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The Ebix deal unravels

June 20, 2013

Last night Ebix announced that the going private deal with Goldman Sachs had been shelved. Bloomberg reported that the deal was terminated by Goldman “after the insurance software maker said it was told that federal prosecutors had opened an investigation”. It is not clear to me whether “after” in this case is a temporal reference or whether the deal was actually terminated BECAUSE of the investigation. In any case Ebix’s Raina denied any wrongdoing in the same press release according to Bloomberg.

So what happened this morning when the markets opened? well, actually in pre-market trading.. Shares were down close to 50%. Does this make sense? The Federal Prosecutor investigation is a result of the shareholder lawsuits (per most reports). Perhaps this was a necessary step for the prosecutor given the number of lawsuits and frequency of the negative publicity the company has been receiving. It doesn’t appear to me to mean that the prosecutor’s office believes there is “intentional misconduct” (why the ‘intentional’, by the way? is there any other kind?), just that there could be because so many people are saying there is.

But why the immense selloff? Is the company going out of business? NO Is business impacted at all by the termination of the Goldman deal? NO Is there a major impact from the investigation? Maybe, but not if you believe Raina. What then? For one thing the risk arbs needed to get out. Don’t know how many had taken a position, but before noon more than 12 million shares (out of a total of 37 million) had traded, though this may be double counting as shares may have traded multiple times. Then, of course, there is EMOTION. Expectations vs. reality. Shareholders fed up with the ups and downs of the ongoing Ebix soap opera.

So what did I do? I bit the bullet and purchased some additional shares (+33%). Not at the morning low, under $10, as I am an absolute abominable trader, but at a good solid $10.50. The shares are already trading up over $12 as I write this. And, NO, I’m not tooting my horn. Shares could easily drop below my purchase price and I would still be happy as I could purchase more. I bought because I think the business is worth more than 5x cash flow and I am willing to weather the ‘short’ tempests because I think in the long run value will out. No, I don’t know how this will play out. I’m hoping that the company was able to deploy some of its cash and buy back a good number of shares today at these fire-sale prices. Now THAT would be fantastic capital allocation. In fact, I kind of had it in my head that perhaps the company didn’t come out with a big press announcement because Raina was tired of all the externally imposed market turbulence and thought that just maybe it was time to take advantage of it just for once .. through a buyback. Or is that just wishful thinking?

  1. Karthik Mahadevan permalink

    What do you think of the allegations of accounting impropriety?

  2. I think it will be interesting to see where it goes

  3. any news on you ebix idea? buy/hold/sell?

  4. I made some skeptical comments about the EBIX long hypothesis over on SeekingAlpha:

    I was formerly long and now remain skeptical. Basically I don’t trust companies with a lot of improprieties. I don’t like the idea that the intrinsic value that I’m estimating for use in a long position may evaporate.

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