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NCAV investing: it works, except when it doesn’t… $MEAD

May 21, 2013 | About:
whopper investments

whopper investments

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Big news in net-net land today, as tiny net net Meade (MEAD) agreed to be taken private for $3.45. The agreement represents a more than a double from yesterday’s closing price, so more than a few value investors are probably feeling pretty good right now.

I don’t want to make this post too long, but I think the acquisition is fascinating because it shows that net-net investing works… except for when it doesn’t.

Here’s what I mean by that. MEAD was trading for under $1.70 yesterday. My quick calculations have it a $5.50 in net current assets less all liabilities (NCAV), so there was some serious asset protection here. Investors who recognized that and bought the stock made a big profit.

The problem is that’s been the case for a long time. My first write up was when the stock was at $3.30 and NCAV was over $8!!! The company has burned through a ton of assets in that time.

So my quick takeaways from the acquisition

  1. Net net investing does work, even in crappy companies that are burning cash… eventually, someone will want to take advantage of all that asset value to either liquidate the company or try something new
  2. However, if the core business is a poor one, it can be a volatile ride. If you time it right and an acquisition comes soon, you’ll make a killing. If you don’t and the acquisition takes a few years, you might have nothing but a breakeven result to show for your years of patience and hardwork.
This endgame reminds me a lot of my investment in TBAC. I feel like the company’s reached a point where the asset value is too tempting for an acquirer not to buy them out. Of course, investors have been saying that for years! If I’m right, I’ll make a healthy profit. If not, who knows?

Disclosure: long tbac


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