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Since the COVID-19 crash, we’ve written a number of posts reflecting our view that a boom in Mergers and Acquisitions would continue, that 2022 has all the hallmarks of another positive year for asset prices – particularly quality equities like those…

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Since the COVID-19 crash, we’ve written a number of posts reflecting our view that a boom in Mergers and Acquisitions would continue, that 2022 has all the hallmarks of another positive year for asset prices – particularly quality equities like those owned in both the Montgomery and Polen Funds –and the search for income would prompt a frenzy of acquisition activity in the infrastructure space and among entities producing steady, reliable and even boring income.

With that in mind, we aren’t surprised to see record prices achieved again in property, low digit number plates (they’ve doubled again to August) and even a near record in Bitcoin.

Figure 1. $USD Bitcoin

Today’s huge news flow seems to be reflecting all of the above themes.

Those low interest rates continue to spur acquisition activity for income producing assets at low capitalisation rates. Brokers are estimating a circa five per cent implied capitalisation rate for The HomeCo Daily Needs REIT (ASX:HDN) offer to acquire Aventus (ASX:AVN). The former has offered $3.82 per share to buy the latter with Brett Blundy said to be voting his 22.6 per cent of AVN in favour of the deal. The offer is more than 40 per cent above AVN’s Net Tangible Assets as at 30 June. Following the 93 per cent scrip and seven per cent cash deal, the new entity will have over $4 billion in assets, a market capitalisation of close to $3.1 billion and is expected to be included in the S&P/ASX200.

Siteminder IPO

Said to be the world’s largest open hotel commerce platform, Siteminder’s IPO launches today with all the stock well and truly spoken for a multiple of times through the cornerstoning process last week and the institutional book build this Wednesday. The company is said to have the hallmarks of Xero (Siteminder has been aided on its growth path by Xero’s former CFO Sankar Narayan).  The demand has been so hot, one thinks it should have been priced higher but UBS and the company have settled on 12.5 times revenue (enterprise value to FY21 revenue). One presumes something has been left on the table to ensure a positive ‘pop’ upon listing.

At the $5.06 per share price, $627 million will be raised with $537 million of the offer proceeds paid to selling shareholders, and $90 million raised through the issue of new securities in the company.

Here’s some of the details:

Total number of Securities available under the Offer: 123.9 million Securities

Total number of Securities on issue on Completion of the Offer: 269 million Securities (on an undiluted basis)

Number of Securities to be held by Existing Shareholders on Completion of the Offer: 145 million Securities (excluding any Securities acquired under the Offer)

Market capitalisation at the Offer Price: A$1,363 million

Pro forma net cash (as of 30 June 2021): A$107 million

Enterprise value at the Offer Price: A$1,256 million

Enterprise value/FY21 revenue: 12.5x (calculated as enterprise value at the Offer Price divided by FY21 revenue of A$100.8 million)

Escrow arrangements: At Completion, 23.4 per cent of the Securities on issue (on an undiluted basis) will be subject to voluntary escrow arrangements. Each of the Securities held by the Escrowed Shareholders at Completion of the Offer will be held in escrow until 4:00pm on the trading day after the date on which the Company releases to the ASX its financial results for the financial year ending 30 June 2022.

Positive Flows

Following HUB24 and Netwealth’s recently reported fund inflow growth, Praemium (ASX:PPS) has also reported a strong September quarter with record quarterly net inflows of $1.28 billion in Australia, and beating analyst expectations. Inflows of $407 million were also reported in the International business. The numbers translate to net inflows in Australia up 129 per cent on the previous corresponding period. The flows were split evenly between the Praemium and Powerwrap platforms. As these platforms growth rates inevitably begin to slow, the hymn book usually calls for CEOs to start thinking about acquiring each other. Watch this space.

HUB24

Looks like we spoke too soon. HUB24 (ASX:HUB) is integrating vertically with a bid for Class (ASX:CL1). Class is a Self-Managed Super Fund and Trust administrator as well as an associated document management provider. The bid is 53 per cent above the Volume Weighted Average Price (VWAP), putting CL1 on a PE for FY23 of about 40 times earnings.  That compares to HUB which trades at more than 50 times.

Temple & Webster

Temple & Webster (ASX:TPW) provided a trading update and first quarter FY22 result. Sales are 56 per cent higher than for the same period last year (1 July to 15 October).The two-year average growth rate has slowed slightly suggesting September and October slowed, but the two-year average rate is still over 90 per cent. The good news is the company expects first half FY22 EBITDA margin to be ahead of the 2-4 per cent. The 2-4 per cent margin was reaffirmed for the Full Year 2022.

More to come for certain…

The Montgomery Small Companies Fund owns shares in Praemium and HUB24. This article was prepared 18 October 2021 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade these companies you should seek financial advice.

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Key shipping company files for Chapter 11 bankruptcy

The Illinois-based general freight trucking company filed for Chapter 11 bankruptcy to reorganize.

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The U.S. trucking industry has had a difficult beginning of the year for 2024 with several logistics companies filing for bankruptcy to seek either a Chapter 7 liquidation or Chapter 11 reorganization.

The Covid-19 pandemic caused a lot of supply chain issues for logistics companies and also created a shortage of truck drivers as many left the business for other occupations. Shipping companies, in the meantime, have had extreme difficulty recruiting new drivers for thousands of unfilled jobs.

Related: Tesla rival’s filing reveals Chapter 11 bankruptcy is possible

Freight forwarder company Boateng Logistics joined a growing list of shipping companies that permanently shuttered their businesses as the firm on Feb. 22 filed for Chapter 7 bankruptcy with plans to liquidate.

The Carlsbad, Calif., logistics company filed its petition in the U.S. Bankruptcy Court for the Southern District of California listing assets up to $50,000 and and $1 million to $10 million in liabilities. Court papers said it owed millions of dollars in liabilities to trucking, logistics and factoring companies. The company filed bankruptcy before any creditors could take legal action.

Lawsuits force companies to liquidate in bankruptcy

Lawsuits, however, can force companies to file bankruptcy, which was the case for J.J. & Sons Logistics of Clint, Texas, which on Jan. 22 filed for Chapter 7 liquidation in the U.S. Bankruptcy Court for the Western District of Texas. The company filed bankruptcy four days before the scheduled start of a trial for a wrongful death lawsuit filed by the family of a former company truck driver who had died from drowning in 2016.

California-based logistics company Wise Choice Trans Corp. shut down operations and filed for Chapter 7 liquidation on Jan. 4 in the U.S. Bankruptcy Court for the Northern District of California, listing $1 million to $10 million in assets and liabilities.

The Hayward, Calif., third-party logistics company, founded in 2009, provided final mile, less-than-truckload and full truckload services, as well as warehouse and fulfillment services in the San Francisco Bay Area.

The Chapter 7 filing also implemented an automatic stay against all legal proceedings, as the company listed its involvement in four legal actions that were ongoing or concluded. Court papers reportedly did not list amounts for damages.

In some cases, debtors don't have to take a drastic action, such as a liquidation, and can instead file a Chapter 11 reorganization.

Truck shipping products.

Shutterstock

Nationwide Cargo seeks to reorganize its business

Nationwide Cargo Inc., a general freight trucking company that also hauls fresh produce and meat, filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Northern District of Illinois with plans to reorganize its business.

The East Dundee, Ill., shipping company listed $1 million to $10 million in assets and $10 million to $50 million in liabilities in its petition and said funds will not be available to pay unsecured creditors. The company operates with 183 trucks and 171 drivers, FreightWaves reported.

Nationwide Cargo's three largest secured creditors in the petition were Equify Financial LLC (owed about $3.5 million,) Commercial Credit Group (owed about $1.8 million) and Continental Bank NA (owed about $676,000.)

The shipping company reported gross revenue of about $34 million in 2022 and about $40 million in 2023.  From Jan. 1 until its petition date, the company generated $9.3 million in gross revenue.

Related: Veteran fund manager picks favorite stocks for 2024

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Key shipping company files Chapter 11 bankruptcy

The Illinois-based general freight trucking company filed for Chapter 11 bankruptcy to reorganize.

Published

on

The U.S. trucking industry has had a difficult beginning of the year for 2024 with several logistics companies filing for bankruptcy to seek either a Chapter 7 liquidation or Chapter 11 reorganization.

The Covid-19 pandemic caused a lot of supply chain issues for logistics companies and also created a shortage of truck drivers as many left the business for other occupations. Shipping companies, in the meantime, have had extreme difficulty recruiting new drivers for thousands of unfilled jobs.

Related: Tesla rival’s filing reveals Chapter 11 bankruptcy is possible

Freight forwarder company Boateng Logistics joined a growing list of shipping companies that permanently shuttered their businesses as the firm on Feb. 22 filed for Chapter 7 bankruptcy with plans to liquidate.

The Carlsbad, Calif., logistics company filed its petition in the U.S. Bankruptcy Court for the Southern District of California listing assets up to $50,000 and and $1 million to $10 million in liabilities. Court papers said it owed millions of dollars in liabilities to trucking, logistics and factoring companies. The company filed bankruptcy before any creditors could take legal action.

Lawsuits force companies to liquidate in bankruptcy

Lawsuits, however, can force companies to file bankruptcy, which was the case for J.J. & Sons Logistics of Clint, Texas, which on Jan. 22 filed for Chapter 7 liquidation in the U.S. Bankruptcy Court for the Western District of Texas. The company filed bankruptcy four days before the scheduled start of a trial for a wrongful death lawsuit filed by the family of a former company truck driver who had died from drowning in 2016.

California-based logistics company Wise Choice Trans Corp. shut down operations and filed for Chapter 7 liquidation on Jan. 4 in the U.S. Bankruptcy Court for the Northern District of California, listing $1 million to $10 million in assets and liabilities.

The Hayward, Calif., third-party logistics company, founded in 2009, provided final mile, less-than-truckload and full truckload services, as well as warehouse and fulfillment services in the San Francisco Bay Area.

The Chapter 7 filing also implemented an automatic stay against all legal proceedings, as the company listed its involvement in four legal actions that were ongoing or concluded. Court papers reportedly did not list amounts for damages.

In some cases, debtors don't have to take a drastic action, such as a liquidation, and can instead file a Chapter 11 reorganization.

Truck shipping products.

Shutterstock

Nationwide Cargo seeks to reorganize its business

Nationwide Cargo Inc., a general freight trucking company that also hauls fresh produce and meat, filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Northern District of Illinois with plans to reorganize its business.

The East Dundee, Ill., shipping company listed $1 million to $10 million in assets and $10 million to $50 million in liabilities in its petition and said funds will not be available to pay unsecured creditors. The company operates with 183 trucks and 171 drivers, FreightWaves reported.

Nationwide Cargo's three largest secured creditors in the petition were Equify Financial LLC (owed about $3.5 million,) Commercial Credit Group (owed about $1.8 million) and Continental Bank NA (owed about $676,000.)

The shipping company reported gross revenue of about $34 million in 2022 and about $40 million in 2023.  From Jan. 1 until its petition date, the company generated $9.3 million in gross revenue.

Related: Veteran fund manager picks favorite stocks for 2024

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Tight inventory and frustrated buyers challenge agents in Virginia

With inventory a little more than half of what it was pre-pandemic, agents are struggling to find homes for clients in Virginia.

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No matter where you are in the state, real estate agents in Virginia are facing low inventory conditions that are creating frustrating scenarios for their buyers.

“I think people are getting used to the interest rates where they are now, but there is just a huge lack of inventory,” said Chelsea Newcomb, a RE/MAX Realty Specialists agent based in Charlottesville. “I have buyers that are looking, but to find a house that you love enough to pay a high price for — and to be at over a 6.5% interest rate — it’s just a little bit harder to find something.”

Newcomb said that interest rates and higher prices, which have risen by more than $100,000 since March 2020, according to data from Altos Research, have caused her clients to be pickier when selecting a home.

“When rates and prices were lower, people were more willing to compromise,” Newcomb said.

Out in Wise, Virginia, near the westernmost tip of the state, RE/MAX Cavaliers agent Brett Tiller and his clients are also struggling to find suitable properties.

“The thing that really stands out, especially compared to two years ago, is the lack of quality listings,” Tiller said. “The slightly more upscale single-family listings for move-up buyers with children looking for their forever home just aren’t coming on the market right now, and demand is still very high.”

Statewide, Virginia had a 90-day average of 8,068 active single-family listings as of March 8, 2024, down from 14,471 single-family listings in early March 2020 at the onset of the COVID-19 pandemic, according to Altos Research. That represents a decrease of 44%.

Virginia-Inventory-Line-Chart-Virginia-90-day-Single-Family

In Newcomb’s base metro area of Charlottesville, there were an average of only 277 active single-family listings during the same recent 90-day period, compared to 892 at the onset of the pandemic. In Wise County, there were only 56 listings.

Due to the demand from move-up buyers in Tiller’s area, the average days on market for homes with a median price of roughly $190,000 was just 17 days as of early March 2024.

“For the right home, which is rare to find right now, we are still seeing multiple offers,” Tiller said. “The demand is the same right now as it was during the heart of the pandemic.”

According to Tiller, the tight inventory has caused homebuyers to spend up to six months searching for their new property, roughly double the time it took prior to the pandemic.

For Matt Salway in the Virginia Beach metro area, the tight inventory conditions are creating a rather hot market.

“Depending on where you are in the area, your listing could have 15 offers in two days,” the agent for Iron Valley Real Estate Hampton Roads | Virginia Beach said. “It has been crazy competition for most of Virginia Beach, and Norfolk is pretty hot too, especially for anything under $400,000.”

According to Altos Research, the Virginia Beach-Norfolk-Newport News housing market had a seven-day average Market Action Index score of 52.44 as of March 14, making it the seventh hottest housing market in the country. Altos considers any Market Action Index score above 30 to be indicative of a seller’s market.

Virginia-Beach-Metro-Area-Market-Action-Index-Line-Chart-Virginia-Beach-Norfolk-Newport-News-VA-NC-90-day-Single-Family

Further up the coastline on the vacation destination of Chincoteague Island, Long & Foster agent Meghan O. Clarkson is also seeing a decent amount of competition despite higher prices and interest rates.

“People are taking their time to actually come see things now instead of buying site unseen, and occasionally we see some seller concessions, but the traffic and the demand is still there; you might just work a little longer with people because we don’t have anything for sale,” Clarkson said.

“I’m busy and constantly have appointments, but the underlying frenzy from the height of the pandemic has gone away, but I think it is because we have just gotten used to it.”

While much of the demand that Clarkson’s market faces is for vacation homes and from retirees looking for a scenic spot to retire, a large portion of the demand in Salway’s market comes from military personnel and civilians working under government contracts.

“We have over a dozen military bases here, plus a bunch of shipyards, so the closer you get to all of those bases, the easier it is to sell a home and the faster the sale happens,” Salway said.

Due to this, Salway said that existing-home inventory typically does not come on the market unless an employment contract ends or the owner is reassigned to a different base, which is currently contributing to the tight inventory situation in his market.

Things are a bit different for Tiller and Newcomb, who are seeing a decent number of buyers from other, more expensive parts of the state.

“One of the crazy things about Louisa and Goochland, which are kind of like suburbs on the western side of Richmond, is that they are growing like crazy,” Newcomb said. “A lot of people are coming in from Northern Virginia because they can work remotely now.”

With a Market Action Index score of 50, it is easy to see why people are leaving the Washington-Arlington-Alexandria market for the Charlottesville market, which has an index score of 41.

In addition, the 90-day average median list price in Charlottesville is $585,000 compared to $729,900 in the D.C. area, which Newcomb said is also luring many Virginia homebuyers to move further south.

Median-Price-D.C.-vs.-Charlottesville-Line-Chart-90-day-Single-Family

“They are very accustomed to higher prices, so they are super impressed with the prices we offer here in the central Virginia area,” Newcomb said.

For local buyers, Newcomb said this means they are frequently being outbid or outpriced.

“A couple who is local to the area and has been here their whole life, they are just now starting to get their mind wrapped around the fact that you can’t get a house for $200,000 anymore,” Newcomb said.

As the year heads closer to spring, triggering the start of the prime homebuying season, agents in Virginia feel optimistic about the market.

“We are seeing seasonal trends like we did up through 2019,” Clarkson said. “The market kind of soft launched around President’s Day and it is still building, but I expect it to pick right back up and be in full swing by Easter like it always used to.”

But while they are confident in demand, questions still remain about whether there will be enough inventory to support even more homebuyers entering the market.

“I have a lot of buyers starting to come off the sidelines, but in my office, I also have a lot of people who are going to list their house in the next two to three weeks now that the weather is starting to break,” Newcomb said. “I think we are going to have a good spring and summer.”

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