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MultiBand Corporation
Overview
Multiband Corporation (Multiband, MBND or the Company) provides contract installation services for Pay TV services and act as a master service operator for DIRECT TV customers at certain multi dwelling apartment units.
Company
operates in three segment: (i) field services; (ii) multidwelling unit; and (iii) Engineering, energy, and construction
(1)
Situation Overview
Activist Investor
Cannell Capital owns ~ 13% of the Companys shares
Importance of DirecTV
DirecTV is the most significant customer for the Company, in both its Field Services segment and its Multi Development Unit segment
On Dec 17, 2012, Cannell started its activist campaign by writing a letter with two proposals to MBNDs management: (1) hire an advisor to sell the Company; (2) cut costs and focus on generating cash to strengthen the balance sheet
Company has been trying to diversify its customer base by working with cable providers and ViaSat Recent customer acquisition strategy changes from DirecTV negatively impacted Companys important FS business segment
Valuation
Valuation seems fully priced based on a 7.0x 2012 EBITDA and 6.4x EBITDAR multiple
Based off a current earnings figure that might be depressed; however, management believes DirecTV installation revenue will be flat next year as well
In March and April 2013 , the Company obtained new financing ($40 mm term loan and $15 mm revolver) from Fifth Third Bank
New funds will be used to repay existing debt and for acquisitions/expansions purposes Pro Forma leverage at 4.8x 2012 EBITDA
The acquisition firepower of a strategic competitor like Unitek Global is limited due to Uniteks high net debt balance
Non-Investment Highlights
Recent debt financing increases the Companys enterprise value such that the Company is fully valued at 7.0x EBITDA or 6.4x 2 012 EBITDAR
While MBNDs multiple is based off a low EBITDA figure, its competitor Unitek is currently trading at 4.7x EBITDA/EBITDAR A portion of debt proceeds will be used for the acquisition of MDU Communication International (no more than $28 mm, as stated in the commitment letter with Fifth Third Bank)
DirecTVs conservative customer acquisition strategy will not generate growth for the Companys Field Services segment (Company expects 2013 fulfillment volumes to be flat/slightly higher than 2012)
Companys expansion into satellite and cable fulfillment diversifies revenue customer concentration, but based on financials, these businesses seem to be less profitable than DirecTV In the FS segment, 2012 EBIT margins of 2% vs. 2011 EBIT margins of 8.5%
While the involvement of activist investor Cannell Capital serves as a catalyst, the acquisition firepower of the Companys largest strategic competitor, Unitek Global, is limited with a net debt balance of $180 mm and a leverage ratio of 3.8x
Companys MDU segment became profitable in 2012, achieving an operating margin of 3.2% on $28 mm of revenue
2010 Cash AR Inventories Costs in excess of billings Prepaid Expenses Income Tax receivable DTA Total Current Assets PP&E Goodwill Intangibles Restricted Cash Insurance Collateral Other Assets DTA Total Assets ST Debt Accounts Payable Billings in excess of costs Accrued liabilities Deferred service obligations Total Current Liabilities Accrued Liabilities LT Debt & Capital Lease Total Liabilities Preferred Stock Common Stock Accumulated Deficit Total Equity $ 1 18 11 0 2 3 8 43 7 38 17 0 4 2 112 1 27 23 2 53 4 35 91
2011 $ 19 28 14 1 1 0 7 71 6 38 15 8 2 1 141 6 32 0 24 2 64 5 30 99
15 87 (82) 20 $
3 115 (75) 43 $
2010 Revenue COGS SG&A D&A EBIT Impairement of Assets Interest Expense Other EBT Taxes Net Income EBITDA Operating Vehicle Lease EBITDAR EBITDAR Margins Capex / Acquisitions $ $ $ $ 266 (186) (57) (8) 14 (0) (4) 0 10 5 15 22 8 30 11% (1)
2011 $ 300 (215) (64) (7) 15 (0) (4) (0) 11 (4) $ $ $ 7 22 9 31 10% (5) $ $ $ $
2012 306 (225) (70) (7) 3 (1) (4) (0) (1) 4 3 10 16 26 9% (5)
Cash From Operations Capex Purchase of Customers Acquisition Other Cash from Investing Cash from Financing Change in Cash
Source: Company filings.
The Companys Field Services (FS) business segment generates 87% of the Companys total revenue ($267 million in 2012)
DirecTV has indicated a shift in customer acquisition strategy, which negatively impacts MBND
DirecTV will not be acquiring stores of subscribers since its too expensive for DirecTV
2012 FS Revenue
ViaSat 3%
To reduce its reliance on DirecTV, the Company has focused on diversifying its revenue stream by working with ViaSat and cable providers
Cable 4%
DirecTV 93%
However, ViaSat and Cable fulfillment business are less profitable than the DirecTV installation business
2010 FS - Revenue FS - Operating Income Margin $ 243 21 8.5% 2011 $ 272 23 8.5% $ 2012 267 6 2.1%
Companys Multi-Dwelling unit (MDU) segment revolves around being a master service operator for DIRECTV
MBND bills subscribers as the owner/operator and receives net cash payments for managing video subscribers Company utilizes its own support center and billing platform
Market demand drivers for MDU services come from property owners due to the simple one -stop nature and the more aesthetically pleasing set up, as compared to multiple individual satellites
From DIRECTVs perspective, utilizing a MDU service agreement with companies like MBND is a low-cost method to expand its customer breach (similar to franchising)
2012 28 1 3.2%
Capital Structure
Debt
Company obtained a $20 million term loan and a $10 mm revolver from Fifth Third Bank Proceeds were used to finance all pre-existing debt Terms include (i) upfront fee of 2% on facility; (ii) $50,000 commitment fee; (iii) free cash flow sweep of 50% for additional principal amortization
In April 2013, Company and Fifth Third Bank agreed to an amended commitment of a $55 mm financing ($40 mm of term loans and $15 mm in a revolver facility, increased from the amounts above) to be structured and syndicated by Fifth Third Bank
4/31/2018
L + 550
$ $ $
Based on current share price, the Companys convertible preferred shares will be redeemed rather than converted
Source: Website.
Valuation Summary
Market Valuation
Market Price Common Shares Outstanding M arket Cap of Com m on E quity Cash Debt & Capital Lease Obligations (1) Redeemable Preferred Stock EV Capitalized Operating Vehicle Lease @ 6.0x Adj . E V 2012 EBITDA 2012 EBITDAR EV / EBITDA Adj. EV / EBITDAR $ $ 2.1 21.8 46.2 (29.3) 52.5 2.8 72.2 94.3 166.5 10.4 26.1 7.0x 6.4x
$ $ $ $
Source: Company filings. (1) Debt and cash estimated as per recent news release regarding new debt facilities.
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Unitek Global, which attempted to acquire MBND in June 2011 for $4.50 per share, currently has a limited balance sheet
Net debt of $182 mm at a 3.8x leverage ratio Uniteks financial covenant include a maximum leverage ratio of 4.75x and a fixed charge ratio of 1.2x Hence, Unitek is unlikely to acquire MBND in its current financial position
Unitek Market Summary Unitek Market Price Shares Outstanding Market cap Cash Debt EV EBITDA EV / EBITDA Debt / EBITDA
Capital Structure Revolving Loan Term Loan Total Financial Debt Capital Lease Obligations Cash Net Debt 2012 LTM EBITDA
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Timeline 2008-2009
Description
Company purchased DTHC for $50 million to increase its market share of installing video services in single family homes
9/1/2011
WPCS International
Company purchase WPCS International, a design, engineering and construction firm for $2 million In December 2012, the Company announced the acquisition of MDUC for $12.9 mm in convertible preferred shares (conversion price at $4.00, dividend coupon of 6.25%) In April 2013, the Company announced a financing commitment letter with Fifth Third bank, which limited the acquisition price to a cash consideration not to exceed $28 mm
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