.

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The Insiders

Insiders are aligned & well compensated, primarily in stock. So well in fact, that they’ve reduced the CEO’s incentive package by 15%!.. even though “no single theme or consistent concern emerged, the feedback generally reflected a desire for continued alignment between pay and performance”

Founder & CEO John Morris owns ~8% of the company via his 3,587,557 Class A shares & 3,658,529 Hawk Parent, LLC Units Post- Merger Repay Units. (Exchangeable into Class A 1:1).

Co founder Shaler Alias (resigned in Feb 26) still holds 1,608,342 shares (2%) (including 878k Hawk Parent Units)

Peter J. Kight, Chairman of the Board (& a Principal of Thunder Bridge Capital) owns 1,670,070 shares.

In May 25 Morris & Alias forked out $1m & $800k, buying 250k & 190k shares respectively at around $4.

Capital Allocation

There’s an argument to be made that these guys are decent capital allocators both on the debt & equity side of the capital stack. They've also been quite acquisitive.

Acquisitions

Acquisitions have been a part of their strategy. In earnings call they repeatedly point towards organic growth, however acquisitions have been a meaningful part of their strategy to expand into new verticals & strengthen their presence in existing ones. Before the KUBRA deal, Repay acquired 11 businesses, selectively adding to their existing automotive finance, mortgages, healthcare, credit unions & receivable management verticals, as well as enabling them to access the B2B & BNPL verticals.

Buyback

Since 2022, the company has repurchased 9,458,162 shares under the buyback program. They clearly think they’re undervalued. More so than the market does given how repurchases have ramped as the price fell. They reduced fully diluted shares outstanding by approximately 8% in 2025 alone. The buyback has $23m remaining, but I expect that’ll be paused given the recent news.

Convertible Senior Notes

In 2021, with valuations high & cheap financing plentiful, Repay took advantage & issued $440m 0% Convertible Senior Notes due 2026. Then in July 24, they opportunistically bought back $220m principal below par (for $205m) & a further $73.5m face (for $72m) in late 2025. The remaining 2026 Notes matured on February 1, 2026.

Ownership Structure / Holdco. / TRA

Ok, so here’s the messy part(s). The company came public in 2019 via a Thunder Bridge Acquisition Ltd SPAC. Yes, post merger SPAC’s are usually garbage, but there’s a real business here. It’s a Holdco with the only asset being it’s ownership stake in Hawk Parent - the operating business. Structured with two share classes, Class A Common (89,672,978) & Class V, which do not trade & have no economic rights but are owned by the holders of the 5,285,883 Post-Merger Repay Units exchangeable 1:1 into Class A common. The company also entered into a Tax Receivable Agreement (TRA) with the original Repay Unitholders which obliges a payment to the Repay Unitholders, by Repay, of 100% of the tax benefits realized as a result of these increases in tax basis of Hawk Parent. So, as the Post Merger Units are exchanged into Repay common, Repay gets a tax basis step-up from that exchange. Under the TRA, Repay must later pay the former unitholder 100% of the value of those tax benefits. These are significant liabilities/ obligations & will usually accelerate in a change of control scenario & so can make for less attractive acquisition candidates. From my understanding, they are not looked upon favorably by buyers, that said, in this case I think they are transparent & can be baked into purchase price assumptions…. that is, assuming you have a willing seller.

Goodwill Write-down

Repay took a $242.7m write-down to goodwill associated primarily with the Consumer Payments segment. This may be a decent counter to the positive capital allocation theory given this signals the acquisitions, thus far, haven’t performed above their purchase prices.

During the year ended December 31, 2025, the Company recognized an impairment loss of $241.7 million on goodwill related to the Consumer Payments segment and an impairment loss of $0.6 million related to the Business Payments segment within the Impairment loss in the Company’s Consolidated Statements of Operations for the year ended December 31, 2025. The estimated fair value of the Consumer Payments reporting unit was primarily impacted by changes in the discount rate and comparable market multiples.

GDOT / William Jacobs

One of the proposed Veradace nominees was a familiar name ‘William Jacobs’ - CEO of Green Dot Corporation ($GDOT), former Board Member of Repay & a director of Hawk Parent ! He still even owns 2.6% of the Post-Merger Repay Units. In fact, he only just left the Repay board in 2025. I can imagine Jacobs would be intimately familiar with the board & company. Another interesting signal, but I'm not quite sure what to make of it.

William Jacobs retired from the Board and did not stand for re-election in 2025.

William Jacobs, age 79, has served as a director since the Business Combination. From its formation in September 2016 through the Business Combination, Mr. Jacobs served as a member of the board of directors of Hawk Parent. Mr. Jacobs has served as a director of Global Payments Inc. (NYSE: GPN), & as Chairman of Green Dot (NYSE: GDOT), since June 2016. Mr. Jacobs also served as Interim Chief Executive Officer of Green Dot from January 2020 to March 2020. Since March 2021, Mr. Jacobs has also served as a member of the board of directors of Corsair Partnering, a special purpose acquisition company sponsored by an affiliate of Corsair Capital LLC. From 1995 to 2000, Mr. Jacobs served in various senior roles at MasterCard International. Mr. Jacobs has served as an operating partner of Corsair Capital LLC since 2018.

Political Media Spending

The company experiences some seasonality in revenue focused around election cycles. Something to note when you look at net income, as it flows to the bottom line.

“Revenues during the first quarter of the calendar year tend to increase in comparison to the remaining three quarters of the calendar year. This increase is due to consumers’ receipt of tax refunds and the increases in repayment activity levels that follow. In addition, Business Payments revenue from clients in our media payments business is cyclical. Revenue connected to political advertising spending increases significantly during the third and fourth quarter of election years, such as the mid-term and presidential election cycles.”

Customer Concentration

Currently no customer represents >10% of revenue which removes some uncertainty however I believe it is something that needs to be monitored. Their top 10 clients, contributed ~20% of total gross profit during the last couple of years. Avg tenure is ~7yrs. Year end 24, they lost 3 clients that impacted the business, primarily on the B2B side, one of which represented 17% of B2B at the time ($6m revenue). The Kubra acquisition, in addition to the growth of the B2B business should smooth out any potential impact here, but it's something that I've become acutely aware of. (Looking at you & ).

CEO Compensation

As noted above, following last year's say-on-pay, the company performed a shareholder outreach program & as a result reduced the CEO’s pay by $1m/ 15%. They also tout that the program is “working as intended” as the CEO’s pay was 56% lower than target over the last 5 years….

Eh, well, you know… the stock is down ~85% in that time, so….

Our CEO’s 2025 target total direct compensation remained the same as his 2024 target total direct compensation. In making this determination, the Compensation Committee reviewed updated market data following its 2025 peer group evaluation and concluded that the CEO’s target compensation remained within a competitive range of the peer group median. This marks the third consecutive year his target total direct compensation remained at the same level.

As detailed below, the Compensation Committee undertook an enhanced stockholder outreach program in the second half of 2025 to address any concerns regarding the compensation program. Direct feedback from our stockholders suggested general support for our existing annual and long-term incentive plan design and reflected a desire for continued alignment between pay and performance. In light of this feedback and in consideration of the Company’s stock price underperformance, the Compensation Committee determined to reduce the CEO’s target compensation by $1,000,000 in 2026 to reinforce the Company’s pay-for-performance philosophy. Mr. Morris supported this determination.

The Summary

I think the company was & potentially still is for sale…. at the right price. I think after the last failed attempt to sell the company, the co-founder & CFO had enough & called it a day. A former director has aligned with long term holder turned public activist, Veradace. My guess is that the current CEO has a higher price in mind than $4.80 though. He knows the company needs to scale up to get a multiple and/or be seen as a better acquisition target. Forager, Veradace & Parthenon together own >30%, more than enough to force the issue if they want.

Previously one of the the bull cases was that the business was niche & their payment volumes are somewhat non discretionary & sticky. In tougher times, payment sizes may be reduced but replaced by more smaller payments. Utilities & governments are probably the stickiest of clients. Once you’re ingrained, how bad a service would you need to provide or how much of a pain in the ass would it be for them to move all of their customers to a different platform?! Forager have bumped before for $QIPT & I don't think they're going anywhere anytime soon. I think Forager will need to go materially above the $4.80. If they do, there’s a lot of upside here from $3.35.

The Disclaimer(s)

Disclaimer #1: You should know by now, I am Jon Snow, I know nothing. I could be & probably am, missing a bunch of reasons why this doesn’t work.

Disclaimer #2: As always, please remember disclaimer #1, I am Jon Snow. I know absolutely less than nothing. Don’t listen to me. Put all your money into an index fund & laugh at the rest of us. I make mistakes, lots of them, in fact. Please feel free to point out if, or how many, I may have made above.

Disclaimer #3 : This commentary is for informational & personal opinion purposes only. It is not financial advice (let’s face it, it’s basically comedy), and I am not your fiduciary. You should do your own research and consult a qualified financial advisor before making any investment decisions. DYODD !! & DO NOT TAKE INVESTMENT ADVISE FROM PEOPLE ON THE INTERNETS THAT FOUND INVESTMENT RELIGION DURING COVID … or me for that matter !! I may buy or sell at any time…. most likely the day before Forager offer $5.50. You do you.

The Footnotes

Corsair

https://corsair-capital.com/insight/repay

Kubra / Hearst

https://www.buyoutsinsider.com/clairvest-makes-13-5x-its-money-on-kubra-sale/

Forager Proposal Letter

https://www.sec.gov/Archives/edgar/data/1539281/000165495426003666/ex992.htm

Forager - PR - Board incommunicado

https://www.globenewswire.com/news-release/2026/04/28/3282543/0/en/Ten-Days-After-Forager-Proposal-Board-Has-Yet-to-Engage-Ongoing-Delay-Raises-Stockholder-Concerns.html

Press Releases

https://www.globenewswire.com/news-release/2026/04/28/3282543/0/en/Ten-Days-After-Forager-Proposal-Board-Has-Yet-to-Engage-Ongoing-Delay-Raises-Stockholder-Concerns.html

https://www.globenewswire.com/news-release/2026/05/04/3286777/0/en/17-Days-After-Forager-s-Proposal-Board-Still-Has-Not-Engaged-as-Stockholder-Frustration-Builds.html

Veradace

https://www.businesswire.com/news/home/20260409695605/en/Veradace-Partners-Issues-Letter-to-Repay-Independent-Board-Members-Calling-for-the-Termination-of-the-KUBRA-Acquisition-and-Shareholder-Board-Additions-Given-Shareholder-Opposition-to-KUBRA-Deal

OraSure was a massive beneficiary of covid, but it was only really a one off boost to revenue that has now mostly evaporated. Now the company is basically a cash shell with a small medical device/ diagnostic test company attached. The market, for obvious reasons isn’t paying attention, but the vultures are circling. Rishi Bajaj of Altai Capital, a ~5% shareholder & Carlo Cannell of Cannell Capital, with 2.5%, are intensifying pressure on Covid-test maker OraSure. Both have been agitating for change & pushing for board representation, potentially to compel management to engage with Ron Zwanziger (& his lowball $3.50/$4 bid from June). With the board slow to respond & Zwanziger signaling he is prepared to take an “adversarial path,” the standoff appears poised to escalate before any resolution emerges.

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The Company

OraSure Technologies, Inc., incorporated in 2000 & headquartered in Bethlehem, Pennsylvania is a public medical device company. It develops, manufactures, markets & distributes rapid diagnostic tests & sample collection/ stabilization devices which are designed to discover & detect critical medical conditions.

Diagnostic products are sold internationally & include tests for diseases including HIV, Hep C virus (“HCV”), Syphilis, Sickle Cell & most notably COVID-19. Customers include clinical laboratories, hospitals, clinics, public health organizations, distributors, government agencies, doctors offices as well as direct to consumer (including via Walmart & Amazon). 1

The business operates through two segments:

1. Diagnostics (including rapid oral fluid tests) (60% of revenue)

   OraQuick® Rapid Tests: Includes tests for HIV-1/2, Hep C, Syphilis & Ebola, offering results within about 20 minutes via oral fluid swabs. OraQuick HIV was the first FDA-approved over-the-counter home HIV test in the U.S. They sell lab versions in addition to consumer direct.

   Substance Abuse Testing: Oral fluid drug testing devices are used in workplaces and legal settings to detect common substances of abuse. (exited)

   InteliSwab® COVID-19 Rapid Antigen Test: A major revenue driver through early 2024, offering quick results for COVID-19 detection at the point of care.

   Colli-Pee® collection device for sexually transmitted disease. In December 2025, the Company submitted a 510(k) to the FDA for clearance of the test at home urine collection device for sexually transmitted infections.

2. Sample Management Solutions / Molecular Solutions (kits to collect, stabilize & transport genetic material for disease).

   DNA Genotek Kits: Enable robust sample collection, stabilization, and transport of DNA/RNA for research and clinical molecular testing, including hereditary disease and ancestry analysis.

   Blood Collection for Proteomic Testing: Recently launched in 2025, supporting the expanding field of proteomics research.

At $3, the market cap is $218.5m, with $199m cash gets us an EV of $8m for a company with annual revenues >$115m & gross margins in the 40’s.

That’s 0.07x EV/Revenue !!

Sounds good, right ? Contrast that with the fact that they burned through $49m of cash in 2025. Not great, Bob!

COVID

The last few years have been a rollercoaster for the company. Covid & the after effects had a dramatic impact on revenue but the business could not become consistently profitable. Revenue rose dramatically from $171m in 2020 to $405m in 2023, followed by a steep decline to $115 million, in line with the collapse of COVID-19 test sales. Expenses are bloated. Cost of goods sold trended from the 40% range through to ~60%. Adding in opex & the company just can’t make money… unless of course we get another pandemic. So the company has been attempting to diversify its business lines through purchasing other companies.

Sherlock Biosciences, Inc.

In Dec 24, the company acquired Sherlock Biosciences, Inc., a global health company bringing next-generation diagnostics to consumers and healthcare providers, to expand OraSure’s portfolio of rapid diagnostics for sexually transmitted infections (STIs). The primary asset was a molecular self-test for Chlamydia & Gonorrhoeae. They paid $5m upfront + $20m tied to milestones & ongoing royalties (+$22.9m funding thus far). Sherlock’s first self-test, for Chlamydia Trachomatis (CT) and Neisseria Gonorrhoeae (NG), was submitted to the FDA in Dec 2025 & is currently under review. The company estimates the total addressable market to be $1.5 -$2bn !2

This sounds like it could potentially be a transformative acquisition, however there were some pretty questionable governance issues going on behind the scenes at the time. Most notably was the fact that the Chair of the Board of Directors, at the time of the acquisition, was also a partner in the venture capital firm that owned Sherlock. Altai Capital questioned the decision of Illumina Ventures not to fund Sherlock itself & instead to sell it to OraSure for $5m upfront & a $20m earnout, after leading an $80m funding round just two years prior. The director in question, Mara Aspinall resigned from the board after Altai pushed for answers. Not a great look.

Sapphiros

In Jan 24, OraSure led a Series B funding round, (investing $30m) for Sapphiros, a privately held consumer diagnostic company backed by KKR. Sapphiros “develops technologies spanning novel sample collection, next generation diagnostics, computational biology, & printed electronics, aiming to expand global consumer access to critical diagnostic results.”

“Through this strategic relationship, OraSure expects to be able to offer a more comprehensive range of low-cost diagnostic tests and sample management solutions to its customers globally. OraSure has secured exclusive distribution rights to key products in Sapphiros’ development pipeline that align with and enhance OraSure’s existing areas of expertise, including self-collected blood samples and diagnostic tests for sexually transmitted infections, respiratory conditions, and other diseases.”

Not sure we can assign much value here given the investment has been written down by 13.3% in two years, OraSure had to loan them $300k (due Dec 26) & has recognized $200k of revenue.

Customer Focus

Many of it’s biggest customers appear to be health agencies reliant on government funding or actual government health departments. Recently, this funding is being squeezed in the U.S. for global public health initiatives

“Many of our public health customers are dealing with elevated uncertainty given potential cuts to their budgets and significant reductions in staffing at HHS, CDC and other agencies that administer health programs.”

As such, the company has been focusing on growing customers who are less reliant on public health funding, such as specialty pharmacies, hospitals & medical centers plus DTC testing as well as telehealth companies. To speed up this process OraSure hired Anne Messing from Becton Dickinson, BD Biosciences (Prior to that she held roles at Danaher, Quest Diagnostics & Siemens. With more than 25 years of commercial leadership experience in life sciences, diagnostics & clinical laboratory services, Messing will lead Sales, Marketing, and Product Management & aim to ramp the non-public health business.

The Activists

Ron Zwanziger

Ron Zwanziger is a prominent healthcare entrepreneur & a serial dealmaker in the diagnostics industry. He is well-known for founding & selling diagnostic companies. Most notably he sold Alere Inc., a diagnostic test manufacturer, to Abbott Labs in 2017 for $5.3 billion. In June of last year, Zwanziger is said to have offered between $3.5-$4 a share for the company however the board rejected the offer without any engagement. In August he shared with Reuters, a letter he wrote to the board, where he dialed up the pressure noting that he may be forced to go down a more adversarial path.

“If the Board is not willing to entertain a collaborative discourse, we will be left with no choice but to consider all alternatives available,” the letter said. “We would prefer to work together with you in a collaborative fashion to realize the full value potential for all shareholders, rather than pursuing a more adversarial path.”3

Cannell Capital

Carlo Cannell, whose hedge fund Cannell Capital held roughly a 2.8% stake as of Dec, has also voiced dissatisfaction with OraSure’s performance. Cannell has pushed for board refreshment, arguing that at least two new directors are needed to sharpen the company’s strategic direction. Known as a reluctant activist, Cannell’s decision to apparently speak out publicly to Reuters underscores the mounting pressure on management.4

Altai Capital

Rishi Bajaj’s Altai Capital is an independent, value-oriented private investment firm focused on both credit and equity. OraSure is the funds 2nd largest position. Reuters reported that Altai is unhappy with the company’s lack of engagement regarding the offer & wants 2 seats on the board. Neither Altai nor Zwanziger are said to be a group. Altai Capital owns 5.2% of the company (3,613,836 shares). They initially filed a 13-D in Sept & an open letter to the board in March. Altai have been involved for a while now & have clearly been pushing for a sale. Their public letter was pretty scathing but it’s hard for the board to refute much of this. 5

Proxy Contest & Altai Capital’s March 17, 2026, letter:

In the letter Rishi Bajaj painted a scathing critique highlighting how egregious management compensation was when compared to the company’s results, the lack of performance based comp, lack of insider ownership, poor investments & “Chronic Underperformance”. Altai had proposed formal director nominations back in Jan to add Rishi & John Bertrand to the board at the annual meeting. In their letter, they proposed a full strategic review & a sale of the company. 6

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Proxy Statement/ Response to Altai

The company’s response was weak. In ‘OraSure: The Facts’ the company fired back at Altai & on Rishi Bajaj’s track record, but they didn’t address the underperformance. In fact, some of ‘The Facts’ used were problematic & at the minimum, chart crime. Let’s just say the use of the word ‘outperforms’ is used with poetic license ! They also took a pop at Altai reducing their position. They did attempt to veer towards something resembling good governance, by agreeing to declassify the Board beginning in 2027 & agreeing to appoint Altai’s Director Nominee, Mr. Bertrand. 7

Commitment to Declassify the Board: OraSure’s Board is committed to seeking shareholder approval for a charter amendment to declassify the Board beginning in 2027 at the Annual Meeting. OraSure’s Board intends to put forth a proposal to declassify the Board at the Annual Meeting regardless of the outcome of negotiations with Altai.

Most importantly though, the company expects the business to inflect & argues that selling the company now would deprive all shareholders of the future economics. The response mostly dodged the important & somewhat embarrassing stats highlighted by Altai8

Cooperation Agreement

April 16, OraSure announced a Cooperation Agreement with Altai. Altai will withdraw its director nominations & the company would meet with Altai on a quarterly basis “to discuss financial and strategic matters”. The agreement included the customary standstills & voting commitments. Altai can’t go above 9.9% ownership.

It looks like Altai are giving the company some supervised rope here. With the staggered board, I think Altai have concluded that they’ll get more value from & have more influence, being inside the room rather than being agitative outside it. A seat at the table is clearly worth more to them at this point.

SG&A

Costs are bloated. The company is carrying a cost structure that’s reflective of a business doing $300-400m in revenue, not a third of that. Management have committed to rightsizing the business by reining in R&D spending & SG&A. According to the PR response to Altai, they have implemented a ‘workforce rationalization’ of ~40% since 2023 (840 employees in 2023 & 500 as of y/e 2025). They also quietly announced another round of layoffs <10% in the 10k. The company closed four global sites, including Thailand & Canada, wound down two declining product lines & consolidated production & manufacturing into Pennsylvania. They’re targeting 50% gross margins (+260bps since 2023 ). If they can rationalize their costs, they’ll reduce their cash burn & buy some time.

Capacity

On the Q4 call, the CFO reiterated the point that they’re currently running at only 30% Capacity. That’s a lot of costs for not a lot of product. If Sherlocks Chlamydia & Gonorrhoeae or The Colli-Pee STI test is approved, margins could expand dramatically as operating leverage ramps.

The Insiders

At first glance, insiders own a decent amount of stock & are showing confidence / backing up their talk with action.

In 2025, CEO Carrie Eglinton Manner & CFO Kenneth McGrath both made open-market purchases. They’ve kept these up in 2026 under Rule 10b5-1 plans to demonstrate their confidence to the market.

Carrie Eglinton Manner owns 2,190,874 shares as of Mar 20th. 3% of the company. That’s up over 500k shares from this time last year. Sounds good, right ? She would receive ~$8m if she is terminated within a Change of Control Period so would walk away with ~$15m.

Kenneth J McGrath, CFO owns 448,463 shares. He would receive ~$2.2m should he be terminated within a change of control period & would stand to net ~$3m if the company was sold.

At first glance, this is an impressive vote of confidence by the CEO & CFO in addition to sizable packages should they get the boot, but in reality their grants dwarf their open market purchases & they continue to draw large salaries, which makes me think they’re content to scratch a few more lotto tickets.

Other / Misc.

Buyback

In March 2025, the company authorized the repurchase of up to $40 million. In the Q1 Conference Call, the CEO noted that it would be spread out over the 8 quarters. Asked about their cash balance & how they are thinking about it the CEO said “Yes, you nailed it, …….. we’re very much focused on M&A opportunities…”. The company hasn’t proved itself to be especially proficient capital allocators. I’m not sure why any large investor would sit back & allow them buy back $40m of stock & blow the remaining $200 million on acquisitions. ($15m already deployed as per the recent proxy). As a result, it’s easy to see why investors are getting impatient. Additionally, in the March 17, 2026 press release the company says they have been engaging with Altai for over a year, corresponding exactly to the announcement of the buyback. Taken together, it strikes me as more of a token gesture/ attempt to appease investors.

Don’t be stupid !

“With a robust cash position, OraSure maintains significant optionality to pursue disciplined acquisitions and strategic partnerships that enhance our portfolio while continuing to invest in R&D targeting high-value growth markets.” - Press Release, March 17, 2026

Altai pointed out that with $200m in cash, management could have gone out & bought one or more established businesses with already substantial revenues & product volumes that could utilize the company’s excess capacity. Instead the company chose to buy pre revenue moonshots. Hopefully with an adult in the room now, capital allocation will not just be for show.

Property

The Company owns outright a 31,700 square foot facility that houses its primary corporate office, sales & marketing, R&D, HR & Reg Reporting (220 East First Street). The Company also owns a 48,000 square foot facility (150 Webster Street) & a 33,500 square foot facility which are used for manufacturing activities (1745 Eaton Avenue). These are all located in Bethlehem, Pennsylvania. Eaton Avenue is advertised for sale/lease on Loop.

NOLs

The Company has accumulated significant net operating loss carry forwards (NOLs) stemming from pre COVID operations, increased R&D during Covid & the post pandemic drop off in revenues. These serve to provide a valuable tax shield for future profitability & a somewhat hidden asset for a potential acquirer.

Federal NOL carryforwards ~$246m. (None of these have an expiry). The Company also has state NOL carryforwards ~$65m. (The state NOL carryforwards have expirations)

For an acquirer, the value of the NOL’s is present value of the tax savings they can actually use, not the face value of the NOL’s. If we assume a 21% federal tax & an 8% discount rate we get something in the range of $20/$30m over 10 years. I’m not sure the state NOL’s are worth adding on.

Litigation - NowDiagnostics, Inc. (NowDx)

In late, 2024 OraSure filed a complaint against NowDiagnostics, Inc. a private diagnostics company alleging misappropriation and misuse of the Company’s proprietary information & trade secrets in violation of the Federal Defend Trade Secrets Act. Allegations suggest former employees gave OraSure’s confidential information to NowDx. before jumping to the rival medical company. NowDx also filed counterclaims against the Company. The case is currently in the discovery phase and the schedule for any further proceedings is currently pending.

Summary

Look, I think this is a pretty interesting situation & everything has a price. With OraSure, you get a couple of shots on goal here with the Chlamydia /Gonorrhoeae & Colli-Pee STI FDA Review, improved corporate governance & some safety net given the cash balance. Above the line the company needs to convert their underutilized capacity into actual revenue & below the line, they need to reduce the cash burn. Perhaps then, the market will reward it with a real valuation instead of a leaky cash box.

It reminds me of Keros somewhat.. Do just enough to get people off your back. Altai’s stake is worth approx. ~$11m. Enough to be taken out with the buyback & remove the activist, perhaps with a small premium?.. Given how we now have a cooperation agreement, it’s probably unlikely, but with an entrenched management team & committed activist investor.. anything is possible.

That said, I’m not sure anything is imminent here. Added to that, I have no faith that management will spend the $200m cash wisely. That said, should we get a positive catalyst from the FDA & this will change, quickly! For now, I’m staying on the sidelines..

The Disclaimers

Disclaimer #1: Remember, I am Jon Snow. I know absolutely less than nothing. Don’t listen to me. Put all your money into an index fund & laugh at the rest of us. I make mistakes, lots of them in fact. Please feel free to point out if, or how many, I may have made above.

Disclaimer #2: As always, please remember disclaimer #1, I am Jon Snow. I know absolutely less than nothing. Don’t listen to me. Put all your money into an index fund & laugh at the rest of us. I make mistakes, lots of them, in fact. Please feel free to point out if, or how many, I may have made above.

Disclaimer #3 : This commentary is for informational & personal opinion purposes only. It is not financial advice (let’s face it, it’s basically comedy), and I am not your fiduciary. You should do your own research and consult a qualified financial advisor before making any investment decisions. You & you alone are responsible for your pnl. There is no community adjusted pnl, only yours. DYODD !! & DO NOT TAKE INVESTMENT ADVISE FROM PEOPLE ON THE INTERNETS THAT FOUND INVESTMENT RELIGION DURING COVID… or me for that matter !! I may buy or sell at any time…. most likely the day before something happens. You do you.

The Footnotes

An aligned c-suite, strategic sponsor & an inflecting theme is a powerful combination. In Sonida Senior Living, we have all three. Add to that, a transformative transaction, a cleaned up capital structure & a highly incentivized management team.

Smell that ???

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The Company

Sonida Senior Living, Inc., (formerly Capital Senior Living) has owned, operated & invested in U.S. senior living communities since 1990. Senior housing usually includes a range of properties caring for different types of residents at different stages of their lives, including independent living, assisted living, memory care & skilled nursing facilities (more commonly referred to as nursing homes). Essentially its housing & related services to people aged 75 years+ - think of meal preparation, housekeeping, laundry, care worker staff, transportation, as well as social & recreational activities. ~92% of resident revenue comes from private pay & the remaining ~7% from Medicaid.

In recent years, operating senior living facilities has been an increasingly tough business. Sonida, like most of its competitors has faced a multitude of shocks over the last 10 years. Demand, Supply & Costs all impacted the business at one time or another, each with varying severity.

Supply - Overbuilding

Post GFC recovery spurred a construction boom as developers chased demand forecasts, with construction climbing from 2016 to 2018 & annual starts peaking around 2016/17. Construction ramped aggressively with expectations of the oncoming baby boomer wave. These new build deliveries saturated the market which couldn’t absorb the supply. This quickly drove down occupancy.

Now the industry has flipped from overbuilt to underbuilt. Inventory has rolled off, higher financing costs, labor constraints & elevated construction costs have all directly impacted supply. Construction starts are hampered by long lead times & the industry is not building sufficient capacity creating a tailwind for the industry as a whole.

Demand - Covid

Move-in restrictions were implemented to protect vulnerable senior housing residents from virus transmission, directly causing a crash in absorption rates (the change in occupied units). Governments, states & facilities worldwide banned non-essential visitors—family, friends, & prospective residents. Occupancy dropped sharply, even after Covid, as people were hesitant to return to these facilities fearing high outbreak risks in communal settings & talk of large increases in mortality rates. The pandemic low of Feb 2021 saw average monthly occupancy of 75.3% for Sonida. Additionally, costs ballooned as the company incurred substantial costs for procurement of additional PPE, additional cleaning & disposal & expenses for hazard pay at certain communities with COVID-19 positive residents.

That’s now firmly in reverse. There’s already a strong acceleration of occupancy post Covid & between 2025 & 2030, the 80+ demographic is expected to grow by over 4 million people, reaching 18.8 million people - a massive wave of demand….. you might even say a Tsunami !

WSJ, Feb 2025 - https://www.wsj.com/economy/housing/aging-boomers-are-about-to-rekindle-the-senior-housing-market-cd2ebbb5

Costs - Inflation

Labor costs & shortages have a material adverse effect on the business. Historically, labor costs have comprised about two-thirds of total operating expenses. No doubt Sonida faced severe challenges during Covid, but the post covid inflationary environment was just as bad, if not worse, as labor costs skyrocketed. Record low unemployment rates created an intensely competitive labor environment (by reducing the supply of labor). This resulted in higher-than-typical turnover which led to a difficulty in filling open positions & caused staffing shortages. To cover open positions the company leaned heavily on more expensive, primarily contract agency labor. As of 12/31 Sonida employed 5,140 staff.

To combat this, the company is pushing a new labor model using their proprietary labor tools to identify labor efficiencies & implement more labor monitoring oversight from our corporate support center. This is also focused towards reward & retention as they try to reduce the use of expensive contract staffing. The company is evidently seeing the labor market is beginning to normalize. On the q4 earnings call, total labor, excluding benefits, decreased 40 basis points vs prior quarter & year on year.

The company has transformed itself in recent years from being a small owner operator to the 8th largest senior living facility operator nationwide as of today. Here’s a brief summary of how they got there..

Recapitalization

2021 was a pivotal year. Covid had crushed the industry. Revenue dropped from $357.1m to $190.2m. That’s a 47% drop! Lenders & partners were getting worried. To survive, the company was forced to dispose of 66 properties over the course of a couple of years through lease exits & restructuring agreements with Vestas, Welltower & Healthpeak, extended loans with PNC, transfers to Fannie Mae & even outright sales.

That’s when Conversant Capital stepped in, initially with a bridge loan in July & then a full recapitalization of the company via a backstopped rights issue that closed in Nov 2021. The transaction was amended after some investor push back - but, even after some modification, it still had the effect of handing majority control of the company & board to Conversant & Silk. After the transaction Conversant owned >57% of the shares outstanding with the Flick Family Office owning just shy of 10%. The company formally changed it’s name from “Capital Senior Living Corporation” to “Sonida Senior Living, Inc.”

Sonida raised $154.8m significantly strengthening the Company’s liquidity & debt positions. They addressed/ refinanced all mortgage debt maturities through mid-2024. But the play was not just to survive - they were aiming to take advantage of the fragmented sector. Conversant invested via a Series A Preferred Stock ($42.5m) with an 11% coupon, 1.65m shares of common stock at $25 per share & 1,031,250 warrants struck at $40. They also bought 1,160,806 shares by backstopping the rights issue. This wasn’t cheap financing, by any means, but according to management, it was their only option. Sama Lenson/Silk/Glick also invested pro rata alongside.

Acquisitions & Current Portfolio

Since 2024, the strategy has moved back to growth - Sonida have opportunistically acquired under-operated quality assets in strong submarkets at significant discounts to replacement cost. Average occupancy is increasing as well as resident rates. Between 2024-2025 they acquired or invested in 24 senior living communities. Until very recently, these have been small tuck in acquisitions. The acquisitions were primarily funded through their revolver or private placement equity issuances to Conversant & Silk/ The Flick Family Office. Initially in Feb 2024 at $9.50 & again in August 24 at $27. As of Dec 31, 2025, Sonida owned, managed, or invested in 96 senior housing communities across 20 states with a capacity of approx. 10,150 residents.

Transformative Transaction - Strategic Merger with CHP

Then in March 26 Sonida completed the acquisition of CNL Healthcare Properties, Inc. (“CHP”) for approximately $1.8bn. (32% in cash & 68% in stock) nearly doubling the size of the company overnight. CHP owned 69 senior housing communities, consisting of 54 managed by third-parties & 15 communities leased under triple-net operating leases. Geographically it was a good fit as mgmt. touted 80% of combined NOI would come from overlapping regional clusters. This would benefit Sonida’s economies of scale & help them squeeze synergies based on existing regional staffing, procurement & marketing relationships.

Transaction Financing & (Cleaned Up) Capital Structure

Once again, Conversant & their key investors played a pivotal role in financing the transaction. They funded $110.0 million in exchange for the issuance of 4,113,688 of Sonida common stock in a private placement. Additionally the prefs were converted into equity (Sonida paid Conversant $5.8m) & the warrant expiry was pushed out a year. Conversant now own 33% of the combined company & Michael Simanovsky, Founder & Managing Partner of Conversant was appointed as Board Chair on the closing of the transaction.

Sonida obtained a 364 day bridge loan & permanent debt financing for the remainder via a new upsized $405 million revolver & two 3 & 5 year term loans of $262.5m each. Additionally, they included an ‘accordion feature’ which allows them an additional $320m should they need to do some further shopping !

“The New Revolving Credit Facility will also provide meaningful available liquidity and dry powder to the Company for its continued opportunistic acquisition strategy.”.. CEO Ribar.

“Sonida’s overarching objective is to capitalize on the long-term tailwinds of favorable demographics and supply constraints within senior living by operating and growing a best-in-class owner-operator platform. This transaction represents an inflection point in our pursuit of that objective as it more than doubles Sonida’s number of owned units while deepening and expanding our exposure to the most attractive geographic areas for our strategy. We expect to immediately unlock significant embedded synergies and NOI growth through portfolio optimization while also deleveraging, increasing liquidity in our shares, and amplifying our access to capital. We will also continue to drive growth through organic and inorganic initiatives, with the care and services provided to our residents always remaining our top priority.”

Ok, so Conversant are firmly in control & very much aligned. The balance sheet has been repaired, the capital structure has been cleaned up & the company seems to be at an inflection point with massive structural tailwinds on the horizon.

The company has weathered the Demand, Supply & Costs storms - Demand is growing due to an aging population, Supply is constrained & inflation is moderating, operating expenses are coming down.. Best get the management team incentivized….

Grants

On Feb 23, just two weeks before the merger closed, the board approved the grant of performance stock unit awards (PSUs) to the Company’s named executive officers. 275,000 for the CEO, Brandon Ribar & 185,000 CFO Kevin Detz

The PSUs performance period begins on the first anniversary of the Grant Date and ends on the fourth anniversary of the Grant Date. PSUs will be earned and become vested upon the achievement of stock price hurdles… allocated across three tranches, which can be earned… if the Stock Price meets or exceeds $40.11, $53.48 and $66.85 per share hurdles, which represent approximately 150%, 200%, and 250%, respectively, of the reference price of the Company’s common stock in the CHP Transaction ($26.74). One-third (1/3) of the PSUs vest upon achievement of the first hurdle, two-thirds (2/3) of the PSUs vest upon achievement of the second hurdle, and one hundred percent (100%) of the PSUs vest upon achievement of the third hurdle. No partial or interpolated vesting shall occur between hurdles, and no additional shares will vest if a stock price hurdle is attained more than once. Vested PSUs will be settled in shares of Common Stock.

I mean, these are whoppers !! At the max these grants would be valued at $18.3m for Ribar & $12.3m for Detz. Given they earn an annual base salary of $550,000 & $400,000 respectively - these are substantial grants !

It’s interesting that in the same filing they reference Change in Control language. Conversant know they’ll need an exit, management are very much aligned & properly incentivized.

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Other / Misc

Blackstone

Late last year it was reported in the WSJ that Blackstone would be offloading their senior housing assets bit-part & eating a $600m loss. Apparently 9,000 units have been coming to market across >90 properties. This could be great for a player like Sonida where they can chose what they want - close proximity to the current portfolios & apparently at distressed pricing. I would be very surprised if Sonida don’t help themselves to some of these, though I think they’ll be a disciplined buyer. My understanding is that the Blackstone properties may have been targeting the same mid market rates that Sonida target. IL- $3k & AL-$3.5-$4k. Perhaps that accordion feature will come in handy !

CHP Triple Net Leases

CNL owned 15 seniors housing properties leased under triple-net operating leases. The tenant is responsible for the payment of all property taxes, general liability insurance, utilities, repairs & maintenance. REIT investors love these as they offer predictable cash flow often with annual CPI linked escalators. The only problem is that you don’t have any leverage to the cycle & bump rents every year. That said, to certain investors these are likely attractive assets that will generate $147m in leases over the next 5 years.

The Summary

I actually don’t think they’ll be sold any time soon. I think they’ll digest this latest acquisition & keep going with the accretive tuck in acquisitions. They’re in a sweet spot where even small acquisitions move the needle & they’re not competing with the bigger players for whom these transactions wont. I have Sonida trading at about $224k per unit based on a Market Cap of $1.57bn & EV of $1.72bn (14,700 units) & they’ve been buying at at an average of $151k per unit. I think NOI will continue to creep up. $65m for 25 (+8% YOY). I think we’ll see $100m in a few years as leverage comes in, interest expense comes down, costs are controlled & synergies take effect. They’ll likely start to prune the portfolio of underperforming (CHP) assets & pay down debt & then recycle capital into new, better performing assets. I really like the theme & I own a few of the players & have done for a while. That said, Conversant will want an exit. But while they can buy properties at below replacement cost, I think they’ll continue to do so as to best position themselves for the oncoming wave.

The Disclaimer(s)

Disclaimer #1: You should know by now, I am Jon Snow, I know nothing. I could be & probably am, missing a bunch of reasons why this doesn’t work.

Disclaimer #2: As always, please remember disclaimer #1, I am Jon Snow. I know absolutely less than nothing. Don’t listen to me. Put all your money into an index fund & laugh at the rest of us. I make mistakes, lots of them, in fact. Please feel free to point out if, or how many, I may have made above.

Disclaimer #3 : This commentary is for informational & personal opinion purposes only. It is not financial advice (let’s face it, it’s basically comedy), and I am not your fiduciary. You should do your own research and consult a qualified financial advisor before making any investment decisions. DYODD !! & DO NOT TAKE INVESTMENT ADVISE FROM PEOPLE ON THE INTERNETS THAT FOUND INVESTMENT RELIGION DURING COVID … or me for that matter !! I may buy or sell at any time…. most likely the day before it inflects. You do you.

The Footnotes

Q4 25 Investor Deck

https://s204.q4cdn.com/874984612/files/doc_financials/2025/q4/SNDA-Q4-FY-2025-Investor-Deck.pdf

https://s204.q4cdn.com/874984612/files/doc_financials/2025/q4/SNDA-Q4-FY-2025-Investor-Deck.pdf

PSU Agreement

https://www.sec.gov/Archives/edgar/data/1043000/000119312526064396/d705505dex101.htm

Conversant

Original 13D

https://www.sec.gov/Archives/edgar/data/1043000/000089534521000958/ff611042-sc13d.htm

Recapitalization Deck - Investor Presentation.

https://www.sec.gov/Archives/edgar/data/1043000/000119312521221449/d61166dex991.htm

Covid

https://www.nic.org/news-press/effects-of-pandemic-continue-to-impact-u-s-senior-housing-occupancy/

https://www.nicmap.com/blog/senior-housing-industrys-next-challenge-a-demand-surge-without-the-supply-to-match/

https://info.nicmap.com/rs/016-QJL-848/images/NIC-MAP-Vision_Senior_Housing_Market_Outlook_Report.pdf

https://www.newyorker.com/news/dispatch/when-private-equity-takes-over-a-nursing-home

https://www.marketplace.org/story/2022/09/08/private-equity-bought-a-nursing-home-leading-to-staff-cuts-and-a-decline-in-care

Recap Transaction Notes

https://www.mcknightsseniorliving.com/news/shareholders-vote-in-favor-of-capitals-amended-investment-agreement-conversant/

Initially structured as an $82.5m pref at 11-15%. This was later revised to a $41.25m pref at 11% & a $41.25m backstop rights offering.

Blackstone

https://www.wsj.com/articles/blackstone-is-offloading-a-flopped-1-8-billion-investment-in-senior-housing-4a7b85d9

TLDR

LKCM, the majority owner of DSGR wants to take the company private. The stock was taken behind the woodshed after a suspiciously messy Q4 results. The offer is a 52% premium to the prior day price, but to say its opportunistic is an understatement. The stock traded in a solid range for the last 12 months & the unaffected price is realistically more like ~$29. The CEO is the Founder & Managing Partner of LKCM Capital Group & LKCM Headwater Investments, the private capital investment group of LKCM. They already own ~80% of the company & taking out the remaining minority investors would only require cutting a $263m cheque. Coincidentally, the company just upsized their credit facility in Dec 2025 & has $393.7m undrawn on their revolver. Due diligence shouldn’t be an issue, they even say they can get it done by May 8th. Done deal, or chance of a break here ? Let’s dig in……..

The Proposal

On March 14th, LKCM Headwater Investments, LLC submitted a proposal to the board of Distribution Solutions Group, Inc. to acquire all of the outstanding shares of common stock not already owned by LKCM for $29.50 per share. The proposal notes a 52.8% premium over the prior day closing ! Incredible, right ? LKCM Headwater already own 79% of the company so perhaps it’s a decent gesture to the minority..

They are a long term investor, but the rationale is a familiar one - “The Company’s ability to execute has been significantly constrained by the pressures, inflexibility and short-term focus and expectations inherent in operating the Company as a public company.” & “represents a compelling and certain opportunity for the Company’s stockholders to realize immediate and substantial value for their investment.”

… And all this, despite “current macroeconomic, geopolitical and general market uncertainty”….

Financing won’t be an issue, 1) because these guys are huge, they’ve got plenty of capital & 2) the company just recently upsized their credit facilities… Hmm interesting timing there. Due diligence shouldn’t be an issue, they even say they can get it done by May 8th. That’s not even two months away. They already know the business better than anyone.

They go on to note the usual boilerplate stuff…

Satisfaction of Delaware General Corporation Law (the “DGCL”) for a going private transaction with a controlling stockholder.

Expectation of a special committee of disinterested directors, who would need to approve the transaction before the board do.

Proposal is non-binding, subject to change, modification & withdrawal.

LKCM is only interested in acquiring the whole company & have no interest in pursuing a transaction that results in a sale of the company to anyone else.

Full letter here. 1

Q4 Results & Opportunistic Bid

The bid came just days after the stock got thumped after Q4 earnings. The stock ended down ~20% & hit a low of ~$19 in the coming days. Full year margins were 80bps lower than 2024, w/ adjusted EBITDA of 8.9% compared to 9.7% for 2024. For Q4, adjusted EBITDA was $35.4 million or 7.4% of sales - disappointing the market - with each of the businesses experiencing lower year-over-year EBITDA margins. Notably there were a series of “one-off” items in Q4 that impacted full year numbers…. about 150bps of one offs in fact. Some bad debt reserves, hiring costs, higher health care costs & some costs to win clients. All in Q4….. Hmmmmmm.. interesting..

The Company

Distribution Solutions Group (DSGR) is a specialty distribution company providing value-added distribution solutions to the Maintenance, Repair and Operations (MRO), Original Equipment Manufacturer (OEM) and the industrial technologies markets.

DSGR was formed through the strategic combination / reverse merger of Lawson Products (public shell), a leader in MRO & C-parts distribution, Gexpro Services (LKCM portco.), a leading global supply chain services provider to the OEM market & TestEquity (also LKCM owned), a leader in electronic test & measurement solutions. The purpose was to create a global specialty distribution company, each under it’s own leadership & controlled by DSG across the operating co’s.

Their goal is to help their 220 thousand customers lower their total cost of operation by increasing productivity and efficiency with the right products, expert technical support, and fast, reliable delivery to be a one-stop solution provider. They can do this because they have the scale

Lawson (24% of Revenue) is a distributor of specialty MRO products to industrial, commercial, institutional, and governmental customers across the U.S. and Canada, leveraging a network of highly trained sales reps who deliver quality products to customers, offer extensive product knowledge & expertise in addition to Vendor Managed Inventory (VMI) services to optimize client stock levels and prevent shortages. It serves 51,000 customers—automotive (31%), manufacturing (14%) & offers 226,000 SKUs with a focus on aftermarket auto (21%), fastening (16%), and fluid power (14%).

TestEquity (40% of Revenue) is a distributor of test and measurement equipment & solutions, industrial & electronic production supplies, VMI programs, converting, fabrication and adhesive solutions from 900 manufacturers. It operates through its five distribution brands, offers 400k products. It focuses on supporting its customers in aerospace & defense, wireless communication, semiconductors, industrial electronics & auto. It also designs, rents & sells a full line of environmental test chambers.

Gexpro Services (25% of Revenue) is a global supply chain solutions provider, specializing in the development of mission critical production line management, aftermarket and field installation programs. It has 3,300 suppliers & offers ~53k products to it’s 2,100 customers over long term agreements. It’s customer end markets by revenue are dominated by renewables (33%), industrial power (18%) transportation (17%) & aerospace & defense (13%).

Canada Branch Division (11% of Revenue) is a wholesale distributor providing product and service solutions for the industrial, government, commercial and residential contractor markets for the Canadian MRO market. This segment combines the operations of Bolt & Source Atlantic subsidiaries, which distribute industrial MRO supplies, safety products, fasteners etc. via it’s 35 branch locations. With 42k customers across 85k SKUs, revenue is dominated by machining and manufacturing (31%) & contracting (23%) customers, led by sales of safety (17%), fasteners (14%) & plumbing (10%) products.

The value proposition for their customer is that DSGR can source & supply mission-critical parts with expert support & rapid fulfillment. VMI means that the customer doesn’t need to hold inventory & thus tie up working capital. It’s uneconomic for customers to manage this internally due to the sheer bulk storage/ordering costs associated with Class C parts high-volume, low-value - but DSGR has the scale & breath of distribution (that mom & pop outfits lack) to manage this high touch, value added service model.

Sales Drivers

In the 10-K, DSG notes the Purchasing Managers Index (PMI) as being a key proxy for the health of its core manufacturing end-markets, since their MRO, OEM supply chain & test/equipment customers are tied to industrial activity. They see it as “an indicative measure of the relative strength of the economic environment of the industry in which it operates.” They also note that PMI has been trending higher in 2025 when compared to 2024 & 2023. So, PMI is relatively weak, but trending higher, but it doesn’t seem to tally with the company’s poor Q4.

“A measure of the PMI index above 50 is generally viewed as indicating an expansion of the manufacturing sector while a measure below 50 is generally viewed as representing a contraction. The average monthly PMI was 48.9 in the year ended December 31, 2025, compared to 48.3 in the year ended December 31, 2024, and 47.1 in the year ended December 31, 2023.” - From 2025 10-K - Sales DriversBuybacks

In 2025, they bought back 776,924 shares for $23.5m (avg cost; $30.26). For 2024, they bought back 85,644 shares for $2.6m (avg cost; $30.13). There was $32.9 million remaining in the authorization at Dec 31, 2025. As per the covenants, they can buy back $50m a year.

On Q4 call, they said “Our strong cash generation in 2025 positioned us to be more active in share repurchases.”. It’ll be interesting to see if or how much they repurchased YTD 2026 through the date of the proposal. The buyback makes me think they were always heading towards full ownership, the market overreaction to Q4 results just tipped their hand.

Their debt covenants only allow them to repurchase $47.5m or 25% of EBITDA per annum. Given the illiquidity of the stock, it would be hard to buy this back without impacting the price.

(r) other Indebtedness in an aggregate outstanding principal amount not exceeding at any time the greater of $47,500,000 and 25% of Applicable EBITDA.

Buyout of Minority

So, as of Feb 27, there were 46,186,293 shares outstanding. LKCM own 36,357,588 shares (78.72%), insiders own 896,461 shares (1.94%) & passives, STT, Vanguard, Blackrock, Dimensional etc. own another 3,575,204 shares (7.75%). That leaves a free float of about 5.3m shares. Not a lot of liquidity for someone to step in here. These numbers are stale as of 12/31, but should be directionally correct.

At $29.50, they would only have to cough up $263.5m to buy out the minority. An extra $2-$3 bump to get this over the line & make any potential lawsuits go away seems like a smart idea & would set them back $26m.

Credit Facility Refinancing

In Dec 2025, DSGR amended & expanded their borrowings & borrowing capacity. The new facilities include $700m of term debt & a revolving credit facility of $400 million; an increase of $255m from the prior capacity. Additionally the facility permits the Company to increase the commitment by up to $500m ! Sheesh, that was good timing!

As of Dec 31, 2025, they had total liquidity of $469.0 million - ($393.7 million of borrowing availability remaining + $75.3m cash). Plenty left to get this over the line ! Net leverage is ~3.5x. Bumping by 10% would get them to just over 5x. Not terrible to own the whole thing.

The Insiders

LKCM

LKCM Headwater Investments is the Texas-based private investment firm of Luther King Capital Management. LKCM manage ~$28.8bn. The private capital focused partnerships manage ~$3 billion of that AUM. They are very aligned - their firm, partners, affiliates account for approximately 30% of the capital invested in/ committed to their funds. In addition to this, their outside capital is predominantly limited to investors with prior significant experience building businesses similar to those in which LKCM invests :- multiple specialty distribution, industrial asset & related services roll‑ups. This is their bread & butter. They will continue to roll up complimentary businesses compounding cross-selling, margin expansion & scale advantages with a view to becoming the next (or selling to) Fastenal or WW Grainger.

J. Bryan King - CEO, President & Chairman of the Board

King is a Principal of Luther King Capital Management & the Founder & Managing Partner of LKCM Capital Group & LKCM Headwater Investments:- the private capital investment group of LKCM. If you look at his bio in the Proxy you can see specialty distribution is his bread & butter.

“In 2003, Mr. King established the LKCM Distribution Holdings advisory board of operating partners, key limited partners, and relevant thought leaders to support LKCM Capital Group and its affiliates’ investment activities in value-added distribution and related service offerings. In specialty distribution, Mr. King has Chaired and/or been the Managing Partner with direct controlling oversight of DSG (f/k/a Lawson Products, Inc.), TestEquity, Gexpro Services, Relevant Industrial Solutions, Critical Rental Solutions, Commercial Buildings Solutions, Industrial Distribution Group (IDG), Rawson, Golden State Medical Supply, and the ERIKS North American assets, including Lewis-Goetz (LGG), and XMEK (f/k/a ERIKS Seals and Plastics).”

Additionally, he takes no salary. He only gets paid via his ownership of the business.

“We provide NEOs and other employees, except for Mr. King, who does not receive any compensation from the Company in connection with his roles of Chairman, President & CEO, with a base salary to compensate them for services rendered during the fiscal year.” ..

Proxy section “Current Elements of Named Executive Officer Compensation”

Other Misc

The Activists

Gabelli/ GAMCO & Ancora are both on the register (as of 12/31 anyway), but likely not with large enough stakes to effect change. We’re on our own here. It’s very unlikely given the float & liquidity that a fund could acquire enough of a stake to push back significantly.

Likely there’s a lot of integration costs that can be taken out after the latest acquisitions that haven’t been squeezed yet.

The Summary

If this is a done deal - Why is there a spread ? My guess is because it’s controlled. Low liquidity. The free float is pretty small. Between LKCM, insiders & passives nearly 90% of the float isn’t trading.

Risks - If LKCM pull the bid, you’re left holding a controlled company that has shown a willingness to take-under. That said, I think it's a pretty attractive 14% spread with the added kicker of a small bump. It's a structurally good business that I'd be happy to own. It's clear LKCM think the same thing.

The Disclaimer(s)

Disclaimer #1: You should know by now, I am Jon Snow, I know nothing. I could be & probably am, missing a bunch of reasons why this doesn’t work.

Disclaimer #2: As always, please remember disclaimer #1, I am Jon Snow. I know absolutely less than nothing. Don’t listen to me. Put all your money into an index fund & laugh at the rest of us. I make mistakes, lots of them, in fact. Please feel free to point out if, or how many, I may have made above.

Disclaimer #3 : This commentary is for informational & personal opinion purposes only. It is not financial advice (let’s face it, it’s basically comedy), and I am not your fiduciary. You should do your own research and consult a qualified financial advisor before making any investment decisions. DYODD !! & DO NOT TAKE INVESTMENT ADVISE FROM PEOPLE ON THE INTERNETS THAT FOUND INVESTMENT RELIGION DURING COVID … or me for that matter !! I may buy or sell at any time…. most likely the day before they bump the bid to $35. You do you.

The Footnotes

TLDR

CoStar’s 35-year dominance in Commercial Real Estate data faces serious activist revolt over their costly push into residential. Shares have been crushed as EBITDA & net income have been severely impacted by Homes.com investment, despite 2025 revenues of $3.2bn! It’s uncertain whether they can they make the push into residential work. The market hates uncertainty & the shares have been punished.

Ok, I feel slightly dirty even saying it, but could this be a “Heads we win (RRE Succeeds), tails we don’t lose (activists force spin-out/return focus to CRE core)” situation? Let’s dig in……

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The Company

“CoStar Group is a leading provider of online real estate marketplaces, information, analytics, and 3D digital twin technology in the property markets. Our mission is to digitize the world’s real estate, empowering all people to discover properties, insights, and connections that improve their businesses and lives.”…

Started by current CEO Andy Florance in 1986 while in college, CoStar Group is the world’s largest proprietary real estate database company. It’s the the veritable 800lb gorilla in the real estate jungle. But this doesn’t even really do CoStar’s position justice. It has grown into an industry behemoth with 2025 revenues surpassing $3.2 billion.

You’ve probably heard them referred to as “The Bloomberg of Real Estate”, or something to that effect.

The Company derives revenue primarily by providing access to its proprietary database of commercial real estate information, including benchmarking & analytics for the hospitality industry & analytics for lenders & also provides online marketplaces for professional property management companies, property owners, real estate agents, brokers & landlords. Most of their revenue is subscription based & it’s sticky. 93% as of 2025, 96% in 2024 & 95% in 2023. The remainder is transaction based like listings for properties on online marketplaces & providing data capture services for ‘3D digital twins’.

There is little to no customer concentration risk. They are able to offer this to their customers after 35 years of collection, verification & analytics of proprietary real estate data & now have a massive commercial real estate database maintained by the biggest real estate research department in the industry. It’s unsurpassed by anything else out there. It’s from this vast resource pool that the company can then offer their services, feed their information services, source data used in their analytic services & provide content for their online marketplace services & auction platforms.

The amount of data they possess is truly staggering. The whole write up could be filled head to toe with the type & granular detail of data gathered. This data moat & it is certainly a moat, covers a multitude of property types as well as the more granular detail. Think commercial properties, communities, leasing, sales & demand statistics, floor plans & more recently - homes, 360 drone videos & 3D tours. Location, zoning data, buildings specs, tax assessments, mortgage records, for sale / leasing listing histories, contract details, concessions, tenant data, credit scores & even beneficial ownership. It’s impossible to cover it all but suffice to say their data moat is unmatched & unrivaled in the industry.

Valuation

Market Cap $18.26bn, $1bn debt (2.800% Senior Notes due July 15, 2030), $1.6bn in cash. EV of $17.6bn. Historically top line growth has been constantly double digits while EBITDA margins have been in the high 20’s. From ‘23 onward, the push into residential has dampened this significantly. The market had bestowed CoStar with lofty multiples indeed. CoStar has never been cheap, by any means, but it’s subscription based revenue model is incredibly sticky & this has historically been highly valued by the market, & so, commanded these premium multiples. Well, until their residential escapade. Now the market is effectively ascribing negative value to residential. CoStar’s mgmt. team will point to their proven playbook that took the CRE business to where it is today. 59 consecutive quarters of double digit revenue growth are impressive indeed, but the market views the residential as a money pit & the stock has come back down to earth.

Growth & Acquisitions

CoStar has been extremely aggressive when it comes to acquisitions. Initially, they aimed to cement their place as the dominant force in commercial real estate space, to a more recent focus on the online apartment/ multifamily & residential spaces. They’ve often done this buy buying a top three company in the vertical & using their proprietary dataset to propel the network effect.

Acquisitions

Apr 2011, CoStar acquired LoopNet, at the time, the leading online commercial real estate marketplace, for $860m. The reasoning was obvious; combine CoStar’s database with LOOP’s huge CRE listings. This was a huge deal & even the FTC thought so. The complaint reads like an immediate no-go & although they made CoStar jump through some hoops, they ultimately let the deal go through. CoStar would have to lift non-competes & allow customers to terminate longer-term contracts. CoStar would also have to remove bundling its products together in ways that could impede its competitors. Most importantly though, Costar would have to sell LoopNet’s interest in Xceligent, a significant competitor & provider of U.S. commercial real estate information.

Mar 14, CoStar acquired Apartments.com, the premier online apartment rentals resource for renters, property managers and owners for $585m. Their multifamily business would benefit from owning both the data & now the marketplace too.

May, 2021, the Company acquired Homes Group for $152m, a residential real estate advertising & marketing services company primarily operating through its property listing and marketing portal, Homes.com. This was the beginning of the big push into residential.

Oct 2021, Comreal Info (€35m / $41m), the owner and operator of BureauxLocaux, one of the largest specialized property portals for buying and leasing commercial real estate in France. This was followed up by Business Immo in April 2022, a leading commercial real estate news service provider in France. (€6m / $6m)

OnTheMarket, Dec 2023, (£96m / $120.4m) CoStar pushed into U.K. residential buying the operator of onthemarket.com, a U.K. residential property portal - a top 3 U.K. residential property portal.

Matterport, Feb 25, ($1.93bn) was a leader in digitization, spatial data-driven data science, and 3D capture technology. The Company integrates Matterport’s 3D digital tours & twin technology with its information service products & online marketplaces to allow buyers, sellers, and renters to explore properties digitally before even setting foot in the space.

Domain Holdings, May 25, ($1.8bn) one of Australia’s most recognized and trusted property platforms. This expansion mirrored their actions in the U.K & Europe - Buying a trusted brand & combining the marketplace with their vast database. Domain will be integrated into Homes.com to benefit from the same network effects.

The Push to Residential

CoStar’s push into Residential Real Estate (RRE) has been subsidized by the stable cash flows from the CRE business. Just the marketing spend alone has been huge. From 2016 through 2021, selling and marketing expenses were stable at around 30% of revenues. But that figure has since exploded to ~50%. CoStar sees a huge opportunity in the RRE market. The are leaning on their 35 years on CRE investment, data & analytics chops to take on the massive residential market.

That comes with it’s own set of problems. Zillow, the incumbent has deep pockets & is already a household name. People ‘Zillow’ something as much as they ‘Google’ it. CoStar aims to disrupt the residential marketplace with a unique strategy & revenue model defined as “Your Listing, Your Lead”. This means CoStar doesn’t indiscriminately sell leads to whomever pays the most, instead the leads go directly to the listing agent. The thesis is that this will build loyalty & increase lead quality. Combined with their massive database & Matterport 3D tours, they hope to make Homes.com a verb too.

This expansion has come at a cost. While the top line is growing, a deeper look shows that costs are ballooning & net income is shrinking substantially due to the spending on Residential / Homes.com. This has not gone unnoticed by the market & in particular has driven the ire of some notable investors. Is CoStar punching above its weight, or spending above it’s paygrade ?!

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The Activists

Third Point / Dan Loeb

Run by Dan Loeb, Third Point, manages ~$24bn in AUM. Loeb started at Warburg Pincus before stints at Citi & Jeffries trading high yield & distressed debt. In ‘95 he struck out on his own with $3m raised from family. Loeb has a long history of taking stakes in companies & pushing for changes. He became famous for his ferocious activist letters addressed to CEOs & boards running underperforming companies. Particularly striking was the now infamous ‘Alice in Wonderland’ letter to Yahoo’s CEO Scott Thompson.

Thompson was forced to step down just a few months later after Third Points investigative analysis found he had misrepresented his education credentials.

D. E. Shaw

Mostly known as a quant shop, D.E. Shaw is a multi-strat fund with reported AUM of $85bn. It also runs a large constructivist/activist equity strategy, taking sizable stakes in underperforming companies & pushing for governance, operational & capital‑allocation changes. Notable cases included Emerson in 2019 & FedEx in 2022.

Timeline

In early April, 2025 CoStar filed an 8-K & announced they entered into a support agreement with D. E. Shaw & Third Point. In it they added three new independent directors; Christine M. McCarthy, John Berisford & Rachel C. Glaser to the board.(Concurrent with the resignation of 3 directors). Both D.E. Shaw & Third Point agreed to the usual standstill agreements (vote with the board, not to solicit any proxies, non disparagement, not to form a group, seek the removal of the board or acquire ownership above certain thresholds). CoStar would also agree to form a Capital Allocation Committee.

Third Point “beneficially own or have economic exposure to 8,353,000 shares of common stock” at the time- roughly 2% of the company. Given their Q1 25 13-F only reflected 1.975m shares, we know that they held 6.3m shares on swap… my guess is with UBS & or MS. John Berisford is specifically noted as the Third Point Nominee.

D.E. Shaw’s position isn’t revealed in the agreement, however we know it is below 7.5%, as they cannot exceed this amount per the agreement. And it’s below 5% as they’d have to file a 13G. From what I can tell, Christine M. McCarthy was D.E. Shaw’s acceptable ‘Independent Appointee’, though not specifically mentioned as a nominee. Its noted that she can stay on the board as long as D.E. Shaw held at least 50% of their position as of the standstill. Their 13-F for the corresponding period reflects under 1m shares, so my best guess is that they also held a position on swap, but there’s no way to tell.

2026 Guide

On Jan 7th, 26 CoStar provided an update on long-term financial targets for its net investment in Homes.com including ‘meaningful moderation’ in investment, a new $1.5 billion buyback & an overhaul of exec comp ‘responding to stockholder feedback’. In it, they emphasized the approval of the previously set up Capital Allocation Committee. This was a clear response to the activist pressure, point by point; Outlining bullish 2026 guidance, Homes.com Investment Moderation, Capital Returns & Governance Changes. Guide of $3.8bn in revenue & adjusted EBITDA of $770m at the midpoint, or an increase of 75% ! Florance proclaimed “The heavy lifting is done”.

Expiry of Cooperation Agreement & Standstill Agreement

A few weeks later, the standstill expires & Loeb releases a letter to the board. He pulled no punches ! In it, Loeb bemoaned the lack of progress after a year & resolved to take further action. Loeb noted $3bn had been spent so far on residential with little-to-nothing to show for it. Loeb calls the board “feckless” for paying the CEO extremely well for poor performance equating to a $37m “Participation Award”. Up there with top ranked S&P constituents. It’s all too-little too-late for Loeb.

https://www.businesswire.com/news/home/20260127616511/en/Third-Point-Sends-Letter-to-Board-of-Directors-of-CoStar-Group

CoStar Fights Back !

CoStar shot back, reiterating the steps they had taken in consultation with investors to improve financial performance by lowering the capital intensity of residential & improving corporate governance.

“Unhappy with the conclusions of the independent Board they helped pick, Third Point, like a child with a board game, wants to throw the pieces off the board.”

D.E. Shaw piles in !

On Feb 4th, D.E. Shaw released an open letter & presentation to the Board that echoed Third Points letter. Stock underperformance, shareholder value destroyed despite good core earnings due to overinvestment in residential. There’s a great slide in the deck that shows the Super Bowl spending comps in revenue terms !

Additionally, they highlight how the core business is being eroded by the misallocation of capital & resources.

Baillie Gifford

Not everyone was backing the activists though. Baillie Gifford backed CoStar management & highlighted that the company has a track record of successfully reinvesting capital into new endeavors. As CoStar’s 7th-largest holder w/ 12.9m shares a ~3% stake, this a serious endorsement ahead of what is set up to be a blockbuster proxy fight.

Just over the last couple of days it’s been getting particularly spicy. On March 10th, D.E. Shaw released another letter to the board lamenting that CoStar changed segment reporting, a bad faith attempt to disguise & obscure homes.com true earnings by combining it with the other residential segments, rather than the granular breakout previously provided. … Honestly, it’s not a great look.

“CoStar announced a sudden change in reporting structure that provides investors with less visibility into its underlying operating business… represents a troubling step backward for transparency and accountability. … appears designed to obscure the results of CoStar’s persistently underperforming Homes.com business...”

CoStar blasted back raising questions about D.E. Shaw’s motivations in shutting down residential given it owns a measly 0.22% of CoStar stock but 4X that of CoStars competitors !

“If D. E. Shaw is worried about transparency, it should start with itself. D.E. Shaw has never disclosed its economic exposure to CoStar Group, or even if it is a net long investor. Public filings suggest D. E. Shaw owns just 0.22% of CoStar…, but almost 4x that value in CoStar Group competitors who would directly benefit from D. E. Shaw’s push for us to abandon Homes.com… CoStar Group stockholders should ask if D. E. Shaw’s real agenda is to unlock value through its investment in CoStar Group or in our competitors at the expense of CoStar Group stockholders.”

Primes

There’s a lot of stock held by the usual suspects. Obviously this data is stale as of Dec 31, but its indicative of the likely large position maintained on swap by other players. 13-F’s are decent proxies for positioning, but remember, they’re not giving us the full picture, only a partial glance. They’re 45 days stale, don’t account for debt, short positions or other offsetting positions.

The Insiders

Florance doesn’t own a lot of stock. Not really a great look given he’s the founder. He’s also been a net seller since the push to residential. Until very recently, he’s never bought much stock either, at least until Feb 27th, when he bought $2.5m worth. Clearly a defensive & token buy. He owns ~3m shares or about 0.69% of the company. The same can be said for the rest of the c-suite. Not a huge amount of alignment there. Recent insider purchases by new directors of 1k shares & 20k by Fredrick Saint, President of Marketplaces are all dwarfed by their comp. Clearly this is for optics. Likely another appeasement to the proxy advisors.

Other / Misc

LaaS - Litigation as a Strategy

CoStar are pretty infamous for using litigation as a strategy. Most recently, they are suing Zillow for “the infringement of nearly 47,000 CoStar Group-owned images. Many of these images prominently displayed CoStar Group’s distinctive star watermark, identifying CoStar Group as the owner.”

You might think, this will go no-where, but they’ve used it before, & to great effect. They even allegedly have their own internal ‘Anti-Piracy Team’.

CoStar first sued LoopNet in 1999 & were in protracted legal disputes for years before CoStar acquired the company. Additionally, in 2012 after buying LOOP, as above, the FTC forced them to sell LOOP’s stake in Xceligent. At the time, Xceligent was one of the biggest providers of U.S. commercial real estate information & a significant competitor, the only one on a national level. A few years later, in Oct 2016, CoStar sued Xceligent, claiming that its biggest competitor stole & resold CoStar’s proprietary data on an industrial scale. Xceligent sued back alleging CoStar had not abided by the FTC’s anti monopoly remedies when buying LoopNet. Not 12 months later, Xceligent collapsed into bankruptcy. A federal judge awarded CoStar $500 million for massive copyright infringement (CoStar’s photos & data). They settled for $11m, but the real victory was the total removal of their biggest competitor.

In 2015, CoStar sued RealMassive, again for copyright infringement. The case was settled within a year. Andy Florence, as usual, used the win to great affect -

Buybacks

The company has never really bought back stock. In 2024, they repurchased just enough to satisfy the employees’ tax withholding obligations arising as a result of vesting of restricted stock grants. But since the activists arrived they’ve put the foot down & announced a 1.5bn program, $700m of which is planned for 2026 including a $500 ASR for Q1 alone.

During the year ended December 31, 2025, we repurchased 7.1 million CoStar Group Shares for an aggregate cost of $500 million under the Prior Stock Repurchase Program, including shares repurchased under an ASR agreement.

We currently expect to repurchase approximately $700 million of CoStar Group Shares during 2026, including a planned $500 million accelerated share repurchase of CoStar Group Shares to be executed in the first quarter of 2026, followed by approximately $200 million of additional open-market repurchases during the remainder of the year.

Andy Florance - Updated Employment Agreement

On Jan 6, 2026, the company filed an 8-K with an updated Employment Agreement for Andrew C. Florance. The only change was the removal of one clause. Section 22. ‘Special Reimbursement’- was removed from his employment agreement in Jan 2026. In it, the company had agreed to ‘Gross‑up’ any payments that the CEO may receive should he be terminated. Effectively the executive ends up with a specified “net” (after‑tax) amount, thereby ‘insuring’ the executive’s after‑tax outcome. Gross‑ups can dramatically increase total compensation in a deal, since the company pays both the executive’s tax & the tax on the gross‑up. Proxy advisors such as Glass Lewis & ISS & institutional investors often refer to these as excessive. The CEO & or board are clearly getting their ducks in row in advance of a proxy fight & in an attempt to appease the proxy advisors & reduce the possible ammunition to Third Point & co by removing these corporate governance ‘no-no’s’. Given how Third Point have referenced lack of shareholder alignment & ‘participation awards’ , it makes sense that the board chopped this, as it’s much more defensible in a shareholder friendly compensation narrative.

CoStar… Airlines ?

An interesting tidbit from their K is that CoStar has an airplane…. actually it has a few: CoStar One is an aerial-research aircraft (Cessna Grand Caravan) used in it’s Land.com business to canvass for construction sites, new building development & commercial real estate activity. Additionally though, a Bombardier Global 6000 private jet has been mentioned on multiple occasions during the Domain deal. D.E Shaw mention “the Company's multiple private jets” in their Feb 4th Letter aimed squarely at excess spending. Not a lot to go on here, but it gives the activists another lever given the costs associated with jet fuel & crew.

1331 L Street

There’s a great anecdote that speaks to the power of Costar’s platform. In early 2010 CoStar bought 1331 L Street in Washington D.C. for $41.25m. This was an approx. 50% discount to it’s construction cost less than two years prior. Florance proudly touted how CoStar used it’s own proprietary data & analytics to capitalize on distress & opportunistically buy the building at the bottom of the market. This was further reinforced just 12 months later when CoStar sold the building for $101m in a sale lease back transaction.

Vacancy Rates / Recession Resistant

CoStar performed well during the GFC beating revenue & EBITDA targets. It could be argued that a recession & higher vacancy rates might increase sales if empty spaces need to be marketed. A flight-to-data could bolster their revenue as landlords & agents push on marketing.

AI

So, will AI kill CoStar ? I don’t know. Please see my disclaimer, I’m Jon Snow !! Though , given how litigious the company is, I would think they would quickly sue the pants off anyone scraping their source data. The recent Homes AI & Matterport virtual tours backed by 35 years of data & analytics could very well supercharge CoStar’s residential platform. That said, it remains to be seen how it will line up to Zillow with spending reigned in.

The Set Up

Third Point & Co. are not happy. If they have their way, the board will likely get replaced. Residential will be sold, spun out or show a quick & material reduction in investment. The company will renew it’s focus on the CRE core. Margins will improve, the market will rejoice, the stock will rerate, all will be well.

Ok, look, maybe not, maybe this ‘tit for tat’ will drag out & continue to negatively impact the stock for another year. But, on the other hand, if management can execute? Well, then the market will start to reward the potential of the residential business & it’ll grind higher. If they hit their guide of $740-$800m & allay investors fears that they are finished burning cash on Homes.com, especially over the next few quarters, then I could see it re-rating fast.

This is Loeb/Third Points first activist battle in a few years. I think this alone raises the bar for Loeb. He chose CoStar as the situation worth re‑entering the activist arena for & he chose to do it publicly (after initially staying low key). Given CoStar have been battling back publicly, there’s some reputational stake involved here. I don’t think Loeb is done. D.E. Shaw have been the loudest so far… watch the quiet ones…..

I think there’s a trade here. Do I want to own this for the next 3 years.. I’m unsure. I certainly don’t want to anchor to a historical price, P/E etc. but I think there’s enough pressure on Florance & the board here to get something done in the next 12 months & restore faith…. or, you know … get fired.

Wow.. you got this far… Don’t stop now !

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The Disclaimer(s)

Disclaimer #1: I am Jon Snow, I know nothing. I could be & probably am, missing a bunch of reasons why this doesn’t work.

Disclaimer #2: As always, please remember disclaimer #1, I am Jon Snow. I know absolutely less than nothing. Don’t listen to me. Put all your money into an index fund & laugh at the rest of us. I make mistakes, lots of them, in fact. Please feel free to point out if, or how many, I may have made above.

Disclaimer #3 : This commentary is for informational & personal opinion purposes only. It is not financial advice (let’s face it, it’s basically comedy), and I am not your fiduciary. You should do your own research and consult a qualified financial advisor before making any investment decisions. DYODD !! & DO NOT TAKE INVESTMENT ADVISE FROM PEOPLE ON THE INTERNETS THAT FOUND INVESTMENT RELIGION DURING COVID … or me for that matter !! I may buy or sell at any time…. most likely the day before something happens. You do you.

1The Footnotes

TLDR

SEM founder & Exec Chair Robert Ortenzio owns 12.4% & wants to take the company private. (Closer to ~15% with his consortium) . JPM & Wells Fargo debt + WCAS equity financing is committed. Post-Concentra spin-off, debt has been halved & the board just announced a $1bn buyback (>50% market cap). Ortenzio sees the oncoming Silver Tsunami, knows the business will accelerate & wants to capture the upside for himself.

The Company

Select Medical ($SEM) is one of the largest operators of critical illness recovery hospitals, rehabilitation hospitals & outpatient rehabilitation clinics in the US; based on number of facilities. At year end, in total the company operated 2,059 facilities in 39 states & D.C.

Founded by Rocco A. Ortenzio & Robert A. Ortenzio in Pennsylvania, the company aimed to provide specialized care for patients needing recovery after acute treatment. Rocco Ortenzio, a qualified Physical Therapist initially set up his own practice & soon grew it into his first company ‘Rehab Corp’ in 1969, before moving onto his second ‘Rehab Hospital Services Corp’ in 1979, his third ‘Continental Medical’ in 86’ & subsequently his fourth, ‘Select Medical’ in 1996. Over the years, he made a flurry of deals to transform Select Medical into what it is today. The company began in 1996 with a focus on outpatient physical rehabilitation but through a whirlwind of acquisitions grew into a large national operator of critical illness recovery hospitals, rehab hospitals & over 1,900 outpatient rehab clinics across 39 states.

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The company’s historically acquisitive streak changed in 2024 when SEM IPO’d its occupational health business, Concentra (CON) in July 2024, which, at the time represented approx. 40% of consolidated EBITDA. SEM received $516 million of net proceeds from the IPO and retained an 81.74% stake in the business. In Nov 24, they distributed the remaining CON shares tax free to shareholders. SEM had entered the occupational healthcare business in 1999 with the acquisition of Nova Care Physical Rehabilitation and Occupational Health Group for approx. ~ $225m including debt. SEM would now focus on its core business of patient care across critical illness recovery & rehab while Concentra would, in theory, get credit for being a dominant player in occupational therapy. Mgmt. believed that the market would give the individual firms better multiples by separating Concentra from the rest of the company. Additionally, the remainco. would use proceeds from the IPO to reduce debt.

Long term debt now stands at $1.85bn, down by half from before the Concentra spin. At $15 & 124m shares o/s, that’s roughly equal to the market cap of $1.86bn, giving us an EV of $3.63bn. Net Debt to EBITDA of ~3.75x or a leverage ratio of 3.67 as per their covenants (ratio of total indebtedness to consolidated EBITDA for the prior four consecutive fiscal quarters). The father/founder retired in Aug 24 & passed away on October 26, 2024. The son (co-founder) succeeded the father as Select’s COO from 97- 2001 & CEO until 2013. He currently serves as Select’s Executive Chairman and Co-Founder of the Company.

Segment Information

Post spin, they now break their operations into 3 main segments

Critical Illness Recovery Hospital Segment.

A Critical Illness Recovery Hospital is designed to meet the medical needs of patients that have complex medical needs - often after some time in an intensive care unit (ICU). They usually need a much longer length of stay than patients would need in a general care hospital. Think- post heart surgery or respiratory failure, serious accident or trauma. The majority of their locations in this segment are operated as a ‘HIH’ or a hospital within a hospital. In this case, they are leased from the hospital owner & operated as distinct & separate entity within the same space. Out of the 104 locations, as of Dec 31, 70 were operated as HIH’s & 34 were operated as free-standing hospitals. Average stay is approx. 31 days.

104 hospitals, $2.47bn in revenue, accounting for approx. 53% of total 2025 Revenue. Adj. EBITDA $265.4m ~10.7% EBITDA margins & approx. 42% of company EBITDA. Approx. 32% of segment revenue is derived from Medicare.

Rehabilitation Hospital Segment

The company’s Rehabilitation Hospitals Segment provides comprehensive physical rehabilitation programs & services to patients. Employees provide specialized care to patients with complex medical needs. At Dec 31, the company employed approx. 14,600 nurses, respiratory therapists, physical therapists, occupational therapists, speech therapists etc. in the 38 rehabilitation hospitals in this segment. Average stay is approx. 14 days.

38 locations, $1.29bn in revenue, accounting for approx. 24% of company revenues. Adj. EBITDA $278.6m ~22% EBITDA margins & approx. 44% of company EBITDA. Approx. 45% of segment revenue is derived from Medicare.

Outpatient Rehabilitation Segment

The company’s Outpatient Rehab Segment provides programs & services designed to help patients reduce physical & cognitive pain & impairments & return to normal daily activities - post treatment or operation. As of y/e, the company employed approx. 11,500 licensed physical therapists, occupational therapists & speech-language pathologists across 39 states & 1,917 locations usually in a medical facility or mixed use retail complex.

1,917 locations, $1.28bn in revenue, accounting for approx. 24% of company revenues. Adj. EBITDA $90m ~7% EBITDA margins & approx. 14% of company EBITDA. Approx. 15% of segment revenue is derived from Medicare.

Ortenzio Take-Private Proposal

In Nov, 2025, Robert A. Ortenzio filed a 13D & letter to the board proposing a take private for $16.00 to $16.20 per share. The board formed a Special Committee to evaluate the proposal & will consult with their advisors. They also noted “the Special Committee is evaluating other potential strategic alternatives to maximize stockholder value.”

So, is he putting the company in play ? Or is he serious about owning the whole thing. Let’s dig in..

Couple of interesting take aways from his proposal letter.

He is ready to move fast.. That said, the board & special committee will have to cross their t’s & dot their i’s to make sure they don’t get sued.

“prepared to move forward with an expedited due diligence process and to negotiate and execute definitive transaction documentation within eight weeks of submitting this Proposal”

Financing is already in place. He has a commitment letter for the debt portion from JPM & WF & has “highly confident” indication from WCAS for the equity slice.

“This Proposal is not subject to any financing conditions and would be fully financed by committed equity financing from funds affiliated with WCAS and committed debt financing from J.P. Morgan and Wells Fargo”.

His Consortium is holds 12.4% & he will allow insiders to roll their holdings. Though I think it’s likely closer to 15% with Rocco’s (father / founder) estate & insiders. Robert A. Ortenzio 11.3%, Martin F. Jackson 1.1% & his late fathers estate ‘The Estate of Rocco A. Ortenzio’ 3.3%.

“Martin Jackson, SEM’s Senior EVP of Strategic Finance & Operations, would be part of the equity consortium ….members of the Consortium and its affiliates hold,.. approximately 12.4% .. of the Company, and will agree to roll over such shares into equity of the surviving company. I may, …, invite other members of management or the board of directors of the Company to roll over their outstanding equity of the Company as well.”

This has been in the works for a while. He’s likely already spoken to the lenders.

Finally, my equity partners’ and my status as “Permitted Holders” under certain of the Company’s existing indebtedness would permit such indebtedness to remain outstanding following completion of the transaction, facilitating our ability to finance the Proposal on attractive terms.

Meaning - he won’t have to refi the debt & pay out at $101 of face value, due to a change of control.

He doesn’t want to get sued - Majority of Minority.

“including the approval of a majority of the votes cast by the shares of SEM stock that are not held by members of the Consortium and its affiliates.”

Other / Misc.

Buyback

One thing that irks me a little here is the buyback. If everyone is on board then why announce a billion dollar buyback ? >50% market cap !? Does it mean the board is split ? Or does it mean that the founder is putting the company in play? Excerpt from Q4 Earnings Call below.

CEO Employment Contract

On Dec 17, 25 the company entered into a new employment contract with the current CEO effective Jan 1, 26. His new salary will be $700k increased from $618k in the prior year. Not sure what to make of this. Was it a little kicker to roll in his chips ?

Medicare

They are heavily reliant on Commercial Insurance (~50%) & Medicare(~30%) for their revenue.

Corporate Governance

There’s been hints of changes being pushed onto the company in recent years that may have perhaps helped Ortenzio want to regain control. While I couldn’t find any signs activist investors have taken stakes in the company or launched public campaigns for change, in 2024, the company approved amendments to the Company’s Certificate of Incorporation to eliminate supermajority voting requirements in addition to declassifying board.

Insiders

There’s no doubt that insiders together have a fairly large stake in the business, but for those not in the consortium, the likelihood of upside participation also comes with the downside of illiquidity lockup, likely 5-7 years.

Refined Proposal / Issues

Just yesterday, Feb 23rd, Ortenzio & the consortium ‘Refined’ (read ‘decreased’) the proposal to $16. “As a result of extensive analysis and diligence, and in light of the Company’s recent performance and outlook”. Does Ortenzio feel confident enough that the board will hit the bid here? Or is it a way to telegraph to the market that be won’t be bumping his offer? The stock had climbed above the bid price in recent days only to take this one in the gut.

Encompass Health Corporation is the closest comp I can find & it trades at approx. 10x EV/EBITDA. Can the special committee approve this at $16 here ? I’m not so sure. I’d feel more confident of a bump if they mentioned they hired an investment bank & didn’t just mention “advisors”. I’m not sure there’s enough juice here at ~8% given the break price is likely in the $12’s. Gun to my head - I think it gets done. If it breaks, I’ll likely scoop up some cheapies. I’m also not sure there’s a great trade here, but i think it shows I’m fishing in the right spot.

Thanks 🫡

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The Disclaimer(s)

Disclaimer #1: I am Jon Snow, I know nothing. I could be & probably am, missing a bunch of reasons why this doesn’t pan out.

Disclaimer #2: As always, please remember disclaimer #1, I am Jon Snow. I know absolutely less than nothing. Don’t listen to me. Put all your money into an index fund & laugh at the rest of us. I make mistakes, lots of them, in fact. Please feel free to point out if, or how many, I may have made above.

Disclaimer #3 : This commentary is for informational & personal opinion purposes only. It is not financial advice (let’s face it, it’s basically comedy), and I am not your fiduciary. You should do your own research and consult a qualified financial advisor before making any investment decisions. DYODD !! & DO NOT TAKE INVESTMENT ADVISE FROM PEOPLE ON THE INTERNETS THAT FOUND INVESTMENT RELIGION DURING COVID … or me for that matter !! I may buy & or sell at any time…. most likely the day before something happens. You do you.

The Footnotes

The Company

https://matrixbcg.com/blogs/brief-history/selectmedical

https://www.selectmedical.com/hospitals-and-centers/critical-illness-recovery-hospitals/

Select Medical History

https://www.fundinguniverse.com/company-histories/select-medical-corporation-history/

Concentra Spin

https://www.forbes.com/sites/joecornell/2024/11/12/select-medical-to-spin-off-concentra-on-november-25th/

Insiders

https://www.cpbj.com/david-chernow-to-succeed-robert-ortenzio-as-select-medical-ceo/

The Proposal

https://www.sec.gov/Archives/edgar/data/918697/000095015725000967/ex99-2.htm

Proxy

https://www.sec.gov/ix?doc=/Archives/edgar/data/1320414/000110465926018229/tm261416-1_pre14a.htm

TLDR

Ok, so here’s a quick special situation for all you deal junkies out there for Presidents’ Day. I’ve seen it mentioned a few times & I’m pretty sure it’s been hinted at by a couple of private newsletters too. It’s a pretty interesting situation that has likely been swept away somewhat in the “SaaS-massacre”. Added to this, the fact that YEXT’s CEO couldn’t get financing for a $1bn takeover; has made the market uncertain about Priore/PRTH too. But there’s a big difference here. YEXT’s CEO only owned ~2% on the company, Thomas Priore owns >58% of his & controls (with his brother) upwards of 62%. Assuming some of his lieutenants roll their equity, he only needs to finance $170m to buy the remaining at $6.15. In addition to this, the company also has $57m cash on the balance sheet & $100m unused on the 2030 revolver. There's also a couple of activists who think Priore needs to pay more to get this done.

The Company

Priority Technology Holdings, Inc. ($PRTH) is a U.S.-based payment technology & banking-as-a-service (BaaS) platform listed on NASDAQ, focused on merchant acquiring, B2B payments & embedded/enterprise payments. It was founded by brothers Thomas & John Vito Priore in 2005. Thomas Priore currently serves as Chairman, President & CEO, whereas John Vito was CEO until December 2018, then served as Vice Chairman until retiring from the board effective April 1, 2025. (interesting timing).

The company operates through three core segments: SMB Payments, B2B Payments & Enterprise Payments/BaaS. It serves approx. 1.2 million customer accounts; processes over $130.0 billion in annual transaction activity & administers roughly $1.2 billion dollars in account balances.

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SMB Payments - now Merchant Solutions

“Merchant Solutions provides full-service merchant acquiring & payment-enabled solutions for B2C transactions. It targets small and medium-sized businesses (SMBs) across the U.S. It uses Priority’s proprietary software platform, including the MX product suite to offer flexible business applications for payment processing & revenue management.”

Essentially, this part of the business handles credit card processing for small/medium businesses selling to consumers (B2C), like retail or e-commerce shops. When you swipe your card or buy something online at a restaurant or retailer Priority handles the transaction: authorizes the card, takes a cut, & ultimately sends the money to the merchant (minus fees, of course). This is the largest revenue contributor w/ $613.5m in 2024 (Adj EBITDA of $109m) & $477m ytd 2025 ($81m Adj. EBITDA).

B2B Payments - now Payables

“The B2B Payments segment delivers accounts payable (AP) automation solutions to corporations, software partners, and financial institutions (e.g., Citibank, Visa, Mastercard), emphasizing virtual cards, purchase cards, ACH+, dynamic discounting, and checks via the CPX platform.”

The payables segment is the business-to-business invoice payment tool that automates how companies pay their suppliers. Instead of mailing checks or wiring money, businesses can use Priority’s software to pay suppliers & vendors faster, cheaper & even gain incentives. (pay early, save 1.5% etc). This is their smallest reporting segment but growing via acquisitions like Plastiq. ‘Plastiq Accept’ offers customers an alternative to more expensive merchant services, enabling businesses to accept credit cards with no merchant fees & get paid across any customer touch point, including websites, invoices, checkout processes & even via QR codes.

Payables generated revenues of $89m in 2024 ($7.6m Adj EBITDA) & $74m ytd 2025 (Adj. EBITDA $10.7m) - Q3, 2025 14% growth for Payables

Enterprise Payments/BaaS - now Treasury Solutions

This segment offers ‘embedded finance’ and banking-as-a-service (BaaS) solutions to modernize legacy platforms for enterprise customers. Instead of a company going to a bank for accounts, cards, and money movement, Priority plugs those capabilities directly into the company’s own platform or app. So users can hold balances, move money, and get paid without ever “leaving” that software.

$180.5m revenues for 2024 ($155m in Adj EBITDA) & $158m ytd 2025 (Adj. EBITDA $134.7m). Q3, 2025 18% revenue growth for Treasury Solutions w/ an 86% EBITDA margin.

Debt

They’re pretty leveraged with about $1bn in debt on the balance sheet & $88m in interest exp. At $22m a quarter the interest expense has been eating up at lot of the operating income. That said, the debt is termed out to 2032.

Q3,25 Earnings & Reaction

PRTH Q3, 2025 earnings were not well received by the market. The stock proceeded to drop 30% from >$7 to <$5 as projected revenue growth of 10% /12.5% for the year would be set to miss by >2% & come in at the lower end of the range at 8% /10%. Not exactly a disaster by any means, but one Thomas Priore was going to take full advantage of…

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Take-Private Proposal

On November 9, 2025, Chairman & CEO Thomas Priore (holding ~58% of shares) proposed to take PRTH private (to acquire all of the outstanding shares of Priority’s common stock that it does not already own) for $6.00–$6.15 per share.

Ok, so there’s plenty of info to go on here. He’s telling us he & affiliates own >60% & that financing is not a problem (#4 below). There’s also a hint at price here “we look forward to an open discussion regarding the structuring of the transaction in a mutually beneficial & satisfactory manner”. If I didn’t know any better it sounds like he’s open to discussions on price. … almost CVR'- ish.

He goes on to say that all equity linked securities will vest providing a little incentive kicker to the employees. Then we get the usual “transaction will deliver immediate certain value, markets are short term in nature, not getting appropriate valuation, etc, etc”

The next day, the Board formed a Special Committee & appointed Barclays as financial advisor & Paul, Weiss, Rifkind, Wharton & Garrison LLP as legal counsel to evaluate the preliminary, non-binding proposal, as well as any potential strategic alternatives to the proposal.

Those “potential strategic alternatives” were quickly shot down when on December 17th, Priore amended his 13D filing “that, in response to an inquiry from the Special Committee regarding the proposal made by the Reporting Person on November 9, 2025, the Reporting Person is interested only in acquiring all of the outstanding equity interests of the Issuer not held by the investor group, and that he does not intend to sell his stake in the Issuer to any third party.”. So, it would be incredibly difficult for a third party to come in & make a bid here.

That said, all is not lost on getting a small bump..

The Activists

Steamboat Capital based out of NY owned ~1.4m shares at Sept 30 according to their 13-F making it one of the largest outside owners of the company. In their letter in November, they speak about meeting with the CEO & CFO & discussing the company’s’ undervaluation. They describe the propsed transaction as “low-ball” & “highly opportunistic”. The best part though is the discussion around the secondary from Jan 2025.

Buckley Capital Partners owns ~1.8m shares according to the open letter they published to the board & special committee. Buckley argues that the offer does not “compensate minority shareholders fairly for the Company's high quality, predictable business model and strong future growth prospects.” They too point to the attempt to take advantage of a “temporary share price decline” as opportunistic. Buckley goes as far as breaking down the inter segment valuation & a SOTP of $17.24 & believe that a 15x multiple is deserving of business with predictable revenue stream & recurring revenue high-margin software business or $19.50 per share ! There may be some posturing here, but it’s not hard to get to $10 SOTP especially if Treasury Solutions keeps growing with ~86% margins.

Additionally - Buckley provide Street estimates showing nothing came even close to $6/$6.15.

The Insiders / Special Committee

Insiders will stand to gain handsomely from a transaction assuming their equity vests but my guess is that the NEO’s are all likely involved in the take private transaction. As for the special committee, given Priore was the only non independent director - it makes sense that the rest of the board will make up the special committee. While I was rummaging around in the filings, I noticed that the newest board member had not yet been granted any RSU’s even though the terms were provided in the 8-K. Incidentally, the new board member is an ex-founder of the GS Sachs Specialty Lending Group & has 20 years of experience in leveraged financing and structured equity investments. Handy guy to have around if, you know, you plan on privatizing your company.

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Timing

It’s important to reiterate the timing here - that on Nov 6, 2025 the company announced its third quarter 2025 results & the market did not like them. When the stock sold off hard from ~$7 to under $5, Priore was ready. It’s very hard not to see the subsequent bid was hugely opportunistic coming only 3 days later. Priore clearly had his ducks in a row & pencils sharpened & was ready to go.

The Summary

I think the SaaS-acre has probably done two things - 1) made a ‘real’ bump unlikely (i.e. one above $6.15 & 2) made a transaction more likely. Priore’s bid looks all the better if the stock is at $5.39 today. I think this gets done at $6.15. The special committee will say they got the most out of the ‘range’.

Price Range

You don’t often see a buyer provide a bid range, so this one stands out. My immediate thought is that a buyer would provide a range before doing due diligence - but on this occasion Priore wouldn’t need DD as he’s already intimately familiar with the company. It could also tie back to his letter where he mentions deal structure “we look forward to an open discussion regarding the structuring of the transaction in a mutually beneficial & satisfactory manner”. My best guess is that it’s a price anchoring mechanism to set a boundary for expectations while leaving some room for negotiation.

Delaware / Majority-of-Minority Vote

Priority is incorporated in Delaware & so, in my understanding (I AM NOT A LAWYER - See disclaimers below) will need majority-of-minority vote, irrespective of the fairness opinion or independent special committee - to get a controller transaction across the line. If he does not do this, he will get sued & could likely lose big on appraisal.

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The Risks

This situation is not without some hair.

The SaaS market continues to decline & all these names continue to get punished & PRTH remains in that category. Sell first, ask questions later.

The overall market collapses & nothing is safe.

The offer gets pulled & the stock drops to the ~$4/$4.50 range for some time.

Other / Misc

Jan 2025 - Secondary

In Jan 25, both brothers sold stock in a public secondary offering at $7.75. I’m not sure that tells us much other than what their bid/ask is, perhaps if anything it puts a lid on what they would potentially pay. Buckley Capital pointed out that the CEO didn’t want to sell many of his shares in the offering as he thought the price was too low.

John Veto Resignation

The timing is interesting here given he resigned just six months before the bid, presumably to remove any perceived conflicts of interest.

wrote a great write up that digs deep into the plumbing of Priority’s business - It’s definitely worth & read & is definitely worth subscribing to

The Disclaimers

Disclaimer #1: I am not a ‘payments’ guy. I am Jon Snow, I know nothing. I could be & probably am, missing a bunch of reasons why this doesn’t pan out.

Disclaimer #2: As always, please remember disclaimer #1, I am Jon Snow. I know absolutely less than nothing. Don’t listen to me. Put all your money into an index fund & laugh at the rest of us. I make mistakes, lots of them in fact. Please feel free to point out if, or how many, I may have made above.

Disclaimer #3 : This commentary is for informational & personal opinion purposes only. It is not financial advice (let’s face it, it’s basically comedy), and I am not your fiduciary. You should do your own research and consult a qualified financial advisor before making any investment decisions. DYODD !! & DO NOT TAKE INVESTMENT ADVISE FROM PEOPLE ON THE INTERNETS THAT FOUND INVESTMENT RELIGION DURING COVID … or me for that matter !! I may sell at any time…. most likely the day before something happens. You do you.

The Footnotes

https://billionsuccess.com/thomas-priore/

The Proposal Letter

https://www.sec.gov/Archives/edgar/data/1653558/000165355825000128/prth-proposal001.jpg

Activists

Buckley Capital

https://www.prnewswire.com/news-releases/buckley-capital-advisors-issues-statement-regarding-controlling-shareholders-take-private-proposal-for-priority-technology-holdings-inc-302620153.html

Steamboat Capital

https://www.prnewswire.com/news-releases/letter-to-the-board-of-directors-of-priority-technology-holdings-302617413.html

I actually wrote this up in early Jan but didn’t get the chance to hit send before they announced a “strategic review to maximize shareholder value” & would consider a sale. LKQ is no stranger to activist pressure, but this time it’s different— a full strategic review was announced & a sale explicitly on table. It’s a global aftermarket parts giant at ~0.85x sales/~7.5x EBITDA. Ancora have board seats & Ananym are publicly piling on the pressure. The Self-Service was sold, The Specialty process is live. Is Europe next? NA Core ? All options are now on the table.

The Company

LKQ Corporation ($LKQ,) is a global distributor of vehicle products & provider of vehicle diagnostic services. It’s core business is distributing collision repair parts & components, alternative & specialty parts (fenders, bumpers, head lamps, tail lamps, mirrors, grilles, wheels etc.) or recycled or remanufactured mechanical parts (engines, transmissions etc.) in addition to various replacement systems, paint & related products.

Quick & Dirty, 255,966,006 shares o/s, at $34, Market Cap $8.7bn, EV $12.2bn. Revenue ~$13.7n, EBITDA $1.5bn gets us 0.85x sales & ~7.5x EBITDA. Guided $765m FCF at mid. Sure lets have a look…

LKQ Corporation historically organized its operations into four main reportable segments: Wholesale-North America, Europe, Specialty & Self Service. They are the No.1 player in each of their segments.

Wholesale - North America distributes aftermarket, paint & recycled parts to repair shops & mechanics in the U.S. & Canada including alternative vehicle collision replacement & remanufactured products & mechanical replacement products. 2024 Revenue $5.76bn & EBITDA $959m

​Europe supplies alternative vehicle (primarily ‘hard’) parts across multiple European countries, including the UK, Germany, France, Belgium, Netherlands, Luxembourg, Italy, Czech Republic, Austria, Slovakia amongst others. 2024 Revenue $6.41B & EBITDA $634m

​Specialty segment provides parts for trucks, RV’s, marine & performance accessories. 2024 Revenue $1.66bn & EBITDA $113m

​Self Service operates self-service yards where customers can remove parts from salvaged vehicles before they are scrapped. 2024 Revenue $532m & EBITDA $50m

Founded in 1998 & public since 2003, they have primarily grown through acquisitions. It’s a VERY long list, upwards of 320 acquisitions! Most were sub $50m, but there were some notable large ones.

2007: Keystone Automotive - U.S. aftermarket distributor; acquired for $374 million.

​2011: Euro Car Parts - UK mechanical parts distributor, entry into Europe; acquired for ~$365 million.

​2013: Sator Beheer– Netherlands-based distributor acquired for ~$590 million.

​2014: Keystone Automotive (Specialty) – expanded specialty offerings, estimated ~$200 million..

​2016: Rhiag-Inter Auto Parts – Multi-country Euro distributor; acquired for ~$1.1 billion.

​2018: Stahlgruber – German aftermarket hub; acquired for ~$980 million.

​2023: Uni-Select – North American coatings/parts distributor ~$2.1 billion.

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Insurance & Repairable Claims

LKQ’s wholesale product sales are heavily influenced by insurance companies, who ultimately pay for the repair costs of insured vehicles (in excess of deductibles), rather than the end user. Insurance companies want customers to buy (LKQ’s) alternative parts instead of new OEM products as it lowers the cost of repairs; both in terms of the product cost & turnaround times. “Like Kind and Quality” (LKQ) is the key phrase buried in pretty much every car insurance policy that lets insurers swap in cheaper non-OEM parts for repairs—as long as those parts match the original in type, function, condition & durability. A repairable claim is an insurance claim where the damaged vehicle is judged suitable to be repaired rather than being written off as a total loss. In simpler terms, the insurer decides it is better to pay for repairs than to pay the replacement value of the car. Most collision claims are insurance-funded: LKQ’s customers are primarily collision & mechanical repair shops & also new and used car dealerships. They also sell to distributors who in turn sell to repair shops. Retail also have the ability to buy from e-commerce platforms & at branch locations.

The Background

Similar to Monro, Inc., LKQ should be a defensive & recession resistant business, given it’s products & services are somewhat non-discretionary. It generates strong free cash flows that have historically been put to use to grow the business. They have some leverage, but it’s not large at ~<2.2x EBITDA. It feels like they spent two decades doing the heavy lifting & consolidating to become the dominant force in the industry. They have scale, purchasing power, deep relationships with insurers, a fragmented customer base (though is consolidating) & a vital place in the ecosystem. They have serious scale advantages - now they need to execute & use that muscle they’ve built. So why has it lost its shine ?

‘Somewhat’ Non-Discretionary?

The non-discretionary nature of the business was put to the test. While most of LKQ’s revenues derive from essential vehicle repairs & maintenance that in theory, drivers usually would not defer; smaller, non-critical repairs such as lights, leaks & small faults can be delayed. Combined with - increased insurance premiums, used car price declines, mild weather, inflation & tariff fears - negatively affected the consumer’s need or decision to repair their vehicle & was a perfect storm for LKQ.

Sustained Lower Industry-Wide Repairable Claims. Repairable claims have fallen 10.4% through mid-2025, compared to 2024, hitting LKQ’s volume.

​Rising Insurance Premiums over the last few years have resulted in wallet strain & caused customers to switch to higher deductibles shrinking filed repairs, liability only or even forgoing repairs entirely as costs rise. Insurance rates are now beginning to stabilize which should positively impact repairable claims.

Declining Used Car Pricing. Lower used car values, mean more total losses which mean fewer repair jobs; resulting in reduced parts demand. Higher car values do the reverse, boosting repairable claims & so LKQ volumes. Post Covid, used car prices have normalized downward pushing total losses up.

Milder Weather. Dryer & milder weather results in less collisions & so less repairable claims. Also, repairs become more necessary during bad weather. I’m not even going to attempt to time the weather here, this is not a natty widow maker trade. There may be up/down impacts across the year, but if anything, it probably impacts the thesis only in extreme cases (& even then, probably in the company’s favor).

Tariffs / Taiwan. LKQ was likely lumped in with tariff-sensitive autos given their supply from Taiwan. 15% of their cost of goods comes directly from Taiwan, but realistically, the vast majority comes indirectly from Taiwan, China & Mexico. That said, all their aftermarket recycled products are U.S. sourced. At the Annual Gabelli Automotive Conference, the CEO noted that LKQ had passed on tariff costs dollar for dollar. They could even have added some margin, but chose not to, so as to remain competitive vs OEM products.

Poor Capital Allocation. Investors likely had M&A deal fatigue when they purchased Uni Select in 2023. Shareholders felt they overpaid. The growth at any cost playbook appeared to be back & discipline went out the window. Add to this, slower integration & they lost customers after the acquisition.

Terminal Value / Full Self Driving - long term fears re driverless cars & shrinking collisions hurt sentiment. These are very likely to be overblown. Advanced Driver Assistance Systems are said to reduce collision frequency by 20–40% but actually come with a much greater cost & complexity of repairs & vehicle diagnostics. Additionally, LKQ have been moving into the vehicle diagnostic space & combining them with their Elitek Vehicle Services to capture ADAS tailwinds.

The Activists

In 2019 ValueAct disclosed a 5.2% (upped to 7.1%) stake & agitated for change. Specifically they pushed for operational discipline & capital allocation restraint. After signing a cooperation agreement in Aug 2020, ValueAct Partner Jacob Welch joined the board. Acquisitions were put on hold, buybacks resumed & the stock preceded to climb. ValueAct exited in 2023 (partially via a direct repurchase of 4mm shares by LKQ ‘@ ~$57.) However, soon after, LKQ purchased Uni-Select for $2.1 billion…

Fast Forward to today & we have Ancora Advisors & Ananym advocating for capital discipline & portfolio simplification. It seemed to be much the same playbook here.

The Activists

Ancora Advisors - 6,973,908 shares as of Q3, 25.

In early 2025, LKQ announced a cooperation agreement with Ancora Advisors & Engine Capital after (Ancora Catalyst Institutional) submitted a nomination notice in January 2025 to run its own director slate. As part of the agreement, Ancora got two seats on the board. LKQ appointed Ms. Gove and Mr. Powell to the Board of Directors, effective as of February 5, 2025. Gove and Powell will sit on LKQ’s newly formed Finance Committee, which consists of five seats. The committee will make recommendations to the board on its capital allocation strategy and business portfolio.

Ananym Capital - 748,098 shares as of Q3, 25.

I’ve mentioned Ananym in my post in September. Based in New York & launched by former Jana & Engine partner Charlie Penner & Alex Silver (formerly of Soros), they focus on constructive, value-enhancing & strategic actions with undervalued public companies to drive returns.

This time though Ananym appears to be more aggressive in its demands after disappointing results. Ananym publicly advocated for a sale of the Europe business & LKQ to focus on North America & buy back stock.

MS / UBS / BOA & GS

The primes also held nearly 21m shares as of September 30, with Morgan Stanley holding more than 5% of the company alone. I have little insight to offer here but the stake ramped up significantly in 2024 at the same time as the activist pressure increased. It’s very likely a large portion of this position is on swap with Ancora, Ananym or other activist investors especially given their relatively small public holdings.

So, what’s changed ?

Have LKQ found religion.. again ? Do they now worship at the alter of capital returns? At least when the adults (read activists) are in the room, they do ! Though Jude does appear to be saying the right things…

Improve free cash flow by growing profitably and strengthening our balance sheet, invest in growth organically and via small, highly synergistic tuck-ins with the continuation on the moratorium of any large acquisitions. Focus on our capital allocation strategy around returning capital to our shareholders through a combination of share repurchases and dividends. Q4 2024 Earnings Call

“We have paused any large-scale acquisitions and raised the hurdle rate for improving synergistic tuck-in transactions. In fact, we have walked away from deals in recent months because the returns on investment did not meet our new criteria.” Q2 2024 Earnings Call

Portfolio Optimization / Simplification

Jude’s strategy to simplify the portfolio is one of his strategic priorities. In 2024 LKQ divested 5 businesses, primarily in Europe (the Bosnian and Slovenian businesses) & which represented $153 million of revenue but with de minimis margin. ELIT Polska was sold to Mekonomen (They have a 26.5% equity stake in MEKO - a leading Nordic provider of car parts & accessories in the Scandinavian aftermarket).

In August 25, they announced the sale of the Self Service segment to Pacific Avenue Capital Partners, LLC for $410 million. “The sale of the Self Service segment reflects our continued efforts to simplify our portfolio of businesses by exiting an asset-intensive business heavily affected by changes in commodity prices.” $390m of the will be used to delver by paying down their ~7.25% revolver. This should bring net debt/ebitda to <2x.

In December 25 – the company announced that it has commenced a process to explore the potential sale of its Specialty segment. Couple of interesting things here to me is that a) they mention “we initiated a strategic review earlier this year to evaluate opportunities for the business under new ownership.”.. which made me think at the time, that we might be might be closer than we think to a transaction.

Our Specialty segment is a leading distributor of automotive, RV and marine parts and accessories in North America. It is a strong business supported by an exceptional team. To unlock its full potential, we initiated a strategic review earlier this year to evaluate opportunities for the business under new ownership. Current market conditions present an attractive environment to assess divestiture options and ensure we maximize the value of this best-in-class business.

Reuters reported that the unit may be worth as much as a billion according to LKQ & Raymond James. That doesn’t sound out of the question, given Self Service got an ~8x multiple of EBITDA & Specialty should be a better business. Ananym’s theory was that large cash inflows from divestitures (Europe + Specialty) would catalyze two‑pronged multiple expansion: One, an immediate rerating as the proceeds would be used to fund accelerated buybacks at a current depressed prices & Two, margin expansion from the rerating of the North American core business from the closing of the conglomerate discount.

Strategic Review

That changed when, on Jan 26, LKQ announced they had initiated a “Strategic Review to Maximize Shareholder Value”. The 8-K & press release explicitly state that the board launched the review because “value is not reflected in our current valuation”. Shares traded as high at ~$37 on the day before falling back in the same ~$34 range over the week.

Chairman of the Board. “Consistent with this commitment, we have initiated a formal review of strategic alternatives to identify the best path forward to unlock value that is not reflected in our current valuation.”

Possible Buyers

Honestly, I think there will be a bunch of buyers chomping at the bit here. LKQ has been & can get back to being a free cash flow monster. Whether it gets carved up between strategics or PE swallow it whole (the more likely result, I think), it’s a tasty morsel for a would be buyer.

So what would it fetch? Ok, so I’ll level with you - I hate SOTP stories ! But this kinda seems to be one.. so here goes.

Ananym think the European Segment could go for 8.5x EBITDA. This seems reasonable given self service segment fetched 8.2x & Europe should be be a better business. Specialty (LKQ say) should fetch nearly $1bn which would imply a 8x multiple. North America is the crown jewel - so I ‘slapped’ a 10x multiple on that… uuurgh, see why I hate SOTP’s ! Anyway, napkin maffs below, I think it’s directionally correct. If strategics get involved in the NA business, I think it may even be on the conservative side.

Roth came out with a >$50. Companies with this scale do not come up on the chopping block very often, so it may rouse more interest than previously thought.

Insiders

LKQ’s named executive officers all have significant tenure with LKQ & significant stock holdings. And, of course Change of Control Agreements. They aren’t filed separately that I can see, but the proxy breaks down the potential payments upon termination or change in control. It’s not as sexy as some CiC’s i’ve seen recently, but ensures the c-suite are well compensated should the company be sold.

Jude & team will be very well compensated in a change‑of‑control scenario thanks to their employment agreements & clearly incentivized to facilitate a deal. Especially what they can stand to make in a termination when compared with their salary.

Other / Misc

Repurchases / FCF

This thing can be a buyback machine when it wants to be. Historically, it has generated GOBS (that’s a technical term) of FCF ! If they decide to sell Europe & Specialty & ramp the buybacks, they’ll hit it hard.

Industry / Performance

“We believe the decrease in claims are still tied to the economic factors we discussed the last quarter, such as the rising insurance premiums and the decrease in used car pricing,” Jude said. “While we anticipated claims volumes would not rebound quickly in H2, Q3 decrease was higher than we projected and it contributed to an underperformance of revenue relative to guidance. Q3 claims figures suggest the possibility of a longer recovery period than we previously thought, and we are working through this evaluation with our strategy and operations teams as part of our 2025 budget process.”

It’s possible that the company doesn’t see an immediate recovery & could only hold the activists off so long. Perhaps Q3 was the last chance to show a recovery before they agreed to talk to buyers.

Ancora / Engine

The original cooperation agreement mentioned both Ancora & Engine Capital. But Engine look to be no longer involved. Not sure it makes or breaks the thesis but it’s something to note.

Lapping Bad Comps

LKQ will be lapping weak numbers in Q1 2026, which could make year‑on‑year comparisons look better if demand stabilizes even modestly. Any normalization in claims or even modest volume growth, in Q1 2026 will be measured against a depressed base, making it possible that LKQ shows improved yoy growth rates & decent FCF even within a trough environment. A surprise beat could make the company more enticing to potential bidders.

So what happens here ?

LKQ gets carved up & sold piecemeal or sells Specialty & Europe & ploughs into buybacks. Ok, so it’s not a 10 bagger. It was an execution story with adults in the drivers seat. And the last time that happened, management behaved & the stock performed. Now that the company has announced that they are exploring a potential sale of the company : it makes it more interesting & complex. I think there’s a decent margin of safety should a full transaction not materialize. Adults are in the driving seat, proceeds from any potential sales will be allocated in a value maximizing way. I don’t think it’ll be a quick trade.. But, “good assets sell fast”, i hear you say & I’d usually agree, but given that there’s the possibility of multiple bidders & multiple transactions, I think this one will take time. That may be a good thing. The market has little patience of late & people will move onto new shiny things. This might allow a patient man to accumulate a position at a more favorable entry.

What’s the market missing ?

As points out often - ‘The market is very efficient’ (& the market is pricing it at $34) - what’s the market missing ? I think the market is short term in nature & anchoring to recent prices. Let’s not forget this company had four years of consistent EBITDA of >$1.7bn. We are in the trough here & potential buyers likely recognize the true earnings power of this behemoth. John Mendel, Chairman of the Board. “Consistent with this commitment, we have initiated a formal review of strategic alternatives to identify the best path forward to unlock value that is not reflected in our current valuation.”. I don’t think he’s talking about a 10% gap here.

The Disclaimers

Disclaimer #1: I am Jon Snow, I know nothing. I could be & probably am, missing a bunch of reasons why this doesn’t pan out.

Disclaimer #2: As always, please remember disclaimer #1, I am Jon Snow. I know absolutely less than nothing. Don’t listen to me. Put all your money into an index fund & laugh at the rest of us. I make mistakes, lots of them in fact. Please feel free to point out if, or how many, I may have made above.

Disclaimer #3 : This commentary is for informational & personal opinion purposes only. It is not financial advice (let’s face it, it’s basically comedy), and I am not your fiduciary. You should do your own research and consult a qualified financial advisor before making any investment decisions. DYODD !! & DO NOT TAKE INVESTMENT ADVISE FROM PEOPLE ON THE INTERNETS THAT FOUND INVESTMENT RELIGION DURING COVID … or me for that matter !! I may sell at any time…. most likely the day before something happens. You do you.

The Footnotes

Repairable Claims

https://www.autobodynews.com/news/2025-data-points-to-fewer-claims-more-collision-repair-complexity-in-2026

Alternative Parts

LKQ break replacement parts in 5 categories & collectively refer to the four sources that are not new OEM products as ‘alternative parts’.

OEM (Original Equipment Manufacturer) parts : made by the same company that built the car, to the same spec.

Aftermarket parts : built by independent manufacturers to match or replicate more standard OEM components such as fenders & bumpers. They tend to cost 25–50% less than OEM equivalents, which is very material.

Aftermarket products: new parts made by 3rd-party manufacturers, designed to replicate the OEM specs; usually the cheapest new option. Can be 50-70% less than OEM parts.

​Recycled from Salvaged products: used parts salvaged from total-loss vehicles, inspected and sold as-is. Solid parts used in older model repairs.

​Recycled & Refurbished products: recycled items- cleaned, repaired & restored.

​Recycled & Remanufactured products: recycled, disassembled , upgraded with new components to OEM standards. (e.g., engines, transmissions); offers near-new reliability at 40-60% below OEM pricing

https://csimarket.com/stocks/LKQ-Customers

ADAS

https://www.spglobal.com/automotive-insights/en/blogs/2025/08/adas-vehicles-influencing-collision-frequency

Uni-Select

https://uniselect.com/content/files/LKQ-Corp-Acquisition-of-Uni-Select-Press-Release-Final.pdf

Activists

https://www.cnbc.com/2025/12/20/activist-ananym-capital-urges-lkq-to-sell-its-european-auto-parts-business.html

https://www.recyclingtoday.com/news/lkq-adds-to-board-forms-finance-committee/

https://www.reuters.com/sustainability/sustainable-finance-reporting/activist-investor-ananym-urges-lkq-sell-european-business-sources-say-2025-10-20/

https://www.documentcloud.org/documents/26208306-lkq-letter-2025-10-31-final/

Board Appointees

https://www.globenewswire.com/news-release/2025/02/06/3021991/8053/en/LKQ-Corporation-Appoints-Sue-Gove-and-Michael-Powell-to-its-Board.html

Disposals

https://www.reuters.com/sustainability/sustainable-finance-reporting/lkq-taps-bank-america-sell-specialty-parts-business-sources-say-2025-11-13/

https://www.sec.gov/Archives/edgar/data/1065696/000106569625000012/exhibit991.htm

Repurchases

https://lkqeurope.com/article/company/lkq-corporation-announces-results-third-quarter-2025

Strategic Review

https://www.reuters.com/sustainability/sustainable-finance-reporting/auto-parts-supplier-lkq-explores-strategic-options-including-sale-2026-01-26/

https://www.msn.com/en-us/money/topstocks/lkq-may-be-worth-low-to-mid-50s-share-in-takeout-analyst/ar-AA1V1Nk1#:~:text=LKQ%

The “silver tsunami” often refers to the significant demographic shift caused by the aging of our baby boomer generation, leading to an increase in the population of older adults, particularly those aged 65 and over. According to the U.S. Census Bureau, 2034 will mark the first time in U.S. history when people 65 years of age and older are projected to outnumber the under-18 population. It’s an interesting part of the investment universe to look at. The obvious industries to look at might be healthcare, pharmaceuticals & med-tech, labor, housing & senior living.

Senior Living

Around 2017, U.S. oversupply (due to overbuilding in anticipation of the oncoming tsunami) flooded markets with new independent living & assisted living units. Then came Covid. Move-in restrictions were implemented to protect vulnerable senior housing residents from virus transmission, directly causing a crash in absorption rates (the change in occupied units). Governments, states & facilities worldwide banned non-essential visitors—family, friends, & prospective residents. Occupancy dropped sharply, even after Covid, as people were hesitant to return to these facilities fearing high outbreak risks in communal settings & talk of large increases in mortality rates.

The big operators like Brookdale Senior Living, Sonida Senior Living & National HealthCare Corporation saw revenues drop dramatically during this period & were written off. (The REIT’s, Welltower, Ventas fared better). Supply, like everything else, overshoots both ways. Fast forward a few years, construction halts have created undersupply, boosting pricing power and RevPAR amid silver tsunami demand from 80+ boomers.

There’s lots of way to play this & I came across the idea while building my ‘Silver Tsunami Basket’.

I first read about NHI in ‘s post ‘Tis The (Activist) Season’. He got this out on Christmas Eve would you believe !! While I was busy getting, eh, let’s say ‘festive’, lol, he was diligently combing Edgar & getting the goods ! At the time, I put it on my watchlist & dare I say… forgot about it.. If you don’t subscribe, he’s a ‘Dark Arts’ GOAT - go do it now..

Anyway, while going down the senior living rabbit hole, NHI popped back on my radar & I took another look. Let’s dig in…

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National Health Investors, Inc. (NHI) is a U.S. healthcare REIT that owns & finances senior housing & healthcare properties earning primarily rental income under long-term leases. Established in 1991, most of its cash flow has historically come from triple‑net leases where operators pay property level taxes, insurance & maintenance. They do not have involvement in the operations at the properties, which, in theory leaves NHI with a relatively predictable, low‑overhead rental income stream. NHI also finances facilities via mortgages & other loans & earns interest on these loans. This makes up the remainder of revenue. This is fine, but somewhat caps the upside of the silver tsunami trade.

NHI has recently pivoted from being almost purely a triple‑net landlord to also running a SHOP (Senior Housing Operating Portfolio), where it captures/shares in the upside (& risk) of operating the facilities rather than just collecting fixed rent. They want to gain exposure to the strong senior housing fundamentals, high occupancy & rate growth rather than just fixed lease escalators.

Their balance sheet consists of gross real estate investments of $2.5 billion (174 properties, in 32 states & leased to 30 tenants primarily under triple-net leases). Also included is $225m face value of mortgage & notes receivable. They are primarily financed with debt & have $1.1bn of maturities, the majority of which ($750m) is due in 2031/2033. They also have $600m available to draw on their $700m credit facility. They’ve beat & raised every quarter so far this year. FFO is inching higher, helped by the SHOP ramp & 2026–2027 should see a cleaner run-rate as NHC lease economics reset (hopefully).

The Activists

Last year NHI came under attack & (barely) fended off Land & Buildings after a proxy battle. The activists lost by only 1%, even after gaining the support of the large proxy advisors. Land & Buildings had a few gripes. They mostly centered around NHI & NHC being too closely knit. Run like an old boys club rather than for investors. L&B raised poor corporate governance specifically relating to NHI board members & their current & past ties to NHC. The primary example given was the NHI/NHC Master Lease governing ~35 properties set at rates significantly below market. L&B noted 65% below market!!

History and Interconnectedness

National HealthCare Corporation (NHC) was founded in 1971 by Dr. Carl E. Adams, a physician who built it into a major senior care operator starting with 14 skilled nursing centers in Tennessee. NHI was formed later, in 1991, as a REIT to finance healthcare real estate, with early leadership from the Adams family, establishing a landlord-operator relationship with NHC from inception via the pivotal 1991 master lease.

Activist-Cited Ties

Brothers W. Andrew Adams (NHC CEO, ex-NHI Chairman/CEO until 2024) and Robert G. Adams (NHC Chairman, NHI director until 2026) created interlocking governance issues, with each leading one company while serving on the other’s board—relationships activists like Land & Buildings called “cozy”. This foundational overlap, plus shared geography & inter-family ownership, has bound NHI and NHC economically & structurally for over three decades, now culminating in high-stakes 2026 lease renegotiations.

Changes ?

Since last years proxy season, NHI has made some notable changes. W. Andrew Adams retired in Dec 2024 & Robert G. Adams & Charlotte Swafford will not be seeking reelection in 26. They also set up a special committee to oversee the NHC lease talks with the addition of an outside consultant, ‘Blueprint’. Additionally, they are in the process of declassifying the board. This is all likely with a view to winning over ISS & Glass Lewis this year.

All great stuff for corporate governance, but the incentives update is what tickles my Spidey senses...

On Dec 15, NHI filed an 8-k disclosing new Change in Control Severance Agreements for five named executive officers, replacing prior agreements from Feb 2024. So, let me get this straight, the c-suite are getting updated Change in Control Severance Agreements a year & nine months apart ?!

Additionally, they are getting larger payouts. (previous multiple in bold)

“1) a lump sum cash payment equal to a multiple (3.0 times for Mr. Mendelsohn (previously 2x), 2.0 times for Mr. Pascoe and Mr. Spaid (previously 1.5x) and 1.5 times for Ms. Gaines and Mr. Travis) of the average of the executive’s annual base salary and bonus for the most recent two consecutive calendar years.”

And as UnlearningCFA acutely spotted ‘Final Average Compensation’ is now the average of the prior two years, rather than five. Well, that’s nice, especially considering the big dogs got nice bumps last year.

The CEO walks away with a cool $7.5m in a termination in CiC scenario plus another ~$10m in equity. That’s a lot of incentives. Overall the c-suite stands to gain significantly if they can entice the likes of Welltower or Ventas to acquire them.

The Summary

I think its a pretty decent set up with a silver tsunami tailwind should a sale not materialize. It’s part of my Senior Living Basket with some other names that are not hard to guess. It’ll be interesting to see if the NHC lease is already baked into expectations. Could also be a sell the news event, but an interesting catalyst if not.

The risks are that the NCH lease is poorly executed & corporate governance goes out the window. In that case, faith in mgmt. would be broken. There’s risks that the silver tsunami trend does not play out how we expect & the company’s move into SHOP stalls growth. They are growing through acquisitions. This will likely be bumpy given integration expense & transaction costs. They may overpay. Their pivot to operating facilities may not work, they may lack the expertise to manage them. The market might sell off. BKD investor day. They have an ATM with approx. $316m remaining. If they paused this, it would be a good signal.

The Disclaimers

Disclaimer #1: I am not a REIT guy. You know this… I’m Jon Snow, I know nothing. I could be & probably am missing a bunch of reasons why this can’t or won’t happen. REIT-twit hit me up & let me know what I’m missing!

Disclaimer #2: As always, please remember disclaimer #1, I am Jon Snow. I know absolutely less than nothing. Don’t listen to me. Put all your money into an index fund & laugh at the rest of us. I make mistakes, lots of them in fact. Please feel free to point out if, or how many, I may have made above.

Disclaimer #3 : This commentary is for informational & personal opinion purposes only. It is not financial advice (let’s face it, it’s basically comedy), and I am not your fiduciary. You should do your own research and consult a qualified financial advisor before making any investment decisions. DYODD !! & DO NOT TAKE INVESTMENT ADVISE FROM PEOPLE ON THE INTERNETS THAT FOUND INVESTMENT RELIGION DURING COVID … or me for that matter !! I may sell at any time…. most likely the day before something happens. You do you.

The Footnotes

https://www.sec.gov/ix?doc=/Archives/edgar/data/877860/000087786025000198/nhi-20251215.htm

Nov 5, 2025, Robert G. Adams, notified the Board that he will not be standing for reelection at the Company’s 2026 annual meeting of stockholders. Mr. Adams’ decision not to stand for reelection was not due to any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

Nov 5, 2025, Charlotte A. Swafford, notified the Board that she would retire from the Board, effective May 27, 2026, immediately prior to the 2026 Annual Meeting. Ms. Swafford’s decision to retire from the Board was not due to any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

https://seniorhousingnews.com/2025/02/26/nhi-targets-more-shop-growth-in-2025-with-good-momentum-thus-far/

NHI’s portfolio consists of independent living facilities, assisted living and memory care communities, entrance-fee retirement communities, senior living campuses, skilled nursing facilities and specialty hospitals.

NHI’s real estate properties include independent living facilities (“ILF”), assisted living facilities (“ALF”), entrance-fee communities (“EFC”), senior living campuses (“SLC”), skilled nursing facilities (“SNF”) & hospitals (“HOSP”). Senior housing properties (“SHO”) are the combination of ILFs, ALFs, EFCs and SLCs and are also referred to as senior housing communities.

https://www.reit.com/news/articles/health-care-reits-the-silver-tsunami-is-driving-demand

TLDR

Overcapitalized Illinois thrift (post-2022 conversion) trading at ~0.8x TBV w/ low ROA/ROE. Shareholder proposal for sale process passes; board hints at strategic alternatives. Insiders aligned via CIC payday. 3-year sale window now open—classic micro-cap bank special sit.

The Company

NSTS Bancorp, Inc. is the holding company of North Shore Trust and Savings, a federally-chartered stock savings institution, established in 1921. The Bank is a wholly owned subsidiary of NSTS Bancorp, Inc., & operates as a traditional savings institution focused primarily on serving the banking needs of their customers in Lake County, Illinois & adjacent communities. Their primary business activity is attracting deposits from the general public & using those funds to originate one- to four-family residential mortgage loans & purchase investments. They are very overcapitalized & so inefficient with very low ROA & ROE's ratios.

Ok, all very boring so far, but stick with me… it gets better.

Like many community banks, it trades cheaply. I'm not a bank guy, so I may be wrong here, but at 80% of book/ 0.8x TBVPS it should be a decent margin of safety play…. Famous last words, I know..

But what's the catalyst.

As Andrew Walker points out time & again, it's not enough that something is cheap anymore… that’s not a thesis…

Or as Jeremy Raper would say, ‘How do I get paid?’

The Catalyst

When the latest proxy came out in April, it was all very boring… except for proposal III … (3) a non-binding stockholder proposal that the Company engage an investment banking firm to guide the Company regarding a merger or sale of the Company, if properly presented at the Annual Meeting.

Background..

The Company received the proposal below from a stockholder ‘Robert T. Williamson’

“RESOLVED, that the Stockholders of NSTS Bancorp, Inc. recommend that the Board of Directors engage in an investment banking firm experienced in community bank mergers and acquisitions to guide the Company in promptly taking the reasonable and customary steps to merge or sell NSTS Bancorp, Inc on the best terms available so as to maximize stockholder value.

Supporting Statement

NSTS does not have the size and scale to compete effectively in the 21st century financial world. In fact, a CEO of another Illinois thrift recently stated to me in conversation about the future of micro-cap community banks: “We are all dinosaurs!” Since the IPO in November 2021, NSTS has traded at a significant discount to tangible book value per share. The shareholder proponent believes that NSTS is worth close to or above TBVPS in a sale or merger, and that such sale or merger process to be undertaken is consistent with the Board of Directors Fiduciary duty to all shareholders.

The board of directors can recommend the highest and best offer by “running” the M+A process with their investment banker, and the shareholders will have the final vote on the best offer available.

Since the IPO, this BOD and management have purchased very few shares in the open market. Their economic interests are not well aligned with the shareholders as they will earn board and management fees, salaries, accumulate “freebie” shares, and vest in the ESOP plan over time. They get paid to wait.

Board of Directors Statement

The Board, together with Company management, regularly reviews and assesses the Company’s performance, future growth prospects, business plans, competitive position, and overall strategic direction. In connection with strategic planning and consideration of strategic alternatives, the Board has from time to time engaged investment banking firms and financial advisors. As a result, the Board currently receives, and will continue to receive, investment banking advice and information on such factors. As part of this ongoing review process, the Board evaluates and considers a variety of potential strategic alternatives available, including pursuing potential strategic transactions with third parties, with the goal of maximizing stockholder value consistent with the requirements of Delaware law and its fiduciary duties.

Shareholders promptly voted for this. Look, the board don't really have to do this, but it's a pretty strong signal from shareholders & they don't sound overly opposed to it from my read of the filings..

“The stockholder’s proposal contains assertions about the Company and other matters that the Company believes are incorrect, but the Company has not attempted to refute those assertions.”

And, for what it's worth, they also do mention “maximizing stockholder value consistent with the requirements of Delaware Law and it's fiduciary duties”

Peer Comps

NSTS might be a decent buy for a bank expanding their footprint, but what would an acquirer pay ? If a buyer paid book value, the stock is worth ~$15, at 1.1x TBVPS is ~$16.50 & at 1.2x TBVPS we get $18. I think that’s probably a stretch for a three branch bank.

https://www.bernstein.com/our-insights/insights/2025/articles/the-bank-ma-wave-is-coming-can-you-catch-it.html

The Insiders

As the investor who pushed for the sale pointed out, the management team & board haven’t purchased a lot of stock.. However, they do own sizable option positions granted in June 2023, which combined with their common holdings gives them a decent incentive to maximize value for eh, …themselves.. shareholders !

Stephen G. Lear is 69 & has been Chairman of the Board of Directors, the CEO & President since 2012 & has worked for the bank since 1979. His salary $214k + directors fees etc. He beneficially owns 62,139 shares but also 28k unvested RSU’S & 90k stock options ($9.36 strike) that would immediately vest in a change in control scenario. Including a 2.5x qualifying termination in a change in control, he could stand to gain $2.5m. That's nearly >10 years salary… not a bad way to walk off into the sunset !

Nathan E. Walker, EVP of the company & CEO of the subsidiary, North Shore Trust and Savings owns 62,023 shares, 68,000 RSU’s & options to buy 85,000 shares. In a qualifying termination within 24 months of a change of control scenario he is entitled 2.5x base salary + bonus. All in Mr. Walker could stand to gain $2.3m or > 10 years salary!

Carissa H. Schoolcraft, CFO & Amy L. Avakian, Chief Lending Officer also stand to gain large payoffs in a change in control scenario & would walk away with payouts at a significant multiple of their annual salaries.

It's safe to say the insiders are properly incentivized…

(Assumes a ~$15 take out)

Other

Thrift / Mutual Conversion (otherwise known as Savings & Loans, or Building Societies across the pond).

A thrift or mutual conversion, also known as a mutual-to-stock conversion or demutualization, transforms a mutual savings bank (owned by depositors) into a publicly traded stock company. They do this by selling stock primarily to eligible depositors, employees & the local community at a discount to tangible book value. Depositors of the thrift can effectively buy their share of accumulated capital. This allows the mutual to access public equity markets to grow their capital & make new loans. Importantly, after three years (post conversion) the bank is allowed to be sold. NSTS converted in Jan 22, which means they are eligible to be acquired from Jan 25.

Buybacks

In an attempt to deploy excess capital, in Dec ‘23, the Company authorized a new share repurchase program to repurchase up to an aggregate of 265,763 shares, or 5%, of its then outstanding common stock. The program was in effect until December 31, 2024. Up to that point they had 172k remaining on the buyback. Then they stopped. Officially the buyback ended in December 24, but filings are pretty sparce & there's not much to go on. Strangely, they bought back 8,788 in June 24. Seems weird… were they in discussions, but talks stalled ? Maybe..

Liquidity

It's tiny. Market Cap $63m. Probably too small for anyone looking to put real capital to work. For those who can play, it's probably best not to place market orders, unless you want to be on your brokers Christmas card list !

The Disclaimers

Disclaimer #1: I am not a bank guy. You know this… I’m Jon Snow, I know nothing. I could be & probably am, missing a bunch of reasons why this can't or won't happen. Bank-twit hit me up & let me know what I'm missing!

Disclaimer #2: As always, please remember, I am Jon Snow. I know absolutely less than nothing. Don’t listen to me. Put all your money into an index fund & laugh at the rest of us. I make mistakes, lots of them in fact. Please feel free to point out if, or how many, I may have made above.

Disclaimer #4 : This commentary is for informational & personal opinion purposes only. It is not financial advice (let’s face it, it’s basically comedy), and I am not your fiduciary. You should do your own research and consult a qualified financial advisor before making any investment decisions. DYODD !! & DO NOT TAKE INVESTMENT ADVISE FROM PEOPLE ON THE INTERNETS THAT FOUND INVESTMENT RELIGION DURING COVID !! I may sell at any time…. most likely the day before something happens. You do you.

The Footnotes

Conversion Timeline

https://ir.northshoretrust.com/news-events/press-releases/detail/31/nsts-bancorp-inc-announces-closing-of-conversion-and

Bank M&A

https://www.spglobal.com/market-intelligence/en/news-insights/articles/2025/5/bank-ma-deal-tracker-2-largest-deals-of-2025-announced-in-april-88824506

https://mercercapital.com/bank-ma-in-2026-may-have-a-1990s-vibe/

https://www.bernstein.com/our-insights/insights/2025/articles/the-bank-ma-wave-is-coming-can-you-catch-it.html

https://www.bernstein.com/our-insights/insights/2025/articles/the-bank-ma-wave-is-coming-can-you-catch-it.html

TBVPS math, As of November 6, 2025, the Registrant had 5,239,038 shares of its common stock outstanding & total stockholders’ equity 78,939,000.

If you make a few $$’s from this idea, feel free to buy me a beer!

buymeacoffee.com/showmetheincentives

Monro, Inc. is in the middle of a consultant‑driven turnaround & it’s attracted multiple activists. Aggressive buying has forced the board to adopt a poison pill. The interim turnaround architect is now the permanent CEO & has been handed a hefty equity package that vests up to a $40 share price, tightly aligning his incentives with a sale or major value‑unlocking outcome.

Monro, Inc. formerly known as Monro Muffler Brake, Inc. is a US automotive service and tire provider with 1,116 company-operated stores & 46 franchised locations across 32 states, primarily in the Eastern & Midwestern U.S. The company offers comprehensive vehicle services including tire sales and installation, brake repairs, undercar repair, oil changes, routine maintenance & more complex mechanical diagnostics. Monro serves both individual consumers & commercial fleets with a focus on quality, convenience & fair pricing. Its extensive store network, which includes brands like Monro Auto Service and Tire Centers, Tire Choice & Mr. Tire, enables strong purchasing power & operational efficiency.

Monro’s sales mix is very much anchored by tires, which have consistently represented about half of revenue over both the latest quarter, 2025 & 2024 fiscal periods. That said, comps are down from 50% in 2023, 53% in 2022 & 55% in 2021. Maintenance services contribute roughly 27–28% & brakes a steady 14%. Steering work—including front end, shocks, & alignment—adds around 8–9% with batteries at about 2% & a small other category contributing 1–2%. Overall, the data show a decent, stable revenue base dominated by tire sales but also backed up by recurring service and repair categories that together make up just over half of total sales.

Market Cap $611.5m, $60m Debt & $10m cash gets us an EV $661.5m. Annualizing H1 Sales gets us an EV/Sales 0.55x (not including leases). Adding $441m reported lease liabilities to the EV gets us a true EV of approx. $1.1 billion & EV/Sales of approx. 0.93x. (using reported lease liabilities of ~$441m as of latest Q)

19,664 Class C convertible Preferred will sunset in Aug 26 & automatically convert to 61.275 shares of common stock. (will add approx. - 1.205m shares = 4% dilution)

Acquisitions were a core part of capital allocation from 2016-2020, then went the other way. Monro had net closed 23 stores before the current CEO made it a part of the current strategy. That said, over the last few years the debt associated with the roll up strategy has been reduced from $190m in fiscal 2021 to $62m for fiscal 25 & currently sits at $60m last quarter. Their other liabilities are mostly made up of finance & operating leases from their approximately 733 leased locations (vs 327 owned) comprising of $366.3m & $177.7m respectively for fiscal 2021 & $205.9m & $156.7m for Q2 26. Additionally, they have an untapped $500m credit facility.

So… the company, in theory at least, should have a fairly resilient business model. It should benefit from recurring demand for close to essential vehicle maintenance, tire & battery replacement etc, which tends to be less cyclical compared to a lot of more discretionary consumer spending. When car sales decline, ongoing repair & maintenance work - to maintain & extend the life of your existing vehicle- should support steady demand for these type of services. That said, customers can also trade down into lower margin products or delay the replacement if they feel impacted by inflation, so it’s not bulletproof by any means. Look, I think if we have a severe recession, all bets are off here, but I think it’s a decent defensive company if that’s what you’re looking for. It’s…… fine. But…. performance hasn’t exactly been stellar.

Michael Broderick

Broderick joined as CEO in April 2021 bringing 25+ years of experience coming from Advance Auto Parts & Canadian Tire. He tried to steady the ship, reined in acquisitions & even attempted a token buyback. However, after initially getting a huge post covid bump, revenue declined every year since. Profitability also suffered, with GAAP net income declining from +$34m in 2021 to -$5.2m in fiscal 2025. The share price also suffered dramatically - down approx. ~80%.

CEO Replacement

The board was left with no choice. On March 27, 2025, the Board terminated Broderick. Subsequently, Monro appointed Peter Fitzsimmons as President & CEO effective March 28, 2025.

The PR reads to me like the CEO needed to go before the board was replaced. Was there some gentle prodding in the background perhaps ?

Chairman of the Board, Robert Mellor said, “The Monro Board and management are taking decisive actions intended to improve the Company’s performance and enhance the value we are delivering to our shareholders today, and over the long-term. As part of this, the Board determined that a change in leadership was necessary, and we are pleased to appoint Peter to lead this critical phase in our evolution, and our next chapter of growth. Peter has a proven track record of success and a mandate to reinvigorate the business and restore operating margins. We appreciate Mike Broderick’s commitment to Monro and thank him for his contributions. We wish him all the best.”

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CEO / AlixPartners

AlixPartners are full-service consultancy but specialize in bankruptcy, rapid restructurings & turnarounds. In conjunction with the CEO replacement, Monro engaged Fitzsimmons, a Partner and MD at AlixPartners, under a consulting agreement through AlixPartners, for a monthly fee of $250,000 plus expenses.

His mandate is to lead a comprehensive performance improvement plan to enhance operations, increase profitability, and drive shareholder returns. Fitzsimmons brings over 30 years of experience including leadership roles as CEO of a major automotive collision repair business (achieving over 25% sales growth in 2022) and CFO of an auto parts distributor. The Board and Chairman emphasized the strategic nature of this leadership change aiming to reinvigorate Monro’s business and restore margins, confident in Fitzsimmons’ track record and Monro’s strong financial foundation with consistent cash flow, liquidity, and growth prospects across over 1,250 stores nationwide.

Monro entered into a consulting agreement with AlixPartners to assess the company’s operations & then develop a plan to improve Monro’s financial performance. They spent an initial $800,000 for the assessment under the consulting agreement, and then $5.85 million to implement the plan.

Between March & November, the Company incurred aggregate expenses of approx. $18.5m in connection with the operational improvement plan and the services provided by AlixPartners. Ouch, Pricey !!

So, what did they get for their $$’s. What’s the impact been so far.. ?

“We have identified four key areas of focus as opportunities for improvement. These include closing 145 underperforming stores, improving our customer experience and selling effectiveness, driving profitable customer acquisition and activation, and increasing merchandising productivity, including mitigating tariff risk. While our improvement plan will take time to implement, I believe that we will drive enhanced profitability and increase operating income and total shareholder returns in fiscal 2026.”

Fitzsimmons repeatedly mentions these 4 key areas of focus that have carried over from their initial assessment of the business.

1. Real estate disposition related to the previous closure of 145 underperforming stores.

Q1 (June 28, 2025) - Monro completed the closing of 145 underperforming stores. From Q1 CC.. “the closure of these stores will have limited impact on our total sales but is expected to deliver meaningful improvement to our profitability. The 145 stores generated approximately 5% of our total sales in fiscal 2025, and we are likely to recapture some of the sales in other Monro locations near the closed stores. We’ve now started a process to exit the real estate at these locations, which includes 40 fully owned stores (no mortgages). This process is expected to generate positive cash flow and be largely completed over the next 12 months.”

Q2, Monro exited 21 leases and sold 3 owned locations, which resulted in proceeds of $5.5 million.

2. Improving our store-based customer experience and selling effectiveness,

Staff Training, Implementation of a district Managers toolkit including a pilot program for in-store process improvement such as being ready for customers as they come in. They've also hinted at Staff Reduction without explicitly giving numbers. Reduced number of district managers but increased quality.

3. Driving profitable customer acquisition and activation,

New Hires in Marketing to aid in increased traffic generation. Focus on high value customers via a targeted marketing spend via online, in-store & radio/ direct mail.

ConfiDrive. This is Monro’s Digital Courtesy Inspection Tool. Staff will inspect the vehicle & tell the customer what they should be thinking about in order to keep their cars safe. This should help drive incremental sales. Ramped to 600+ stores.

Centralized call center administration - so that staff don’t spend all day answering the phone.

4. Increasing merchandising productivity, while mitigating tariff risk

Sustained focus on operating cost control. New Hires in Merchandising to work with suppliers & vendors.

Reduction in inventory & improved inventory management.

So far, so good. 3 consecutive quarters of positive comps, gross margin performance. Added to that, most of the impact, cost wise, should be felt at the start. Store closing costs related to the 145 underperforming stores being closed & the fees paid to the consultants.

So, who's been paying attention…

The Activists

GAMCO/ Mario Gabelli

GAMCO is U.S. asset‑management firm founded and controlled by Mario Gabelli. They take a Private Market Value (PMV) With a Catalyst™ approach, which utilizes fundamental, bottom-up research to identify companies selling at less than their intrinsic value. They identify ‘mispriced companies with strong business fundamentals & the presence of a catalyst’ that underscores their ability to deliver superior absolute returns… by valuing a company at what a rational buyer would pay for the whole business.

Gabelli prefers constructive dialogue but does have a history of engaged or activist value investing, including proxy contests, media campaigns, and public letters pressing for asset sales, spin‑offs, buybacks, dividend changes, or board refreshes when it believes value is being squandered.

Gabelli has passively owned Monro for some time but that changed on Aug 1, 25 when Gabelli filed a 13D reporting 1,502,130 shares or 5.01% of the company. Their cost basis is approx $24.25. The text was fairly standard. Not much to glean from it.

On Nov 11, Gabelli filed an amendment reflecting an increase of ~310k shares, now reporting a position of 1,811,875 shares, representing 6.04% of the company. I wonder what transaction will catalyze Gabelli’s position in Monro.

Carl Icahn, Icahn Enterprises L.P.

Carl Icahn - one of Wall Street’s most infamous & successful investors - is the founder & controlling shareholder of Icahn Enterprises ($IEP), a public company & diversified hold co. One of Wall Streets original corporate raiders since the 1980’s, Icahn’s investment strategy often revolves around taking large stakes in public companies that he believes are undervalued. He pushes for change or nominates a slate to control the board. Most famously, he took a stake in Herbalife and had a now infamous ‘live on air’ heated discussion with Bill Ackman (who was short & calling it a pyramid scheme). He also owned Netflix in 2012 & Apple in 2013 netting $3 billion across the two positions by pressuring management & pushing for buybacks with excess cash.

Icahn first filed a 13D, Form 4 & Form 3 on Nov 5th. The 13D reported beneficial ownership of 4,439,914 shares or 14.79% of the company. But digging into the Form 3 showed an additional position of 4,946,525 shares on swap with Nomura GFP.

The text was extremely broad & essentially said nothing by including everything. That said we can see that during the past sixty days Icahn bought aggressively.

Just two days later, Icahn files an amended 13D & reports beneficial ownership of 5,078,573 shares / 16.92% increasing his common equity stake by 638,659 shares. Interesting the swap position is nowhere to be found.

Primes / Others

We know Nomura (860K shares) is Icahn’s swap counterparty from the Form 4, but I think it’s more than just Icahn here. He doesn’t want to trigger the poison pill, so I’m assuming he still has some of his position on swap, but I also see MS (1.7m shares), GS (787k shares), UBS (670k shares) & BAML (400k shares) all sitting on large amounts of stock, which suggests that there’s more activists sitting on swap positions. There’s also a few well known active/ engaged names here such as Ancora & Fund 1. Yes, this info is as of 09/30, so is stale, but it’s directional.

Cooper Creek - 2,170,585 shares - 7.24%

Cooper Creek owns ~2.2m shares (7.2% of the company), initially filing a 13G in May 25 & reported holding 1,743,858 shares (5.8 % ) increasing to 2,623,425 shares (8.8%) in August though looks to have taken some off the table in November.

Adage Capital Management - 2,222,000 shares - 7.41%

Adage looks to have previously been a substantial shareholder of Monro but bought back a full position in Q3 of last year, likely just under the current price.

Rights Plan / Poison Pill

MNRO responded to Icahn just a couple of days later by instigating a poison pill. For those unfamiliar, limited duration shareholder rights plan or ‘a poison pill’ is an anti-takeover defense, used to combat hostile takeovers or creeping accumulations, widely credited to Martin Lipton, of the New York law firm Wachtell, Lipton. The idea is to dilute a potentially hostile investor that crosses a pre determined threshold so as to make a takeover prohibitively expensive for the acquirer. Thus, it usually forces the buyer to come to the table.

In this case, the PR has the usual blurb, notes Icahn owns 17% of the company & sets the threshold at 17.5%. Otherwise the language is fairly positive for investors & doesn’t sound, in my opinion like an entrenched board.

Leadership Update / Full Time CEO

Dec 3, 2025, the company announced that Fitzsimmons has resigned from AlixPartners & would formally become the full-time President & CEO. Fitzsimmons will also be nominated to join the board & executive committee.

The Press Release & the boards’ comments & filings tell an interesting story. So let’s break it down..

Language signals - ‘Value Creation’, ‘Shareholder Expectations’, ‘Shareholder Value’, ‘Unlocking Potential’

Robert Mellor, Chairman of the Board.

“Over the past several months, Peter has worked closely with the management team and Board to develop and execute on the Company’s performance improvement plan to enhance operations, drive profitability and deliver the value creation our shareholders expect,”

Peter Fitzsimmons, President & CEO

“I am thrilled to be Monro’s President and CEO as we continue the progress we have made to grow the Company’s profitability and deliver shareholder value,”

“We have an exciting opportunity at Monro to build on our momentum and unlock the Company’s full potential.”

Alignment - via New employment agreement

Salary $900k, Annual Bonus up to 200% of Salary + Sign on Bonus $200k. Most importantly, the equity awards align the CEO with value creation. Upfront Special Grant RSU’s $500k. An ‘Initial Term Grant’ of RSU’s worth $1.125m & PSU’s with a target value of $3.375m. Additionally, he will be eligible for ‘Annual Grants’ of $1.5m after 2029. That said, I don’t think he’ll see 2029…….

Because most importantly… his employee agreement specifies accelerated vesting in a CIC scenario. In fact, it repeatedly notes this across the documents..

If Fitzsimmons turns this around & sells it for ~$40, by my count, he’ll likely walk away with >$12 million. Not bad for a years work !

Other / Misc.

There’s a genuinely interesting governance & ecosystem link between Icahn & Alix Partners that I haven’t seen anyone else flag yet.

Icahn Enterprises’ prior CEO & former CFO, David Willetts (through early 2024), was previously a Managing Director at AlixPartners. In Feb 2024, Willetts was named CEO of Pep Boys—a major Philadelphia-based automotive chain focused on tires, parts, maintenance, and repairs. Pep Boys is a portfolio company of Icahn Enterprises & a large part of IEP’s automotive group.

This shared AlixPartners pedigree likely explains why Icahn is comfortable backing an Alix-connected CEO (Peter Fitzsimmons) at Monro, especially with AlixPartners having advised Monro on its turnaround. These guys likely know each other - or at least know of one another - & know they can get the job done.

Other Key Corporate Governance Signals

In an effort to try & get better at reading the tea leaves - in order to get ahead of a situation like this, I’ve added a couple of indicators that, though not recent when compared to the current timeline, are recent enough that it gives us some indication that pressure has been building on the board for some time.

Capital Structure (legacy dual-class veto-vote share structure)

In May, 23, the company announced they would eliminate the Class C Convertible Preferred Stock. Under that structure, at least 60% of Class C must unanimously consent to effect any change, effectively giving them a veto any matter. The Class C will now convert into 61.275 shares of common stock (an increase from the prior conversion rate of 23.389). Peter J. Solomon, a current director & member of the board since 1984 & his affiliates, control the Class C Holders. They will automatically convert in Aug 26. I don’t think the board did this off their own bat….. rather, it sounds like they were nudged.

“We welcome the perspectives of Monro shareholders and appreciate the active dialogue we have had with them regarding their desire for the Board to pursue options for a recapitalization,” said Robert E. Mellor, Chair of the Special Committee. “We believe this agreement will resolve the complexity presented by the Company’s legacy equity capital structure and is in the best interests of the unaffiliated Monro shareholders. We are confident this step will make Monro a more attractive investment opportunity, simplify the Company’s capital structure, and enhance our corporate governance by placing all shareholders on an equal footing.”

Board Declassification

In the same press release, the company also announced that they would declassify the Board. The Board now only has one class of directors, all of whom will serve one-year terms. “We continue to assess potential actions to improve Monro’s governance, including adding director candidates to the Board who complement the skillsets and experience currently represented.”

Other / Misc.

ATD - In 2022 Monro sold it’s tire business to American Tire Distributors (ATD), a leading independent tire wholesaler ($105m), in order to focus on retail. As part of the transaction, they entered a long-term supply agreement (recently extended to 2030) whereby ATD delivers tires, wheels, and accessories directly to Monro locations daily, supporting Monro’s supply chain. ATD’s 2024 bankruptcy and lender-led emergence as “ATD Next” in early 2025, thus far, hasn’t disrupted the business.

NY Incorporation

Smart guy pointed out to me that Monro is incorporated in NY & not Delaware. In a hostile situation, I believe, New York’s anti-takeover provisions might make the bid more difficult to complete. As always, PLEASE REMEMBER, I’M JON SNOW & I know less than nothing about jurisdictional differences that may introduce more complexity or potential delays to a transaction. I’ll need to dig a little deeper here & see what I can find out.. but at first glance , I think it’ll stay friendly.. for now.

Dividend Cut Incoming ?

They are quite likely to cut the dividend in the near term & honestly, 1) I’m kinda surprised they haven’t already & 2) I hope they cut it, because I love a bit of forced selling. They pay $0.28 a quarter / $1.12 a year which is a very significant $8.7m / $35m. They are also restricted somewhat by their credit facility whereby they must maintain a minimum of $300m liquidity.

Credit Facility Covenant Relief

In May, 2025, they entered into an (5th) amendment to their Credit Facility. It gives them some flexibility from the first quarter of fiscal 2026 through the first quarter of fiscal 2027. I’m assuming this was done so Fitzsimmons/ AlixPartners could get what they needed to get done in the short term whilst avoiding technical default during the process re one off / restructuring charges. Another smart subscriber says they won’t cut the div & this is the tell..

The Thesis

Look, I think Icahn is pushing for this to get sold. The skeptic in me thinks it’s been in the works since early last year. Whether he’s gonna buy it himself & combine it with Pep Boys, or push for an external buyer isn’t clear. Given last years governance reforms & current turnaround efforts, I think the board is ‘on board’ & likely Gabelli et al have been nudging them in the right direction.

Re: Pep Boys. At first glance, the businesses look pretty complimentary which could suggest available synergies. Geographically also, there doesn’t look to be a huge amount of overlap.

The Disclaimer(s)

Disclaimer #1: As always, please remember, I am Jon Snow. I know absolutely less than nothing. Don’t listen to me. Put all your money into an index fund & laugh at the rest of us. I make mistakes, lots of them in fact. Please feel free to point out if, or how many, I may have made above.

Disclaimer #2 : This commentary is for informational & personal opinion purposes only. It is not financial advice (let’s face it, it’s basically comedy), and I am not your fiduciary. You should do your own research and consult a qualified financial advisor before making any investment decisions. DYODD !! & DO NOT TAKE INVESTMENT ADVISE FROM PEOPLE ON THE INTERNETS THAT FOUND INVESTMENT RELIGION DURING COVID !! I may sell at any time…. most likely the day before something happens. You do you.

The Footnotes

Fiscal Year - Monro operate on a 52/53-week fiscal year ending on the last Saturday in March.

Michael Broderick

https://www.moderntiredealer.com/topics/industry-news/article/11473436/monro-names-its-next-ceo-michael-broderick-2021-03-15

https://www.globenewswire.com/news-release/2021/03/15/2193196/0/en/Monro-Inc-Appoints-Industry-Veteran-Michael-Broderick-as-President-and-Chief-Executive-Officer.html

Peter Fitzsimmons

https://www.alixpartners.com/our-people/28611/peter-fitzsimmons/

https://www.marketscreener.com/quote/stock/MONRO-INC-10055/news/Monro-Inc-Announces-Chief-Executive-Officer-Changes-49485604/

https://www.linkedin.com/in/peterfitzsimmons/

https://www.alixpartners.com/our-people/28611/peter-fitzsimmons/

https://www.sec.gov/Archives/edgar/data/876427/000087642725000005/mnro-20250927xex10_79b.htm

Rights Plan

https://www.sec.gov/ix?doc=/Archives/edgar/data/876427/000119312525274495/d39452d8k.htm

David Willetts

https://www.alixpartners.com/newsroom/alixpartners-announces-24-promotions-to-managing-director/

https://www.prnewswire.com/news-releases/icahn-enterprises-lp-announces-management-changes-301418418.html

If you liked it at $200, you’ll love it at $20 !

Five9 is a structurally healthy S-aaSset trading at distressed multiples, just as growth is bottoming, GAAP turning positive, SBC coming down, and buybacks kicking in. Activists (Pictet, Anson, Legion, Voss) are circling & behind the scenes: governance defenses are being quietly dismantled. Now a CEO with a fresh AI story and a highly sale‑aligned package just walked in the door. Layer in a rich tuck‑in M&A history, repeatable enterprise relationships at ~1.5x sales, and this starts to look less like a broken growth story and more like a pre‑deal setup hiding in plain sight.

The Company

Market Cap $1.6bn, $676m in cash & investments & $747.5m debt gets us an EV of ~$1.7bn. 2025 sales guided to $1.1bn gets us to 1.5x sales. EBITDA is heavily adjusted by $114.4m of SBC YTD, but if we annualize YTD AEBITDA, we should get something in the region of 7x. This seems….. cheap ?

Five9, Inc. (FIVN) is a cloud contact center & customer experience (CX) software provider headquartered in California. It has 2,600 employees that provides intelligent cloud software for contact centers. Their cloud platform can support >350,000 agents handling customer interactions simultaneously across all its customers worldwide. Essentially their Intelligent CX Platform uses AI to route customers to the right agents (reducing call abandonment), automate routine tasks with virtual agents, and give agents real-time guidance for better service. For customers, having Five9 run & maintain the platform, coupled with rapid deployment & minimal upfront investments is a much easier solution than an on prem in-house build.

If used well, this setup can improve efficiency for sales, support, & marketing teams. As of September 30, 2025, they had over 3,000 customers across multiple industries including airlines, finance, retail, and healthcare, all without needing on-site hardware. Notable customers include Wyndham Hotels, Alaska Airlines, Kyndryl, Advent Health & Under Armour.

So, here’s the scenario. Picture this… you have an issue with your hotel booking or recent delivery, so you call the helpline.. Five9’s software - the self-service intelligent virtual agents (IVA’s) - process your request, automatically recognize your phone number or even your voice, routes you to the right expert agent based on your issue you’re experiencing (hotel reservations, or after sales), shows the agent your full account history on their screen, details the issues you’ve been having & can even suggests answers via AI. Or even better, no handover is required & the IVA solves your problem. This makes the customers call quicker & more efficient. The call centre rep appears clued in & more helpful, turning a frustrating wait into a fast fix. For the buyer of Five9’s service, the Hotel Company or Retailer, this is all outsourced & all without needing expensive on-site staffing & servers. Five9 offers these type of comprehensive solutions for inbound, outbound, or blended omni-channel contact centers across multiple communication channels like voice, live-chat, email, web, social media, and mobile.

The Boom (Zoom) Years

Five9’s revenue grew at a healthy clip since going public in 2014 through to 2019, however that’s when Covid supercharged their growth as demand for their remote agents soared. Customers were excited about the need for minimal upfront investment, rapid deployment & maintenance by Five9 rather than the enterprise itself.

With that, in July 21, came a ~$200 all stock bid from Zoom (implied at 0.5533 shares of ZM). Zoom highlighted that the acquisition would be a natural fit to enhance their platform & would drive value to customers. Market Cap at the time was $14.7 billion !!

The original premium was about 13% however Zoom’s stock fell hard after earnings - when Zoom reported slower growth, more than eroding any premium. Both proxy firms then recommended investors vote against the merger noting “The all-stock deal exposes FIVN shareholders to a more volatile stock whose growth prospects have become less compelling as society inches towards a post-pandemic environment,”. Shareholders subsequently voted against the merger & the companies mutually terminated the agreement in September.

Zoom wanted to use their (overvalued) stock to build their platform, however after the termination, they tried to calm analysts saying “it was in no way foundational to the success of our platform nor was it the only way for us to offer our customers a compelling contact center solution.” Instead Zoom went & built their own “Video Engagement Center” (VEC), their cloud-based contact center solution in 2021 & launched it in 2022. That same year it acquired Solvvy that’s focused on conversational AI and automation for customer support.

“VEC is Zoom’s answer to our customers’ requests for us to enter the contact center market and develop a solution to connect businesses with their customers by creating engaging experiences that build rapport, trust, and the sharing of expertise in a structured and immersive virtual environment. … our Video Engagement Center will be a flexible, easy-to-use solution. We are building this new solution with the same scalability and trusted architecture that has made Zoom the platform of choice for businesses around the world.”

The Bear Thesis - Decelerating Growth

Since then, Five9′s shares have slumped. Growth has slowed from 40% in 2021, 27% in 2022, 16% in 2023, 14% last year & now management are guiding to 10% for y/e 25. Subscription revenue, the biggest part of overall slowed from 16% in Q2 to 10% in Q3. Bears say that Five9 will be one of many AI victims, that ‘per-agent seat’ will be eroded by AI automation, that the market is saturated, the CEO is leaving before the ship sinks & they have never been GAAP profitable despite revenue surpassing $1 billion.

The Bull Thesis

The bulls will say AI is gonna be huge for the business. The CCaaS market is growing at a rapid clip, a huge tailwind for Five9. They have line of sight to becoming a Rule of 40 co. by 2027. They acquired an AI related company back in 2020, Inference Solutions, which helped build the foundation of the business as it is today. Management tells us both core (non-AI) business is growing & the AI business is growing even faster. They have been in business for nearly 25 years, so they have the data. There needs to be a balance between automation / AI & actual human interaction. The model will change from a per-seat basis to a consumption / capacity basis. Activists are on board, the company is buying back stock & they now have four consecutive quarters of positive GAAP earnings !

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Capital Allocation

Five9 borrowed when debt was cheap. They used that capital to that to grow the business both organically - through R&D spend & inorganically - through tuck in acquisitions.

Debt

Since 2018, they have tapped the convertible debt markets for low-cost debt: $747.5m in 2020 (0.5% coupon, $134.34 conversion price, due 2025) and $747.5m in March 2024 (1% coupon, $79.42 conversion price, due 2029). Earlier this year, they used $313m of 2024 proceeds to repurchase 2025 notes below par, with the balance maturing in June 2025.​ As of September 30, they held $676m in cash, cash equivalents & marketable securities (CDs, U.S. Treasuries, agencies, corporates, etc), generating $5.6m in interest income - far exceeding their $1.9m in interest expense.

M&A

Five9 has strategically employed a tuck-in acquisition approach focused on bolt-on technologies that compliment, enhance & extend its Intelligent CX platform. For example, by acquiring trusted partners like Aceyus & Acqueon, Five9 has thoughtfully added complementary capabilities such as data analytics, virtual assistants, workforce optimization & omnichannel orchestration. Their acquisitions have also been focused on accelerating the contact center migration to the cloud. These strategies accelerate innovation while driving upsell opportunities within its 3,000+ customer base. Maintaining & expanding their best-in-class tech stack is critical for Five9 to compete effectively against both traditional competitors and in-house platforms developed by large enterprises.

Whendu, (SpiderMonkey, 2019 ~$13.9m)

The acquisition of Whendu helped accelerate the contact center migration to the cloud by making it easier for enterprises to integrate an organization’s contact center systems with other internal infrastructure such as analytics tools.

Inference Solutions (2020, ~$172m): Market-leading platform, accelerating AI self-service intelligent virtual agents (IVA’s) that provided solutions to automate complex customer engagement tasks for clients across a host of industry verticals. The two companies had been working together & Five9 had been reselling Inference Solutions IVA’s.

“As a result, within a matter of days, customers can successfully offload many tasks to virtual agents at a fraction of the cost. Allowing human agents to focus on higher value add activities”…. James Doran EVP of Strategy & Operations.. Five9 PR November 19, 2020

Virtual Observer (formerly Coordinated Systems, Inc, 2020 ~$32.2m): Cloud Workforce Optimization (WFO) for agent coaching, compliance, quality management, speech analytics, surveys & workforce management. VO was a Five9 partner before the acquisition & highlighted the ability to “maximize the quality of customer interactions while reducing costs and maintaining regulatory compliance”.

Aceyus (2023, $82m): Customer engagement data analytics leader, bolstering data insights for CX; strategic fit with Five9’s analytics stack.​ This enabled Five9 to access this contextual data to optimize, predict and deliver the personalized journeys that customers expect from each interaction. From what I can tell, this acquisition was aimed at driving enterprise customer to migrate to the cloud smoother & faster.

Acqueon (2024, $173.8m): Again in 2024 Five9 acquired a partner to build on the pre-existing partnership between the companies. Acqueon was acquired to add real-time revenue execution & journey orchestration, expanding outbound sales/marketing beyond contact centers adding omnichannel proactive customer engagement to expand Five9’s outbound capabilities.

Enter The Activists

Pictet Asset Management SA - 6,576,147 shares / 8.5%

Pictet are a large Swiss, partnership based, asset manager that manages assets for institutional investors, investment funds, including large pension funds, sovereign wealth funds & financial institutions & ultra high net worth individuals. From what I can gather, it is a conservative or traditional institution & is not known for being activist. As such, this filing stands out to me.

They first filed a 13D in April 25 reporting an ownership of 5,547,863 shares or 7.3% of the company. (Cost 374,874,253). The text was pretty generic. Here’s a snippit below. They filed again in August increasing their position by approx. a million shares but reducing their cost by nearly $3m to $371,886,985. So, we know 1) they are talking to / seeking to influence the Board/Management, 2) they are not looking to take control (right now) & 3) they are actively trading around their position.

Anson Funds Management - 1,534,272 shares / 1.99%

Anson Funds is a multi-strategy fund founded in 2007 by Moez Kassam, and it has $1.9 billion in assets. While not historically activists, in October 2023, Anson hired Sagar Gupta (former senior analyst and head of technology, media and telecommunications investing at Legion Partners) to build out the firm’s activism strategy. Bloomberg, Reuters & cxtoday all reported that Anson had taken a stake in July 24 & were urging Five9 to consider a sale after allegedly receiving inbound interest in late 2023, but declining to engage. In Dec 24, Five9 announced a cooperation agreement with Anson Funds Management & appointed Sagar (PM & Head of Active Engagement at Anson Funds) to the board. Prior to Anson, he was a Senior Analyst at Legion Partners after stints in Momentive Global, Balyasny, UBS & KKR. Anson had been pushing behind the scenes for some time as noted in the press release.

Legion Partners - 591,685 - 0.76%

Legion is a long-only, value-oriented activist manager focused on the North American small-cap market. Legion deploys an active ownership approach to managing a concentrated portfolio & takes a behind-the-scenes, advisory style approach to engagement to achieve superior risk-adjusted returns for investors through the creation of long-term, sustainable value. It was founded in 2012 by Ted White, Bradley Vizi & Christopher Kiper & notably seeded by CalSTRS.

In Oct 24 Reuters reported that Legion Partners had also built a stake in Five9 & was pushing for a board seat & cost cuts, making it the second overtly activist investor to agitate for change at the company. Usually Legion’s name only comes up after the fact, so it’s telling that their involvement was leaked. My guess is that they are probably content with having an adult at the table. (Sagar on the board)

Voss Capital - 4,550,000 shares - 5.82%

Voss Capital, founded by Travis Cocke in 2011, is a fundamental research-driven, bottom-up, value-oriented manager focused on underfollowed special situations. The Funds target value-oriented special situations with an emphasis on business model analysis, properly incentivized management teams, identifiable catalysts for value realization, and securities with the potential to double in value within a three-year timeframe.

Voss Capital owns 4.55m shares, recently increasing their position by 40% / 1.3m shares. Voss are active & pretty vocal on Twitter & have described Five9 as trading at distressed multiples despite solid underlying fundamentals.

UBS Group

UBS also maintains a large position in Five9: common & options across two entities (UBS AG & UBS Asset Management Americas). Likely a swaps counterparty for Anson Funds or possibly Legion given their small common position - UBS are hedging out their exposure to the funds swaps positions. Additionally, GS, MS & BAML all report owning ~1% of the company at 09/30. Nothing definitive here, but more small indications that there’s something brewing beneath the surface.

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Impact ?

CEO Retirement & Board Refreshment

On July 31, 2025, Five9 announced that Michael Burkland will retire from his position as the CEO. He will remain employed by the Company as the Executive Chair for a period of up to 6 months after the CEO transition date. Burkland previously held the CEO position since joining in 2008. However he resigned in 2017 after a cancer diagnosis & subsequently came back to the helm in Oct 22 after successful treatment. On the earnings call, he mentions his cancer treatments but does not explicitly say it is the reason he is retiring.

“While my cancer treatments continue to be effective, I recognize that it’s not likely to continue indefinitely. After giving it a lot of thought, I believe it’s time for me to pass the baton and get back to a more balanced lifestyle. That said, until we appoint my successor, I’m committed to working my tail off as we continue to transform Five9 to drive top line growth and bottom line profitability.” Q2 Conference Call

“While Mr. Burkland continues to provide services as an employee or director on the Board, Mr. Burkland’s outstanding ..RSUs.. and …PRSUs … will continue to vest in accordance with their terms; provided that if a change in control of the Company occurs, Mr. Burkland’s then-outstanding RSUs will vest immediately prior to such change in control, and Mr. Burkland’s then-outstanding PRSUs will vest immediately prior to such change in control in accordance with their terms,” - 8-K, July 31, 2025

Was Burkland an obstacle to a sale ? Some think not, given he was Chair during the Zoom transaction. That said, was he anchored to a price far above where Five9 is now trading.. perhaps ?

On September 26, 2025, David Welsh resigned from the Board & as Lead Independent Director. Sudhakar Ramakrishna appointed in his place. Mr. Ramakrishna will also serve on the Nominating and Governance Committee of the Board. This kind of went under the radar, but Mr. Ramakrishna has quite the resume….

Most notably, he serves as the CEO of SolarWinds Corporation since Jan 2021. Solarwinds was acquired by Turn/River Capital in Apr 25.

Prior to SolarWinds, Mr. Ramakrishna served as the CEO of Pulse Secure from July 2015 until its acquisition by Ivanti Inc. in Dec 2020.

Mr. Ramakrishna also previously served on the board of of SADA Systems from Jan 2022 until its acquisition in Dec 2023 by Insight Enterprises Inc.

And, as a member of the board of SailPoint Technologies Holdings, Inc. from July 2021 until its acquisition in Aug 2022 by TB.

Aaaaand as a member of the board of directors of Enterprise 4.0 Technology Acquisition Corp., a special purpose acquisition company focused on technology targets, from October 2021 to March 2023.

New CEO

Just a few days ago, on Dec 17, 2025, Five9 announced the appointment of Amit Mathradas as the company’s CEO & Class III director (effective Feb 2, 2026). In the press release the firm emphasizes Mathradas’ AI credentials, noting that at Nintex he led development of an “AI‑centric, agentic business orchestration platform,” and positions him as having a strong record in product innovation, AI, and operational excellence at scale. They underline his growth track record at Avalara, where as President and COO he helped scale revenue from roughly $300 million to nearly $1 bn…… most interestingly, before its $8.4 billion take‑private by Vista Equity Partners.

I think there’s enough subtle hints here to appease the activists. Especially since Sagar /Anson are on the board & likely would have signed off on the hire. Mathradas’s own quote leans hard into activist-friendly language: “drive growth, increase profitability, and deliver long-term shareholder value,” which directly mirrors the vocabulary used in activist letters. Also, the not so subtle mention of Mathradas’ involvement in the sale of Avalara to Vista isn’t there by chance.

Mr. Mathradas, age 50, has served as CEO & a Directors of Nintex USA, Inc., a workflow automation company, since March 2023. (Privately owned by TPG Capital & Thoma Bravo)

Prior to that, Mr. Mathradas served as the President & COO of Avalara, Inc., a tax software provider, from March 2019 to January 2023. (Taken private for $8.4bn in 2022 by Vista Equity Partners)

In the same press release, the Five9 announced it will hold an investor day in 2026 “to provide additional detail on its strategy and long-term financial outlook.”

SBC

Stock-Based Compensation has come down from $128m YTD Sept 24 to $114m YTD Sept 25. Investors are clearly unhappy with the level of insider compensation given the dramatic fall in the stock price. Management have even alluded to this, noting in the Q1 Call “we remain highly focused on continuing to moderate stock-based compensation over time.” Longer term, if this doesn’t get sold, we should see a margin tailwind from SBC cuts.

RIF’s

In Aug 24, he Board approved a reduction in force (The 2024 RIF) “as part of its broader efforts to drive balanced, profitable growth, further supporting its positive, long-term outlook and focus on increasing stockholder value” & reduced the Company’s global full-time employees by 6%.

In March 25, the Board approved a further RIF ( The 2025 RIF) to prioritize investments in key strategic areas, including AI, to drive profitable growth & increase stockholder value. In April, 2025, the Company commenced the plan, reducing the Company’s global full-time employees by approximately 4%. (Estimated net reduction of $20 million to $25 million in annualized compensation)

3073 employees as of Dec 24. 2,600 as of Dec 25.

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Repurchases

Concurrent with Q3 earnings, Five9 announced a $150 million share repurchase program, inclusive of a $50 million accelerated share repurchase.

On November 11, 2025, Five9, Inc. (the “Company”) commenced an accelerated share repurchase agreement (“ASR”) with JPMorgan ….., to repurchase $50.0 million of the Company’s common stock under the share repurchase authorization previously disclosed in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 6, 2025. Under the ASR, on November 12, 2025, the Company will make a payment of $50.0 million and expects to receive an initial delivery of approximately 1.9 million shares of the Company’s common stock. The total number of shares to be repurchased will be based on the average of the daily volume-weighted average price of the Company’s common stock during the term of the ASR, less a discount and subject to adjustments pursuant to terms of the ASR. The final settlement of the ASR is expected to occur by the end of the first quarter of 2026.

Given how the stock has been trading, I would expect JPM to deliver closer to 2.3m shares. Especially if they want to get their name at the top of the tombstone !

The Insiders

Amit Mathradas CEO & Class III Director (effective Feb 2, 2026).

Mr. Mathradas will receive.. (in addition to $550k salary, $550k sign on bonus & $450k bonus, up to a max of $900k.)

(i) a restricted stock unit award with the underlying shares having a dollar value of $12.5 million, and

(ii) a performance-based restricted stock unit award with the underlying shares having a target dollar value of $14.0 million. the PRSU Award ranges from 0% to 200% of the target number of PRSUs based on the Company’s relative total stockholder return (“RTSR”) performance as compared to the companies in the S&P Software and Services Select Index.

There’s some interesting language here in the employment letter. One thing that strikes me is “Constructive Termination” as a qualifying event that triggers the same severance benefits as an Involuntary Termination Without Cause (e.g., base salary continuation, benefits, and pro-rata/prior-year bonus payments). Specifically, it looks to enable Amit to trigger an ‘Involuntary Termination without Cause’ should a change of control happen (trigger 1) which can include (i) not being CEO of the surviving entity & (ii) change in office location. To me, it reads like after a CIC, he’s ensuring he get’s full 100% acceleration of all equity awards. He has every incentive to get this done.

‘Upon a qualifying termination of employment in connection with a change in control … 100% of the unvested RSUs will vest on a double-trigger basis and the unvested PRSUs will vest on a double-trigger basis (i) at the target level for the uncompleted portions of the performance periods and (ii) at the actual level of performance measured through the date of the change in control of the Company, based on the price per share paid in such’

Michael Burkland (Former CEO)

The outgoing CEO beneficially owns nearly 500k shares of common stock in addition to 54,375 $8.13 options expiring Mar 26 & 181,020 $16.25 option expiring Sept 27. He also has approx. 383k unvested shares or RSU’s that have not yet vested. Under a CIC, by my calc’s he net’s approx. $20 million. Not bad for riding off into the sunset !

FIVN KESP

The Five9, Inc. 2019 Key Employee Severance Benefit Plan (the “KESP”) governs the severance benefits extended to participating senior executive officers, on a tiered basis. It was established originally in Apr 2014 & had a 5 year term. It was renewed/ replaced in 2019 for another five years. But strangely in 2024, it was only renewed only for one year.

Other / Misc

Buried down at the bottom of July’s Press Release announcing the Retirement of the CEO, the company announced two shareholder friendly events. Five9’s shift from a classified /staggered board to annual elections by 2028 appears to be the dismantling of longstanding anti-takeover defenses. This should enable a faster full-board refresh. Simultaneously, eliminating the 66⅔% supermajority vote threshold to simple majority appears to be a concession to the activists. Announced alongside Burkland’s retirement, to me at least, this signals board openness to change without a public battle.

Possible Acquirers ?

So, if thing’s for sale ? Who’s the natural buyer

Salesforce ($CRM) or ServiceNow ($NOW) ? Possibly the most natural buyers given they have been working together for 15+ years. To counter that, CRM & ServiceNow recently (July 25) made a $1.5bn investment into Genesys. Doesn't read like a positive to me, however as mgmt. point out in the call, Salesforce mostly invest in many private CX & AI companies through their VC arm.

Zoom - Would Zoom like another bite at the cherry ? They were likely the party that approached Five9 (again) in late 2023. They have plenty of cash on the balance sheet & have historically been quite acquisitive.

PE - probably the most obvious candidates. Genesys’ owners Hellman & Friedman and Permira might decide to combine again to take out Five9 with the proceeds from a Genesys IPO. Unlikely, but possible. Thoma Bravo just acquired Verint for $2 bn. Is it too soon for them to add Five9 to Calabrio also ?

NiCE, SAP, Content Guru, Cisco are all possible candidates to either cement their position & dominate the market or turn their niche offering into a market player.

The Summary

Next year, Q1, 26 should be the low point with Q2 & Q3 showing more growth. That said, Q1 could be the perfect time for a take out. The buyback buoys the stock, PE or a strategic swoops in, Burkland & Mathradas get their sunset payouts & all before before earnings rerate the story & a Rule of 40 company demands a bigger premium.

The Disclaimer(s)

Disclaimer #1: As always, please remember, I am Jon Snow. I know absolutely less than nothing. Don’t listen to me. Put all your money into an index fund & laugh at the rest of us. I make mistakes, lots of them in fact. Please feel free to point out if, or how many, I may have made above.

Disclaimer #2 : This commentary is for informational and personal opinion purposes only. It is not financial advice, and I am not your fiduciary. You should do your own research and consult a qualified financial advisor before making any investment decisions. DYODD !! & DO NOT TAKE INVESTMENT ADVISE FROM PEOPLE ON THE INTERNETS !! I may sell at any time…. most likely the day before something happens. You do you.

The Footnotes

CCaaS Market

https://www.gartner.com/doc/reprints?id=1-2LTJ2XI3&ct=250905&st=sb

Global Contact Center-as-a-Service (CCaaS) market size in 2024 is estimated to be USD 6.03 Billion, with projections to grow to USD 22.39 Billion by 2033 at a CAGR of 17.82%.

https://www.marketgrowthreports.com/market-reports/contact-center-as-a-service-ccaas-market-114863

Anson

https://www.reuters.com/markets/us/anson-funds-pushing-five9-explore-sale-sources-say-2024-07-11/

Legion

https://www.reuters.com/business/five9-faces-pressure-activist-legion-costs-board-seat-sources-say-2024-10-22/

Declassification of the Board & Removal of Supermajority Vote Threshold

https://www.sec.gov/Archives/edgar/data/1288847/000128884725000177/fivn-20250729.htm

Acquisition History

https://www.five9.com/news/news-releases/five9-to-acquire-whendu-ipaas-platform-to-accelerate-enterprise-adoption-of-cloud-contact-centers

https://www.five9.com/news/news-releases/five9-to-acquire-inference-solutions

https://salterbrothers.com.au/inference-sold-to-nasdaq-listed-company-five9/

https://www.five9.com/blog/five9-completes-acquisition-of-inference

https://opusresearch.net/2020/10/30/better-together-five9-buys-inference-solutions/

https://www.five9.com/news/news-releases/five9-to-acquire-virtual-observer

https://boweninc.com/transaction/aceyus-acquired-by-five9/

https://www.businesswire.com/news/home/20230807264716/en/Five9-to-Acquire-Aceyus-Extending-the-Five9-Platform-to-Streamline-the-Migration-of-Large-Enterprise-Customers-From-On-Prem-to-Cloud-and-Leverage-Contextual-Data-to-Deliver-Personalized-Experiences

https://www.five9.com/news/news-releases/five9-acquire-aceyus-extending-five9-platform-streamline-migration-large

https://www.sec.gov/Archives/edgar/data/1288847/000128884724000153/R19.htm

Zoom

https://www.globenewswire.com/news-release/2021/07/19/2264531/0/en/Zoom-to-Acquire-Five9.html

https://www.globenewswire.com/news-release/2022/05/12/2442066/0/en/Zoom-Drives-Contact-Center-Expansion-with-Acquisition-of-Solvvy.html

SalesForce

https://www.genesys.com/company/newsroom/announcements/genesys-announces-1-5-billion-investment-by-salesforce-and-servicenow

https://smallbiztrends.com/salesforce-ventures-accelerates-ai-investments-backing-35-innovators/

Rumours

https://www.bloomberg.com/news/articles/2023-12-05/call-center-software-firm-five9-approached-on-potential-takeover

https://investors.five9.com/news-releases/news-release-details/five9-responds-market-rumor

https://www.cxtoday.com/contact-center/five9-breaks-general-policy-to-quash-acquisition-rumors/

Amit

https://www.sec.gov/Archives/edgar/data/1288847/000128884725000242/five9-offerletterexecuti.htm

https://investors.five9.com/news-releases/news-release-details/five9-appoints-amit-mathradas-next-chief-executive-officer

TLDR

TENB is at the forefront of cybersecurity’s shift from reactive firefighting to proactive fireproofing. Backed by a unified exposure management platform and a savvy mix of acquisitions and buybacks, management incentives point strongly to value creation, setting up TENB as an interesting potential pre-deal M&A opportunity.

The Company

Tenable, Inc. ($TENB) describes itself as a leading provider of exposure management solutions. They help companies understand & reduce their cyber risk by giving them a clear 360 degree picture of where they’re exposed to threats—across all kinds of technology, from traditional on-prem IT infrastructure to cloud applications. They also have specialized systems running factories or other critical operations. Instead of just looking for well-known security gaps, their platform connects & analyzes data from every corner of a company’s digital world. This lets security teams focus on what matters most and patch the biggest risks first- before malicious attackers can take advantage. Their core offering or service is called “exposure management”—think of it as an upgraded version of old-school vulnerability scanning. It’s about finding every potential way hackers could break in, not just in servers and desktops, but also in cloud platforms, web applications, mobile devices, operational technology (like infrastructure, power plants, factories etc), & remote employee devices. Their pitch is essentially that the ‘attack surface’ is rapidly expanding as companies grow & evolve & TENB is there to provide unified security visibility, insight and action across this attack surface in order to reduce business risk. Unlike Rapid7 (see link below), Tenable sells almost exclusively to enterprise (other companies & organizations), (through channel), not to retail consumers. At Dec24, they had 1,872 employees, 44k customers: approximately 65% of the Fortune 500, & no one customer represented more than 2% of revenue.

https://substack.com/home/post/p-171653660

Tenable One

Much like Rapid7, historically, they offered a broad range of standalone cybersecurity products & services focused on exposure management, vulnerability assessment, & risk reduction for enterprises—especially in enterprise IT, cloud & operational environments. That changed in late 2022 when they released ‘Tenable One’ “to move enterprise security from reactive fire-fighting to proactive risk management, giving both technical and business leaders the tools, insight, and shared language needed to manage modern cyber threats.” This is designed to be an all-in-one cloud based exposure management platform that incorporates all their tools to give IT teams a unified portal to scan, monitor & protect the entire exposure surface of all enterprise assets, whether on-prem or in cloud, in one platform…… Sound familiar ? …

Over time, we can see that they have united nearly all products under the same platform. I’ve made a list of their main offerings in the footnotes below so as not to clog up the post.

Stephen Vintz.. Q1 Earnings Call..

“In fact, this was our best quarter ever for 7-figure wins, and Tenable One was certainly the catalyst for that success… Another significant new customer win that underscores the momentum behind our unified platform strategy and the value of our Vulcan acquisition was with a Fortune 100 customer. This customer has selected Tenable as their NorthStar for exposure management as part of a broader cybersecurity consolidation effort. They are replacing multiple vendor solutions, choosing to standardize Tenable One.”

Mark Thurmond.. Q2 Earnings Call..

“right now, we are the one player that can actually go out there in a unified platform, bring it all together, be able to have it beautifully, laid out elegantly in regard to our dashboarding our capability to allow our users to make really fast, quick decisions and take action and get insight. And when we’re able to do that, our win rate this quarter were some of the highest win rates we’ve seen as a company.”

Stephen Vintz.. Q3 Earnings Call..

“We believe our strong new platform traction reflects a fundamental shift in cybersecurity away from detection and response technologies and more toward a more preventative and preemptive approach. The reactive approach to cyber is where the tools, the budgets, compliance priorities have lived for many years, simply trying to detect breaches. In fact, more than 95% of all cybersecurity spend today is on post-breach technologies. So consequently, less than 5% is spent on preemptive security.”

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Financial Highlights

Market Cap $3.1 billion, (119,344,266 ‘@ $26), cash & short term investments ($384m) plus debt net out ($361m) which gets us an EV of about $3.1 billion.

Adding the midpoint of Q4 Revenue Guidance to current YTD gets us $990m revenue, so approx. 3x Sales. Pretty interesting chart shared by .

Full link below. Worth a follow.

“We delivered better-than-expected results on both the top and bottom line driven by strong demand for our Tenable One Exposure Management platform,” said Steve Vintz, Co-CEO of Tenable. “Our outperformance reflects the industry’s shift toward a more preemptive approach to cybersecurity.”

They’re now profitable on a GAAP basis, delivering healthy margins & have positive free cash flow. After significant R&D spend to support & build out its growth, & innovation, and still have something left over for shareholder returns.

Capital Allocation

Tenable’s capital allocation strategy balances aggressive reinvestment for market leadership and technology innovation (they commit significant resources to R&D), with inorganic growth to expand and enhance the functionality of their platform offerings (they have been on quite the shopping spree) & disciplined use of free cash flow for shareholder returns, (they’ve been ramping the buyback).

Buybacks

“We intend to continue to repurchase shares, which we believe is an effective use of capital.” Matthew Brown, Q3 Earnings Call.

Share repurchases have become a bigger part of their capital strategy over the past few years. In 2023, the company bought back 400,000 shares for $14.9 million. That number jumped in 2024, when they repurchased 2.3 million shares for $100 million. So far in 2025, Tenable has bought back a whopping 5.6 million shares for $185 million! In July 2025, the Board approved a further increase to the existing share repurchase program, adding $250 million to the authorization.

That said, Stock Based Comp is pretty egregious here at $147.3m YTD! Adding in 2023 & 2024 gets to over $450m paid to insiders!

R&D

TENB commits significant resources to R&D, $56.3M in Q3 alone & $169m YTD. They also tell us repeatedly that this will continue. The main focus is expanding Tenable One’s capabilities across AI, cloud, and exposure management technologies

We expect our research and development expense to continue to increase annually in absolute dollars for the foreseeable future as we continue to invest in research and development efforts to enhance the functionality of our cloud-based platform….. Q3 10-K

Acquisitions

Bit Discovery (Apr 2022, $44.5m): Tenable bought Bit Discovery to add external attack surface management, giving customers visibility into unknown internet-facing assets & closing gaps beyond traditional internal scanning. The deal expanded the platform’s ability to map, monitor, and remediate risks across the full external footprint.

Ermetic (Sept 2023, ~$244m): Ermetic brought a cloud-native application protection & CIEM platform that uses identity and entitlements as the backbone of cloud security. Folding Ermetic into Tenable One let Tenable turn cloud identities, permissions & access paths into prioritized, context-rich remediation workflows across complex multi-cloud environments.

Eureka Security (June 2024, $29.2m): Eureka added data security posture management for cloud workloads, helping customers discover, classify, and protect sensitive data while fighting policy drift and misconfigurations. Integrated into Tenable One, it deepens visibility into data-centric risk and “toxic” combinations of assets, permissions, and misconfigurations.

Vulcan Cyber (Jan 2025, $150m): Vulcan Cyber contributed a remediation‑focused exposure management platform that aggregates findings from 100+ security tools & orchestrates risk‑based fixing. The acquisition enhances Tenable One’s ability to consolidate signals, prioritize vulnerabilities, and automate remediation across on‑prem, cloud, and container environments, laying groundwork for more AI‑driven workflows.

Apex Security (May 2025, ~$50m): Apex Security was an AI security startup focused on governing the emerging “AI attack surface,” from gen‑AI apps and autonomous agents to AI‑generated code. Tenable plans to embed Apex into Tenable One so security teams can see & control AI usage alongside traditional assets, treating AI risk as part of unified exposure management rather than a silo.

The Insiders

Amit Yoran, CEO since 2017, instrumental in leading the company through it’s significant growth, took medical leave in Dec 2024. Sadly, Yoran passed away from his battle with cancer in early 2025. Steve Vintz (Previously CFO) & Mark Thurmond (Previously COO) were named co-CEOs of Tenable in April 2025 following an extensive board-led search process after Yoran’s passing. Both were also later appointed to the board. Art Coviello, the lead independent director on Tenable’s board, was named chairman to succeed Yoran.

Stephen A. Vintz co-CEO & Mark Thurmond co-CEO

Stephen A. Vintz & Mark Thurmond both got upgraded employment agreements to memorialize their new positions as Co-CEO’s. There were two changes to the original agreements highlighted in the amendments.

Section 6.2(a)(i) Says, they now get 18 months of Base Salary cash severance (up from 12)…. pretty standard…

3.Section 6.2(e) covers termination by the company or the executive. It covers most of the usual stuff here, such as, if there is a material reduction in his responsibilities, his bonus, his work location (reporting to office) etc. But I thought section (vi) was particularly interesting..

(vi) a material, adverse diminution in the Executive’s title, authority, duties, responsibilities, or reporting structure (for purposes of clarity, a material diminution will be deemed to have occurred if a portion of the role involved responsibilities related to being a public company and the Company is no longer a public reporting entity).

Stephen A. Vintz co-CEO looks to have the most to gain here. At Year End 24’ Stephen Vintz was the beneficial owner of 845,581 shares: 317,147 shares of common stock held directly & 528,434 shares of common stock issuable upon the exercise of outstanding options exercisable within 60 days of March 17, 2025. He’s since up to 373,496 shares as portions of previous awards are vesting quarterly. 105,000 options have a strike of $4.15 & 423,434 have a strike of $16.21. Adding in his stock & a 20% premium he’d walk away with over $21m !! And that’s before his accelerated vesting kicked in.

Matthew Brown CFO

Matthew Brown was named CFO to replace Vintz in August, 2025. Previously, he served as CFO / PFO of Altair Engineering Inc. from Jan 2021 to Mar 2025 before it’s $10.7bn acquisition by Siemens. He also held roles at NortonLifeLock, Symantec, Blue Coat, Brocade, NETGEAR, & KPMG, specializing in strategic planning, M&A, investor relations, controllership & operational excellence.

“Matt brings a proven track record of scaling global technology businesses, delivering operational efficiency, and driving shareholder value,” said Steve Vintz, Co-CEO, Tenable.

Base salary of $455,000, performance bonus aggregate annual target of 75%. New Hire RSUs with an aggregate dollar value of $7,000,000 (vesting quarterly over 4 years). Target annual equity award with an aggregate dollar value of $4,800,000 & termination in connection with a change of control, 12 months salary, 12 months benefits, a prorated bonus, & accelerated vesting of all outstanding Equity Awards.

“Effective as of .. the effective date of the Change in Control, the vesting and exercisability of all outstanding Equity Awards held by Executive immediately prior to the Change in Control Termination Date shall be accelerated in full, subject to the terms of the award agreement.”

Rumours / Potential Acquirers

In July last year, Bloomberg reported that the company had hired advisors to explore a sale after receiving inbound interest. Apparently from both financial & strategic buyers. My bet would be financial. If I had to guess, I’d say it was Thoma Bravo kicking the tires, based on the amendment to the employee agreements & Thoma Bravo being highly active in cybersecurity M&A, having taken several listed vendors private of late. Here’s a quick screenshot of TB’s Cybersecurity portfolio companies. (+1..forgive me, my artistic abilities are up there with that of a 2 year old child !).

They also just announced in June that they raised $34.4 billion in fund commitments for three funds.

Other / Misc

Professional Fees

Something I’ve used for quite some time is tracking of professional fees. While it is not definitive proof of an active sale process, the expense pattern can often support speculation about major strategic actions taking place inside the company. In TENB’s case, there was a sharp increase in Q3 (+$4.1 million) & Q4 (+$5.1 million quarterly) of 2024, but these levels tapered off in early 2025, & eventually a $1 million decrease by Q3 2025. Spikes in professional fees—especially of this magnitude, from my experience, are sometimes seen during acquisition processes, strategic reviews, or major legal/consulting projects.

As above, we know TENB went shopping for deals (possibly in late 2024) & in Jan 25 announced the acquisition of Vulcan & Apex in May 25. So, these may explain some of the spike, but the largest increases were reported before those deals closed.​

My reading of this is that the distinct jump in professional fees in late 2024 would suggest the company was either evaluating significant strategic options, like a sale or entertaining due diligence or conducting a comprehensive outside review. If a sale process was initiated & later paused or concluded, professional fees often revert to normal levels, which matches the decrease in Q3 2025.​

Government Service Contracts The Summary

Tenable has has deep relationships & multiple contracts supporting U.S. federal agencies, state, local governments & education entities. In April this year they announced they achieved Federal Risk and Authorization Management Program (FedRAMP) authorization at the moderate impact level for Tenable One & Tenable Cloud Security giving it deeper roots into the stickiest of customers : U.S. federal agencies and state/local governments. They also cover State, Local, and Education business segment through their SLED program. This covers cybersecurity contracts and solutions provided to state governments, city and county agencies, public universities, school districts, and other local public sector entities.

Before the change in administration & during the government shutdown the company took a more cautious tone regarding federal & public sector spending noting more uncertainty & a lack of visibility resulting in longer lead times. These contracts are usually long duration & new renewals & sales pipelines look to more than compensate for any slow downs. As evident in the last two quarters, thus far the business has not suffered materially at all. In fact, it looks to be a good way for management to revise guidance, manage earnings expectations & ensuring they beat.

“We have major market leadership in public sector and U.S. federal in particular, across a wide range of 3-letter federal agencies, spanning civilian, defense and intel. And CRs are not new nor are government shutdowns”….Stephen Vintz Q3 Earnings Call

The Summary

I’d wager bankers were hired after an approach some time in mid 2024. Whether the bid ask was too wide or Yoran’s battle with cancer prevented discussions from going any further is something we likely won’t know, at least until we see a merger proxy (should a deal ever materialize). Vintz & Thurmond knew of the approach & made sure to have adequate cover in the event of a buyout. They ensured better payouts before they grew the company, smashed the buyback, execute & wait for the bidder to come back to the table.

The Disclaimers

Disclaimer #1: As always, please remember, I am Jon Snow. I know absolutely less than nothing. Don’t listen to me. Put all your money into an index fund & laugh at the rest of us. I make mistakes, lots of them in fact. Please feel free to point out if, or how many, I may have made above.

Disclaimer #2 : This commentary is for informational and personal opinion purposes only. It is not financial advice, and I am not your fiduciary. You should do your own research and consult a qualified financial advisor before making any investment decisions. DYODD !! I may sell at any time…. most likely the day before something happens. You do you.

The Footnotes

Stephen A. Vintz - Amendment No. 1 to Employment Agreement

https://www.sec.gov/Archives/edgar/data/1660280/000166028025000090/q22025exhibit102.htm

Stephen A. Vintz - Amended and Restated Employment Agreement as February 20, 2019

https://www.sec.gov/Archives/edgar/data/1660280/000166028019000005/vintz-amendedandrestatedem.htm

Mark Thurmond - Amendment No. 1 to Employment Agreement

https://www.sec.gov/Archives/edgar/data/1660280/000166028025000090/q22025exhibit103.htm

Mark Thurmond - Employment Agreement

https://www.sec.gov/Archives/edgar/data/1660280/000166028023000032/q42022exhibit1011.htm

Matthew Brown - Employment Agreement

https://www.sec.gov/Archives/edgar/data/1660280/000166028025000095/a8212025ex101.htm

VOSS Capital

https://x.com/AggieCapitalist/status/1991256982095880196?s=20

Apex Security Acquisition

https://investors.tenable.com/news-releases/news-release-details/tenable-announces-intent-acquire-apex-security-expand-exposure

Vulcan Cyber Ltd. Acquisition

https://investors.tenable.com/news-releases/news-release-details/tenable-plans-acquire-vulcan-cyber-accelerate-leadership

Ermetic Acquisition

https://www.sec.gov/Archives/edgar/data/1660280/000166028023000127/a09072023ex991.htm

Tenable Standalone Offerings

Tenable Vulnerability Management: Cloud-based (SaaS) solution for continuous discovery, assessment, and prioritization of vulnerabilities—finding gaps even in highly dynamic, cloud-heavy setups. Incorporated in Tenable One - Q4 2022.

Tenable Cloud Security: Exposes and helps fix risky misconfigurations and vulnerabilities in cloud apps and infrastructure, with entitlement management, data security posture management, and scanning for AI workloads. Incorporated in Tenable One - Q4 2022.

Tenable Identity Exposure: End-to-end identity risk management, including detection and response for operations in Active Directory, hybrid environments, and cloud identity systems. - Incorporated in Tenable One - Q3 2023 (post Ermetic acquisition).

Tenable Web App Scanning: Automated vulnerability assessment for web applications, making it easy to configure scans and prioritize remediation. Incorporated in Tenable One - Q4 2022.

Tenable Lumin Exposure View: Risk scoring and benchmarking tool using data science to help executives and teams understand cyber risks and compare performance across business units and geographies. Incorporated in Tenable One - Q4 2022.

Tenable Attack Surface Management: Continuously discovers internet-facing assets (even those not tracked by internal security teams) and evaluates their cybersecurity posture.- Incorporated in Tenable One - Q4 2022.

Tenable Security Center: On-premises vulnerability and compliance management for legacy or hybrid environments, providing risk analytics and remediation guidance. - Incorporated in Tenable One - Q1 2024.

Tenable OT Security: Security platform for operational technology (OT) and industrial control systems—detects threats, tracks assets, manages vulnerabilities, and improves configuration controls for industrial networks. - Incorporated in Tenable One - Q3 2023.

Nessus and Nessus Expert: Popular tools for vulnerability scanning and assessment on networks, servers, web applications, infrastructure-as-code, and external domains. Nessus Expert adds features for cloud environments and red team operations.

Rumours

https://www.crn.com/news/security/2024/5-major-security-vendors-that-could-be-acquired-by-private-equity?page=4

https://news.bloomberglaw.com/ip-law/cybersecurity-firm-tenable-is-said-to-explore-potential-sale-1

Thoma Bravo

https://www.thomabravo.com/press-releases/thoma-bravo-completes-34.4-billion-fundraise

Acquisition History (Full)

Bit Discovery, Apr 22. $44.5m

April 22 they acquired Bit Discovery, Inc. a leader in external attack surface management (EASM).

What the Company Did: External attack surface management—finding internet-facing assets organizations might not know about. Why Acquired: To help Tenable’s customers search, map, & monitor external risks, closing the gap between tracked & untracked online assets. Notable Facts: The purchase extended Tenable’s reach beyond internal vulnerability scanning.

April 2022, we entered into a definitive agreement to acquire Bit Discovery, Inc. (”Bit Discovery”), a leader in external attack surface management (EASM). Adding Bit Discovery’s capabilities to current solutions provide customers with a comprehensive view of their attack surface & help identify & eliminate areas of risk.

“We are seamlessly combining previously disjointed insights and empowering security practitioners to eliminate blind spots and easily understand their cyber exposure in ways previously not possible.”… Glen Pendley, CTO.

Ermetic, Sept 2023. $244million

Ermetic was a leading developer of a cloud-native application protection platform (CNAPP), specializing in cloud infrastructure entitlement management (CIEM). Identities & entitlements are among the greatest risk to cloud infrastructures & one of the hardest problems to solve. The idea was give security teams an intuitive platform & interface that provides context & prioritization guidance to make efficient & accurate remediation decisions. Tenable sought to bring identity & entitlement management & remediation, into its Tenable One platform. By adding this technology, Tenable complements its focus on modern attack surface management.​ The deal substantially strengthened Tenable’s capabilities for complex cloud setups, helping customers manage an increasingly large & complex amount of data, access, & identity risks in their cloud environments.

“Together, we will be able to deliver a holistic view of the modern attack surface and help organizations reduce exposure and risk, using identity as an essential foundation.”… Amit Yoran, CEO 2023.

Eureka Security, June 2024. $29.2m

June 24, they acquired Eureka Security, a provider of data security posture mgmt. (DSPM) for cloud environments. The aim is to provide a holistic view of an organization’s cloud data security footprint, to fight policy drift & misconfigurations that put data at risk & to continuously improve their security posture over time. This helps Tenable customers minimize data risk while keeping cloud compliance up to date. The should also enables Tenable One to provide customers with richer visibility & prioritization around data risks, ‘toxic asset combinations’, & cloud security threats.​

Vulcan Cyber Ltd. Jan 2025. $150m

In Jan 25, they acquired Vulcan Cyber, an Israeli startup known for its exposure management a& vulnerability remediation software for approx. $150 million ($147m in cash & $3m in RSU’s). Vulcan Cyber’s platform links up with third-party data. Leveraging more than 100 security tools, letting companies pull together, organize, & prioritize all their vulnerability data in one place. With this tech added to Tenable One, customers now get a much easier way to spot risks, figure out what to fix first, & streamline remediation across everything—from servers to cloud resources. TENB can now give security teams a full view of vulnerabilities from multiple sources & help them act quickly. It also paves the way for smarter AI-driven features to help organizations keep ahead of threats as their environments get more complex.

“CISOs are overwhelmed with scattered security products, siloed tools and disjointed teams which makes protecting their organizations from exposure a massive undertaking. As the pioneer behind Exposure Management, we are driven to solve this central challenge of modern security — a fragmented approach to identifying and combating cyber risk. That is what this acquisition is all about. With Vulcan, we’re accelerating our Tenable One vision to radically unify security visibility, insight and action across the attack surface – from the data center to the cloud – to rapidly expose and close the gaps that put businesses at risk.” ….. Steve Vintz, Co-CEO.

Apex Security Inc. May 2025. $50m

In May 2025, Tenable Holdings bought Apex Security, an Israeli startup focused on defending ‘AI Attack Surfaces’ risks, for $47.8 million in cash. Apex was launched in 2023 & quickly built a reputation for helping companies spot & manage threats from AI-powered apps, autonomous agents, & generative AI systems.​ Their technology will get folded into the Tenable One platform, making it easier for security teams to track & respond to AI risks using the same tools they already use for other cyber threats. Ultimately, this lets companies handle AI issues as part of their broader security strategy—not as a separate headache. The new combined approach means organizations can stay ahead of trouble from off-the-shelf & custom AI tools, including messy stuff like AI-generated code, rogue applications, & compliance risks. Integrated features are expected to start rolling out to customers later in 2025.

From TENB’s PR / 10-K

“This acquisition is expected to strengthen our ability to help organizations identify and reduce cyber risk, adding the ability to govern usage, enforce policy, and control exposure across both the AI that organizations use and the AI they build.”… “Apex delivers the visibility, context, and control security teams need to reduce AI-generated exposure proactively. It will be a powerful addition to the Tenable One platform and a perfect fit for our preemptive approach to cybersecurity.” ….. Steve Vintz, Co-CEO.

The TLDR

Turtle Beach has activists in the driving seat. With a refreshed board, there are clear signs that a sale or strategic transaction is firmly on the agenda. Major shareholders have ramped up their ownership, buybacks are gathering pace & the recent introduction of a poison pill—right as Albert Rabil bought substantial stock & options—signals that material developments might be underway. At current multiples, I think patient investors could see a takeout—or continue to benefit from ongoing aggressive buybacks & activist alignment.

Market Cap $327 million (19,111,710 shares outstanding @ $17.09)

Cash $11.7m/ $0 (Assuming they used cash on hand for Diversis Buyback)

Debt $60m (I’m also assuming they paid off the whole prior balance & have not yet drawn down the revolver).

EV $387m.

Guiding to Revenue of $350m & Adjusted EBITDA of $50mm (both at mid)

EV/ Sales 1.1x

EV / EBITDA ~7.7x

The Company

Turtle Beach is a leading manufacturer of gaming headsets & accessories. The company has roots dating back to 1975 but came to prominence in the late 90’s / early 2000’s by developing drivers & software for nearly every sound card manufacturer in the world. From there they focused on headsets; capitalizing on explosive growth in console and PC gaming. Its headsets became bestsellers throughout the 2010s, especially during the pre-Covid era, with strong revenue growth and partnerships with top gaming brands and e-sports teams. In 2019 they acquired ROCCAT, at the time a renowned software and peripherals synonymous with quality gaming accessories & in particular Vulcan series of keyboards, for approximately $19.2 million, integrating the brand to extend Turtle Beach’s reach into the PC peripheral space. More recently, in March 24, they acquired Performance Designed Products (“PDP”), a privately held leader in gaming accessories.

The acquisition was designed to combine two leading gaming companies, giving Turtle Beach a strong position in console headsets & controllers, while meaningfully expanding its product portfolio, scale, and profitability.​ The deal also provided Turtle Beach with a valuable Nintendo license, which enabled it to expand official Nintendo-branded products across its entire portfolio. PDP brought a track record for high-quality, licensed controllers featuring popular intellectual property from brands like Nintendo (Super Mario, Legend of Zelda), Sega (Sonic the Hedgehog), and Hasbro (Transformers), which now support Turtle Beach’s continued growth and brand partnerships.

The Background

Since 2021, the company has faced a multi-year period of pretty intense activist involvement, culminating in transformational changes to its board and leadership. The company faced multiple takeover attempts, proxy battles, board overhaul & governance reforms. The CEO was pushed out & the board refreshed. With full control and formal strategic review underway, the direction is unmistakable: Turtle Beach is positioning itself for a potential sale, actively seeking a buyer or strategic transaction to unlock shareholder value.

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The Insiders

Diversis Capital Mgmt / DC VGA LLC 2,061,112 shares / 10.4 %

Diversis acquired its significant stake in Turtle Beach Corporation through the sale of Performance Designed Products (PDP) to Turtle Beach in March 24. Diversis was the majority owner of PDP. Turtle Beach issued 3.45 million shares, about ~16.4% of Turtle Beach’s outstanding at the time + $78.9m cash. ($114.4 million total consideration). They also got a seat on the board & will keep one assuming they continue to hold >10% of the shares outstanding*. August 2025, Diversis sold 1,388,888 shares through two offerings. 694,926 shares were repurchased by the company ($10 million) & 693,962 shares were acquired by The Donerail Group at the same price.

The Donerail Group 1,320,462 shares / 6.66%

Donerail’s interest in TBCH began as far back as July 21 when they filed their first 13-D. In it, they noted that they had been in discussions for 5 months & they had made an offer on April 27, 2021 to acquire the company. Bids as high as $36.50 were put forward, all ultimately rejected by the board noting issues with lack of financing. Neither Turtle Beach nor The Donerail Group came out smelling of roses during the prolonged activist campaign. The process became highly contentious, marked by mutual accusations of misrepresentation & pretty questionable motives on both sides. It also attracted mostly negative attention from the broader market.​ The Donerail Group made multiple acquisition offers & at times looked to be actively trading around the bids. In the end, they failed to provide any credible financing (as per the board). TBCH accused Donerail of publicizing misleading statements, omitting key facts about their engagement & intentions, and pursuing self-serving tactics without genuine acquisition capability.​ The TBCH board & in particular CEO Juergen Stark, faced harsh criticisms for entrenched governance, questionable executive comp, lack of transparency & lack of shareholder responsiveness. The outcome eventually lead to board reform and the CEO’s replacement. The CEO was replaced in mid 2023 after Donerail won a proxy fight & had 3 candidates appointed to the board. Recently Donerail increased it’s position by acquiring 693,962 shares as part of a secondary by Diversis.

Albert Rabil, CEO, Kayne Anderson Capital Advisors. 1,635,000 shares / 8.25%

Rabil co-founded Kayne Anderson’s real estate private equity platform in 2007. Prior to that he served as the Head of UBS’s Real Estate Banking for US & EU. During his tenure there he played a key role in making UBS a market leader in both syndicated debt and large loan CMBS. This is a weird one & I don’t know if he’s just an HNW individual punting on 800,000 options & casually owning ~10% of the company. His options trades occurred around June 2025, coinciding fairly closely with the timing of the poison pill.

Garnet Equity Capital Holdings, Inc. 1,634,685 shares / 7.88%

Garnet Equity Capital Holdings is a specialized investment manager known for taking concentrated stakes in companies where they see long-term value opportunities. TBCH is the funds 2nd biggest position.

Windward Management 1,695,798 shares / 8.4 %

Windward is one of the largest shareholders of Turtle Beach. Marc Chalfin, CIO, publicly articulated his views on YAVB YouTube channel (see footnotes below).

Windward’s style focuses on deep capital allocation discipline and advocacy for buybacks when the stock trades below intrinsic value. They have emphasized the company’s ability to shrink its share count if undervaluation continues and support management’s efforts to avoid risky acquisitions. Windward’s position is activist in nature, closely tracking corporate governance and strategic exit opportunities (such as a buyout by private equity or a strategic acquirer)

Marc really focuses on the buyback potential. There’s one line in particular that stands out to me.

38:29 AW : do you think everybody is aligned with the buyback share story because I agree with you I think that’s the most attractive piece of the story….

MC : yes I do

AW : it’s a simple answer uh. Look, this is it is as I said you can sum this thesis one of the things I like you can sum the thesis up you know in three sentences cheap buybacks, coming tailwinds & it trades at half multiple we’ve talked about the risk we talked

The Board / C-Suite

After the proxy, a Cooperation Agreement was signed in May 22. Donerail got 3 seats on the board from it’s proposed slate elected.

William Wyatt joined the Board in May 23 & is the Chair of the Compensation Committee & part of the Value Enhancement Committee. Prior to Donerail Wyatt was a Portfolio Manager & Head of Event Driven Investments at Starboard Value LP. Prior to that he had stints at Empyrean, Magnetar & Goldman.

Mr. Jimenez is the Chair of the Value Enhancement Committee and a member of the Nominating and Governance Committee. Jimenez was the CFO of Tribune Publishing Company when Donerail attempted to Acquire the company.

Katherine L. Scherping, CPA, CGMA joined the Board in May 2022 and is the Chair of the Audit Committee and a member of the Nominating and Governance Committee.

Cris Keirn, CEO, owns 58,135 shares & gets 2x Annual Base Salary, 100% Bonus & Accelerated Vesting. In total, he stands to gain over $5 million should he be terminated within a change in control period.

John Hanson, CFO & Treasurer owns 68,728 shares & gets over $2m in a change of control scenario. Interesting point here is that the company has acknowledged that there is no formal agreement in place with Hanson, but has still calculated what he would need to be paid in a CIC scenario. I think an 8-k announcing a formal agreement would be a tell tale signal that we are close to the endgame.

Value Enhancement Committee

Value Enhancement Committee — The Value Enhancement Committee operates under a written charter adopted by the Board. The primary purpose of the Committee is to assist the Board in promoting the best interests of the Company and its stockholders through in its ongoing assessment of value creation opportunities and exploring all strategic transactions available to the Company to enhance or otherwise maximize value for stockholders, including, but not limited to, the continued evaluation of a sale of the Company. The functions of the Value Enhancement Committee include, among other things: (i) reviewing, evaluating, assessing and making recommendations to the Board and management regarding revenue growth, margin expansion and profitability enhancement opportunities, capital allocation frameworks, and engagements with advisors and bankers; (ii) providing guidance and direction to management and advisors regarding potential transactions; (iii) having access to appropriate management and advisors to carry out its responsibilities; and (iv) performing such other functions relating to the foregoing, provided that any engagement of new financial advisors, investment bankers or brokers is subject to the approval of the full Board.

The current members of the Value Enhancement Committee are Messrs. Jimenez and Wyatt and Dr. Wolfe. Mr. Jimenez serves as the Chair of the Value Enhancement Committee. The Board has determined that Messrs. Jimenez and Wyatt and Dr. Wolfe are “independent” as defined in the applicable Nasdaq listing standards and the applicable rules under the Exchange Act. The Value Enhancement Committee met 89 times in 2024.

Some of the blurb is fairly predictable, such as review, & make recommendations to the Board & management regarding revenue growth, margin expansion or profitability enhancement opportunities. But the majority of it is very focused & direct. Even ‘The Purpose’ essentially tells them they have one job !

Purpose

This Value Enhancement Committee ….., is hereby established by the Board….. in its ongoing assessment of value creation opportunities and exploring all strategic transactions … to enhance or otherwise maximize value for stockholders, including, but not limited to, the continued evaluation of a sale of the Company, (such transaction, the “Transaction”).

Just look at how many times the word “Transaction” is used !

Other / Miscellaneous

(New) Credit Agreement

On August 1, 2025, the Company entered into the Credit Agreement (the “Credit Agreement”) with Bank of America, replacing the Company’s previous debt arrangements. The Credit Agreement, matures on August 1, 2028 and includes a $60 million term loan & a $90 million revolving credit facility. The Company may utilize the facilities for borrowings as well as for the issuance of letters of credit, repaying existing indebtedness outstanding as of the effective date of the Credit Agreement and ongoing working capital and general corporate purposes as defined by the Credit Agreement. The facilities under the Credit Agreement replaced the Company’s previous debt arrangements.

The margin will range from SOFR +325bps which is a full 450bps cheaper than the prior loan. This should be very material given “As of June 30, 2025, the interest rate for outstanding borrowings was 12.19%.” Run rate interest expense has been approx. ~$2m a quarter so we should see that come in substantially. Company expects $2m savings annually !

Buyback / Tender Offer

The ‘For Sale’ aside, the company’s biggest lever to return capital to shareholders is going to be share buybacks. They were hamstrung previously by their prior credit agreement & only in Aug 24 amended it enough to authorize $30m over 6 months. They also tried to launch a tender offer post PDP acquisition but the price ran up above the higher range. Instead they tacked $30 onto their buyback authorization. Now, given their credit agreement, improved credit profile & enhanced financial flexibility, the refinancing provides the company with the capacity to repurchase a significant amount of its outstanding shares as part of its capital return strategy. Current authorization is $75mm. Rough math gets me approx. ~20% of the company. As above, in Aug, they bought back 3.5% of the float in just one transaction!

Poison Pill

June 2025 – the company announced that its Board adopted a limited duration stockholder rights plan. This is another strange one for me. Usually this isn’t a great move for shareholders & can be a tool of an entrenched management team.. which I don’t think we have here. The only connection I can find is one of timing with Albert Rabil’s purchases, but I’m at a dead end from there.

Diversis / PDP Board Member Resigns

On September 12, 2025, David Muscatel, a director of the Turtle Beach Corporation (the “Company”), notified the Company of his decision to resign as a director, effective September 30, 2025. Mr. Muscatel’s resignation was not the result of any disagreement with the Company or any of its officers or other directors on any matter relating to the operations, policies or practices of the Company.

The August secondary noted that the remaining stock owned by Diversis was now subject to a new 90-day lock-up. By my count, they still own >10% of the company. It will be interesting to see if they appoint someone else to the board & if not, why he left the board.

Potential Acquirers?

Ok, so I think there's a not so subtle ‘For Sale' sign, but who would buy this & is that the exit strategy here ?! A strategic? Would Logitech or Razer be interested or would it make more sense for a financial buyer? My sense is that they probably continue to buy back the stock & possibly gear up for some smaller tuck in acquisitions.

The Summary

I think Turtle Beach is flashing a “For Sale” sign: activist-backed, board refreshed & management shrinking the float. Recent large stock and call option purchases by Albert Rabil—coinciding with the company enacting a poison pill—suggest that something is brewing beneath the surface. With the Value Enhancement Committee meeting nonstop and share repurchases accelerating, there are clear signals that strategic moves—or a sale—may be imminent. I think shareholders are positioned to benefit from either a takeout premium or more capital being returned if the status quo holds.

The Footnotes

Latest Share Repurchase PR

https://s205.q4cdn.com/173492113/files/doc_news/Turtle-Beach-Corporation-Together-With-The-Donerail-Group-Announces-20-Million-Share-Repurchase-From-Shareholder-2025.pdf

Ticker Previously $HEAR

Value Enhancement Committee Charter

https://s205.q4cdn.com/173492113/files/doc_downloads/governance/ValuationEnhancementCommittee_Charter_May2023_v3_1_52_72.pdf

Andrew Walkers YouTube w/ Marc Chalfin of Windward Capital Management

Yet Another Value Blog

Windward's Marc Chalfin Turtle Beach Thesis $TBCH (episode #305)

In this episode of Yet Another Value Podcast, host Andrew Walker welcomes back Marc Chalfin of Windward Capital to discuss Turtle Beach. Known for its gaming headsets and peripherals, Turtle Beach is at the center of a compelling capital allocation story. Marc outlines why the company’s recent PDP acquisition, aggressive buyback strategy, and positioning ahead of the Nintendo Switch refresh and GTA VI release create a rare opportunity. He also breaks down the company’s corporate turnaround, supply chain adjustments, and potential paths to a strategic or private equity exit. If you’re following gaming or capital discipline stories, this one's for you…

Read more

a year ago · 12 likes · Andrew Walker

The Disclaimers

Disclaimer #1: As always, please remember, I am Jon Snow. I know absolutely less than nothing. Don’t listen to me. Put all your money into an index fund & laugh at the rest of us. I make mistakes, lots of them in fact. Please feel free to point out if, or how many, I may have made above.

Disclaimer #2 : This commentary is for informational and personal opinion purposes only. It is not financial advice, and I am not your fiduciary. You should do your own research and consult a qualified financial advisor before making any investment decisions. DYODD !! I may sell at any time…. most likely the day before something happens. You do you.

, if you've read this far, where are my RSU’s ??!!

Quick one here as the vote is today & stock has dropped this morning. Perhaps a few arbs are bailing after expecting an improved offer.

The TLDR

The company is being taken out on the cheap by the founders & Blackstone. Many signs seem to hint at a flawed process & now large minority investors are pushing back for a better offer. I think they'll get it.

This idea was shared with me by Dave !

The Take Private

On May 8th, the company announced that it agreed to be Taken Private by the Co-Founders and Blackstone. The same day they announced quarterly results. Couple of things to note here.

1. Total revenues, $277.8 million, +22.1% YoY.

2. Exceeding top-end guidance by $5.8 million.

3. All three service lines delivered double-digit year-over-year revenue growth in Q1.

4. With greater than 50% year-over-year growth, AI Services is now TaskUs’ fastest growing service line. (*We’ll come back to this later)

5. Trust + Safety year-over-year revenue growth remained above 30% for the fifth consecutive quarter.

The Buyer Group / Insiders

Blackstone, Bryce Maddock, Co-Founder and Chief Executive Officer & Jaspar Weir, Co-Founder and President. Together they own ~50.90%.

The Buyer Group collectively hold approximately 50.9% of the outstanding shares and total voting power of the Company Class A Common Stock and 100% of the outstanding shares and total voting power of the Company Class B Common Stock, which represented approximately 80.5% of the outstanding shares of the Company Common Stock and approximately 97.0% of the total voting power of the Company Common Stock.

The Company

TaskUs was founded in 2008 by Bryce Maddock (CEO) & Jaspar Weir (President). They went public in June ‘21 having secured significant early investments, including a $250 million majority investment from Blackstone amongst others. Blackstone still owns ~30%. The company provides customer support via multiple channels, helping its clients manage inquiries, resolve issues & enhance brand loyalty. They also provide compliance, content moderation & a range of back office support. They deliver their services through three primary areas: Digital Customer Experience (Digital CX), Trust & Safety & Artificial Intelligence (AI) Services. They employ approximately 60k people & are based in Texas.

Market Cap $1.54 Billion. Class A common stock 34,843,287 (1 vote per share) & Class B common stock (10 Votes per share) 55,032,694.

Balance Sheet is clean enough. Cash And Cash Equivalents $182 million, a $270m term loan ($250m remaining due) & Revolving Credit Facility $190 million – Fully Undrawn.

Total Liquidity $372 million (*We’ll come back to this later)

Enterprise Value ~$1.6 billion.

Earnings

YTD 2023 Revenue $924 million, Net income $45.7 million

YTD 2024 Revenue $995 million, Net income $45.8 million

Q1 2025 Revenue $278 million, Net income $21.1 million (Adjusted EBITDA of $59.3 million)

•All three service lines delivered double-digit year-over-year revenue growth in Q1.

•With greater than 50% year-over-year growth, AI Services is now TaskUs’ fastest growing service line.

•Trust + Safety year-over-year revenue growth remained above 30% for the fifth consecutive quarter.

Q2 2025 Revenue $294 million, Net income $20 million (Adjusted EBITDA of $65.0 million)

•All three service lines delivered double-digit year-over-year revenue growth in Q2.

•AI Services remained TaskUs’ fastest growing service line for the second quarter in a row.

•Trust + Safety year-over-year revenue growth remained strong at nearly 30%.

So, YTD 2025 Net Income was $41,195,000. A full 90% of prior full year’s total !

I’m getting approx. ~6.5x EV/EBITDA

Background of the Merger

I’ve read the proxy a couple of time now & some of it is totally bizarre.

Marsha, Marsha, Marsha. Financing, Financing, Financing !!!

For instance the special committee at times is clearly obsessed with making sure BLACKSTONE & Co. (The $1.1 trillion dollar juggernaut) have adequate financing to complete the merger !? I know, fiduciary duty and all that jazz, but from what I can tell The Buyer Group repeatedly says something to the effect of “we will fund this from the cash on the balance sheet” and the special committee just don’t seem to get it. Here’s my math. Let me know if I’ve missed something obvious.

Shares Outstanding as of August 1, 2025,

Class A common stock, 34,843,287 – Buyer Group : (50.9%) 17,786,133. Minority : 17,157,154 (49.10%)

Class B common stock 55,032,694 – Buyer Group : 55,032,694 (100%)

17,157,154 * $16.50 = $283,093,040

TaskUs Inc. Total Liquidity $372 million

As per the balance sheet above they shouldn’t need to raise equity capital or bank debt to take out the minority. Yet, the proxy is literally peppered with the Special Committee insisting that The Buyer Group line up financing, even going so far as saying “that the Special Committee would not transact without fully committed financing”. Did the Buyer Group not want to explicitly say “We are buying this for the cash on the balance sheet + drawing down the revolver !!!!”

Throughout April the Special Committee repeatedly came back to the fact that the Buyer Group did not have (read : NEED) committed financing.

Apr 24, The initial draft of the merger agreement noted that that the Merger Consideration would be financed through cash held by the Company & availability under the Company’s existing revolving credit facility in addition to commitments by debt financing sources to provide an incremental term loan under the Company’s existing credit facility.

Apr 27, Special Committee met with representatives from the Buyer Group & repeatedly raised the questions about the fact that “that the draft did not provide for fully committed financing for the Merger Consideration”

Apr 28, “As part of this feedback, representatives of Simpson Thacher stated that Blackstone was unwilling to obtain fully committed financing for the Transaction and proposed instead to rely on cash on hand at the Company and the Company’s revolving credit facilities (together with a new committed incremental facility under the Company’s existing credit facility).”

Apr 29, Special Committee would not transact without a high degree of deal certainty and, to that end, would require that the Buyer Group have fully committed financing

Apr 30, Cravath conveyed the Special Committee’s continued insistence that the Buyer Group have fully committed financing. The revised draft of the Merger Agreement prepared by Simpson Thacher: (i) continued to provide that they would rely on cash held by the Company at closing and availability under the Company’s existing revolving credit facility in addition to commitments by debt financing sources to provide an incremental term loan under the Company’s existing credit facility, and as a result, the Buyer Group would not have financing commitments.

May 1, (i) the fact that the Buyer Group’s proposed financing plan presented more closing risk than a transaction with fully committed financing would, even though the risk was low given the Company’s strong cash position and existing credit facility capacity and

Eventually, after much back and forth, on May 3rd, Simpson Thacher indicated that the Buyer Group would be willing to provide an equity commitment of $330 million (which amount was in excess of the aggregate Merger Consideration and cash amounts payable at closing under the Merger Agreement in respect of equity awards).

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Oh No ! AI !!

Also, the Buyer Group hammers home the point that AI is going to fundamentally impact the business & that they’ll have to ramp capex to compete & that will destroy revenue. They even have it as one of the "Reasons for the Merger”.

“the Company’s future prospects if the Company did not enter into the Merger Agreement, including the potential risks and uncertainties associated with the impact of advancements in AI and increased adoption of AI by the Company’s competitors, and other risks and uncertainties “

The Board and Company management have noted that the rapid advancement and widespread adoption of AI technologies have introduced significant uncertainties in the BPO industry, including with respect to the long-term demand for certain of the Company’s and its competitors’ service offerings.

In addition, some of the Company’s clients have started to implement AI solutions, and the Board and Company management believe that continued advancements in AI may reduce demand for services provided by the BPO industry, including for certain of the Company’s service offerings, potentially resulting in decreased client spending.

In addition to these technological shifts, the Board and Company management believe that the Company’s business faces competition from other firms that are developing and deploying their own AI and generative AI products, which could adversely impact the Company’s competitive position and market price.

Yet, for the last 6 months the company has been extolling the benefits of AI & the positive impact on the business. See Q1 & Q2 2025 PR’s above.

The Activists

Think Investments is a $3 billion investment firm with offices in San Fran & Mumbai. Think invests globally in public & private companies with a multi-year time horizon and an emphasis on creative primary research. The firm specializes in backing technology-led early stage businesses and partners with high quality management teams who are looking to build differentiated businesses with high returns on invested capital.

Think own ~19% of the A shares. They went public in Aug filing a third 13-D noting “that the offer to take TaskUs private at $16.50/share materially undervalues the business - we view $25.00/share as a fair value for the Company”. They intend to vote against the proposed transaction in the majority-of-the-minority vote. In their deck, they question the fairness opinion, comparable transactions & ultimately the special committes’s acceptance of the valuation. They noted that Blackstone sold shares at 20x & 32x EV/EBITDA multiples ($21/$61) & that the process purposefully lacked price discovery. They also questioned the timing & magnitude of recent share repurchases.

A worry here for me is that Think does hold private stakes so may be open to rolling over.

Murchinson Ltd. is an multi-strategy fund targeting corporate action, distressed investing, private equity and structured finance situations. Murchinson noted two issues in their open letter. 1) The Transaction price of $16.50 per share drastically undervalues TaskUs, its future earnings power and growth trajectory. 2) The Transaction appears to be the result of a flawed process, including a fairness opinion influenced by conflicts of interest. They say $19 or 7x EBITDA is fair value.

Here's a great excerpt from their letter.

“This closed-door approach essentially deprived stockholders of a fair, competitive process”.

ISS recommendation. Interestingly, even ISS recommends TaskUs investors reject proposed deal to take company private, noting “There does not appear to be a compelling reason to accept the terms,” & the deal “may have represented a premium at announcement, but it appears that the unaffected price is not the most appropriate reference point for value at this stage.” I have zero regard for ISS but in this case the recommendation may be quite important as the passive funds will likely fall in line.

Other / Misc.

The Merger approval requires majority of the minority votes.

A going private transaction was discussed as far back as April 24. Engaged Evercore in May 2024 but buyer group told them they were no longer exploring a potential take-private.

July 24, a PE firm made inquiries & the company held talks with them in Aug. They later pulled out.

Sept 24, a different PE firm held talks & went as far as signing an NDA but pulled out the following month.

March, 25, The Blackstone/ Founder buyer group delivered an offer letter of $16 & noted they would not move forward with a different buyer.

The special committee was formally formed & Evercore were hired/ signed an NDA.

Throughout the month Evercore were provided with management projections & assumptions.

In meetings with Evercore management highlighted the potential negative/ disruptive impacts of AI on the business. This would require additional expenditures & operating expenses which would impact revenue.

Buyback

They significantly ramped up the buyback in Q2, 2025, which a sceptic would say was a good way of reducing the minority votes. Q2 shares bought back was nearly double that of Q1’25. (Q1, 750,691, Q2, 1,361,556, Total 2,112,247)

During the three months ended March 31, 2025, we repurchased 750,691 shares of our Class A common stock under the share repurchase program for $10.1 million. (Avg $13.44)

During the six months ended June 30, 2025, we repurchased 2,112,247 shares of our Class A common stock under the share repurchase program for $27.7 million.

In connection with the execution of the Merger Agreement, the Company suspended purchases under its share repurchase program.

Timing

The buyer Group wanted to announce the Potential Transaction by May 8, 2025 (before earnings) knowing results would beat expectations !

On April 24, 2025, the Special Committee held a meeting …. w/ Evercore and Cravath. “Representatives of Evercore described a meeting they had with Company management to review the preliminary first quarter 2025 financial results, and representatives of Evercore and the Special Committee discussed, among other things, (i)that the preliminary first quarter results did not change the Special Committee’s perspective on the value of the Company or the Special Committee’s view that a transaction at $16.50 per share of Company Class A Common Stock was in the best interests of the Company’s minority stockholders and (ii) the pros and cons of announcing a deal before earnings results were released, with the Special Committee determining it was still appropriate to potentially announce the Potential Transaction prior to the earnings date, particularly in light of recent volatility in the market.”

May 1st. Representatives of Evercore and the Special Committee discussed their view on how the market would likely perceive the Company’s earnings results and, following these discussions, the Special Committee confirmed that the release did not change its determination that securing a favorable transaction with the Buyer Group was in the best interests of the Company and the Unaffiliated Security Holders and that it was appropriate to potentially announce the Potential Transaction prior to the earnings date.

The Thesis

Activist pressure has ISS & as a result, the passive funds on board. Since merger approval requires the majority of the minority, Blackstone are stuck & they'll need to bump the offer to get it over the line. The Merger Approval Meeting has been adjourned twice now to solicit additional proxies in favour of the acquisition. Next one to be held today, October 8th.

Since the announcement of the transaction, the Special Committee of the TaskUs Board of Directors and the Buyer Group have engaged in discussions with several stockholders concerning the proposed transaction.

Dave

This idea was shared with me by Dave. He gets 2/20 on all the (free) subs I get from this post !!

The Disclaimers

Disclaimer #1: Remember, I am Jon Snow. I know absolutely less than nothing. Don’t listen to me. Put all your money into an index fund & laugh at the rest of us. I make mistakes, lots of them in fact. Please feel free to point out if, or how many, I may have made above.

Disclaimer #2 : This commentary is for informational and personal opinion purposes only. It is not financial advice, and I am not your fiduciary. You should do your own research and consult a qualified financial advisor before making any investment decisions. DYODD !! I may sell at any time…. most likely the day before Blackstone & co, bump the bid buy the company. You do you.

The Footnotes

Take Private Press Release

https://www.sec.gov/Archives/edgar/data/1829864/000095015725000378/ex99-1.htm

Earnings Release

https://www.sec.gov/Archives/edgar/data/1829864/000182986425000076/earningsreleaseex991q12025.htm

Think $25 Deck

https://www.sec.gov/Archives/edgar/data/1635999/000163599925000007/Ex_III_TaskUs_Evaluation.pdf

Murchinson Ltd. Open Letter to Shareholders

https://www.businesswire.com/news/home/20250812073363/en/Murchinson-Issues-Letter-to-Fellow-TaskUs-Stockholders-Detailing-Opposition-to-the-Pending-Buyout-Transaction