- Business combination values Fluent at over 2x purchase price: Cogint shareholders will have a 37% interest in the new combined entity that will originally retain the cogint name but will likely be renamed. This combined entity is expected to generate revenues of $500 million and EBITDA of $75 million in 2018 on a combined basis. As part of this process, the entity will refinance about $110 million of combined debt including about $40 million of debt tied to the initial acquisition of Fluent. Cogint will provide a special dividend to its shareholders as part of the transition, which we estimate will be close to $1.00 per share, though is highly dependent on deal‐related expenses. The founders of Fluent will remain with Fluent as managers of that entity within the new combined operation.
- Separation of data‐fusion business into stand‐alone publicly‐traded entity named Red Violet: This company is still in the very early stages, as we estimate 2017 revenues at less than $20 million. There is a significant degree of uncertainty surrounding the stand‐alone company. On the plus side, Red Violet will launch with a cash balance post‐spin of about $20 million and no debt. Willingness to do this deal at this time suggests that management views its data fusion business as having sufficient momentum that can command the beginnings of value on a stand‐alone basis that will expand as growth is achieved. (NOTE: See comment from CEO Derek Dubner HERE).
- We reaffirm our OUTPERFORM investment rating: Our current $8 price target incorporated a blend of valuation measures that utilized Enterprise Value/Sales, but moving to Enterprise Value/EBITDA as the business model matured over the next several years. Our projections had all of these metrics turning positive in 2018. This transaction accelerated the potential recognition of these economics. Holders of COGT receive a large, publicly‐held company that is targeted to generate $500 million of revenues and $75 million in Adjusted EBITDA, sufficient to support a sizable valuation on its own that will accrue to cogint shareholders and BlueFocus Communications Group holders in a 37%/63% split. In addition, the special dividend will add value, as will a continuing interest in a small, speculative stock in the data fusion business that management feels is now beginning to come into its own.
Disclosure: Long COGT
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