Ilan Raviv did not agree to be interviewed. The entire management of Meitav did not agree to be interviewed by BizPortal against the background of the deal that improves the company held by Liquidity (44.6%). Why? So. Apparently, a holiday to the best – the stock jumps 24% against the backdrop of a deal in which the reputable Apollo Fund, along with other entities, invested $ 50 million in liquidity (the vast majority of Apollo’s investment) at a value of $ 550 to $ 800 million. About a year and a half ago, Meitav invested in liquidity at a value of about $ 100 million. “8 times” – the headlines shout (also here) and the stock jumps. This is ostensibly an improvement of $ 350-400 million. This is more than the value of Meitav as a whole, which is currently traded at NIS 1.4 billion (about $ 440 million).
So where’s the problem? I will start by saying that Meitav is a good, cross-cutting and profitable company. Meitav’s share has been depressed in recent months because of the lawsuit that caused it to make a provision of close to NIS 500 million for a refund of management fees on provident funds it purchased in the past and was not allowed to raise management fees (Meitav appealed the ruling).
But this is not a temporary depression. In recent years, the company’s stock has lagged behind stocks in its comparison category, mainly because the market has difficulty understanding and pricing Meitav’s diversified holdings that has become beyond a large investment house, also a large credit company alongside insurance activity. Meitav traded at a multiplier below 10 on its adjusted profit (before rising today). Definitely a reasonable multiplier, when after fourth quarter reports, both Altshuler and Valio Capital (which holds the peaks) are trading at a pricing of around 10-11.
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So apparently the best stock should have gone up, not sure it is going up for the right reason. The deal reported today reveals Tefah and hides Tefahim, and I will start with a demonstration. Suppose you are offered the following transaction – you will lend a certain company NIS 100,000 and you will receive interest of 2% per year for 5 years and invest NIS 10,000 in shares of that company at a value 3 times higher than the real value. Will you do it? Depends of course on the risk, depends on the collateral. But, on the face of it, a bad deal – both low interest rates and high pricing investment.
We’ll move on to the second proposal – Will be accompanied by an interest rate of 10%. Admit it, it’s interesting now. This is interesting, even if the other side of the combined transaction – investing in capital, seems expensive. It’s a little money compared to debt. Besides, you have an interest in the equity being praised that establishes the debt you have given.
This example, may be what happened at its best. Apollo comes in mostly as a lender – it lends $ 425 million and invests only $ 40 million. What is most important to her is the interest rate on the loan, not at what value the investment will be defined.
Liquidity’s business is a business of lending to technology companies (relatively mature, with a certain turnover and certain parameters). There is a basket of companies here so the risk is relatively small, the company has a good record and there is now a large loan that has no information about it – what the hell is the interest rate? How does Meitav not provide this important figure and how does the authority not ask for it? If the interest rate is 8%, or 10%, then the equity investment has no meaning, it is idle at sixty. It is also possible to produce a deal that will bring the value to $ 3 billion. Everything can be done, it’s simple at the expense of interest. And just to illustrate – 1% interest is $ 4.3 million a year – $ 22 million in five years, more than half of the Apollo Group’s investment. Every 1% interest on a loan is equivalent to half of the investment in equity. In other words, and I’ll try not to complicate the math – Apollo is indifferent between a 1% interest rate change and a doubling of the value. It is willing to accept another 1% interest against doubling the value.
So when you are told that there is a deal that expresses a high value, check that the value does not “run away” in another direction. Telling you that an investment of $ 50 million was made at a value of 800, check how many shares the investor gets – if it’s a low rate (here it’s 6%) it does not mean much. If it’s a low rate and it’s a complex deal – like here – with a huge loan, then it’s very possible that the value is not real.
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