Monday, August 10, 2009

I'll take that, thank you very much. (MTSI)

AlphaNinja - I like to see management that is invested alongside the rest of us, through stock ownership. That said, we need to be able to trust said management. While executives owning 2-7% of the company stock gives me warm fuzzies, I get nervous when they own 20-30% of the shares, because they can take the company (and the free cash flows) right out from under you.

Management at MTS Medication Technologies (MTSI) is offering the rest of the shareholders $5.75 per share in a "going private" transaction -->> in essence they probably feel that the company would be more valuable as a private concern, considering the legal and compliance costs associated with being a publicly held entity.

Unfortunately, they're offering a piddly 5cent premium to shareholders. On the one hand that's a bit cheap of them - on the other hand, the stock's performance has dramatically outpaced the market.

So is the price fair? I think management is getting a steal here. Revenue was up 20% in the March quarter. Earnings were flat, but that's because the company increased general spending substantially to prepare for future growth. That future growth appears likely to be in the form of "consumable" product sales. Much like the "razor-blade" model, this scales very quickly and very profitably, which is why the management likely wanted to run off with the company. We never heard from them about the June quarter's results and I don't blame them - they just saved a few hundred grand (or more) in accounting fees associated with another quarterly report.

MTSI is now it's returning to private hands -->> keep an eye out in a few years, they'll be back to sell shares at peak prices.

From the March quarter:

"Todd E. Siegel, President and Chief Executive Officer, commented, “Our consolidated revenue for both the fourth quarter and the 2009 fiscal year increased over the prior year primarily due to the delivery of twenty-three OnDemand® machines to our largest customer. We are very pleased with the progress made on this significant contract, and we believe we have been successful in providing a new generation of state-of-the-art pharmacy automation.”

“In the U.S., we continue to be successful in adding and retaining new independent pharmacy customers and also benefit from the growth experienced by our existing national accounts. As a result, our consumable product sales in the U.S. increased almost 9% this year. In Europe, our sales growth was approximately 19% when expressed in both the British Pound and the Euro. However, a strengthened U.S. Dollar affected our dollar-denominated European sales, and therefore, European net sales increased only 4% when expressed in the U.S. Dollar.”

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