ACTUA CORP ACTA
February 07, 2018 - 6:56pm EST by
broncos727
2018 2019
Price: 0.71 EPS 0 0
Shares Out. (in M): 32 P/E 0 0
Market Cap (in $M): 23 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT 0 0

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  • Liquidation
 

Description

that I think will provide a satisfactory IRR, with limited downside. This is a micro cap idea only suitable
for personal accounts and small funds but the volume lately has been fairly large, creating the
opportunity to build a substantial position. The idea here is straightforward and reminds me of the
acronym KISS or “Keep It Simple Stupid.” Since I might have trouble filling an entire page on this idea, I’ll
reference the Wikipedia page for the KISS principle:
 
KISS is an acronym for "Keep it simple, stupid" as a design principle noted by the U.S. Navy in
1960.  The KISS principle states that most systems work best if they are kept simple rather than made
complicated; therefore simplicity should be a key goal in design and unnecessary complexity should be
avoided. The phrase has been associated with aircraft engineer Kelly Johnson (19101990).  The term
"KISS principle" was in popular use by 1970.
 
Actua Corp recently sold off the bulk of their assets and made an initial liquidating dividend of 14.89 in
early February. In investor communications, which they have reiterated recently, their guidance on total
distributions upon liquidation has been 15.68 to 16.50 per share. After adjusting for the dividend, the
new range is .79 to 1.61. The stock closed today at .71. Like I said, this is a pretty simple idea. The
company expects to realize full liquidation over a 12 to 18 month time period.
 
The majority of the assets left are minority share investments in companies I know virtually nothing
about. Investors do know the names of these companies though. They are called: Anthem Ventures,
InstaMed, Parchment, Savana, Rittenhouse Ventures, Relay Network, and QC Holdings. These assets
are collectively valued at $17 million. This is the “book value” of these investments that Actua has
carried the values at. It appears that Anthem is held at zero, despite receiving a distribution of $1
million in 2015 from the investment.
 
The largest two seem to be Instamed and Parchment: From the 10K:
 
Our vertical cloud (venture) reporting segment includes businesses with many characteristics similar to
those of the businesses in our vertical cloud segment, but in which we take a less active role in terms of
strategic direction and operational support, and, accordingly, towards which we devote relatively small
amounts of personnel, financial capital and other resources. Each of the businesses in our vertical cloud
(venture) reporting segment, the most significant of which are InstaMed and Parchment, are accounted
for under the cost method of accounting, since we own less than 20% in each of these businesses (see
Note 2 , "Significant Accounting Policies," to our Consolidated Financial Statements).
 
During the year ended December 31, 2016, Actua increased its interest in Parchment Inc. ("Parchment"),
a cost method business, by $0.7 million . Actua also elected to sell a portion of its interest in InstaMed
Holdings, Inc. ("InstaMed"), a cost method business, pursuant to a tender offer. This sale resulted in
a $1.6 million decrease in Actua's interest in InstaMed, as well as a gain of $2.8 million .
 
This implies to me that they are still believers in Parchment enough to invest more at least. It also
implies that the Instamed valuation might be up by 75% from original cost.
 
 
 
 
 
 
 
 
 
 
All I know for sure is that they probably aren’t worth exactly $17 million. I’m taking the over. The
reason for that is two fold: First, in theory, If they were to become aware that the value of what they
hold is lower than 17 million they should have taken an impairment charge at some point on these
investments. Second, I’m making the assumption that management possesses at least an average IQ. I
think that if the value is below $17 million, it would have been a great time to take a write down prior to
delivering the liquidation guidance. This is what I like most about liquidations, there are a lot of
incentives to be conservative and no incentives to be aggressive.
 
The other moving part is collection from an escrow payment from GovDelivery due to Actua in the
amount of approximately $9 million. GovDelivery was sold to Vista Equity Partners in 2016. It does
appear though that they have put a bit of a discount on that asset:
 
As of September 30, 2017 , $11.3 million related to Actua’s potential proceeds from sales of former
businesses, particularly GovDelivery, remained in escrow to satisfy potential or unresolved
indemnification claims. The release of these outstanding escrow amounts is subject to the resolution of
pending and potential indemnity claims pursuant to the terms of the applicable acquisition agreements.
 
Although the company trades OTC, they still file with the SEC. They expect to file a preliminary proxy
soon that will have more detailed information related to the liquidation of the company. Once they
receive the requisite shareholder vote, they will adopt the liquidation basis of accounting.
 

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

Approval of liquidation.  Adoption on Liquidation Basis Accounting.  Liquidating dividends paid over next 12 to 18 months.

1       sort by    

    Description

    that I think will provide a satisfactory IRR, with limited downside. This is a micro cap idea only suitable
    for personal accounts and small funds but the volume lately has been fairly large, creating the
    opportunity to build a substantial position. The idea here is straightforward and reminds me of the
    acronym KISS or “Keep It Simple Stupid.” Since I might have trouble filling an entire page on this idea, I’ll
    reference the Wikipedia page for the KISS principle:
     
    KISS is an acronym for "Keep it simple, stupid" as a design principle noted by the U.S. Navy in
    1960.  The KISS principle states that most systems work best if they are kept simple rather than made
    complicated; therefore simplicity should be a key goal in design and unnecessary complexity should be
    avoided. The phrase has been associated with aircraft engineer Kelly Johnson (19101990).  The term
    "KISS principle" was in popular use by 1970.
     
    Actua Corp recently sold off the bulk of their assets and made an initial liquidating dividend of 14.89 in
    early February. In investor communications, which they have reiterated recently, their guidance on total
    distributions upon liquidation has been 15.68 to 16.50 per share. After adjusting for the dividend, the
    new range is .79 to 1.61. The stock closed today at .71. Like I said, this is a pretty simple idea. The
    company expects to realize full liquidation over a 12 to 18 month time period.
     
    The majority of the assets left are minority share investments in companies I know virtually nothing
    about. Investors do know the names of these companies though. They are called: Anthem Ventures,
    InstaMed, Parchment, Savana, Rittenhouse Ventures, Relay Network, and QC Holdings. These assets
    are collectively valued at $17 million. This is the “book value” of these investments that Actua has
    carried the values at. It appears that Anthem is held at zero, despite receiving a distribution of $1
    million in 2015 from the investment.
     
    The largest two seem to be Instamed and Parchment: From the 10K:
     
    Our vertical cloud (venture) reporting segment includes businesses with many characteristics similar to
    those of the businesses in our vertical cloud segment, but in which we take a less active role in terms of
    strategic direction and operational support, and, accordingly, towards which we devote relatively small
    amounts of personnel, financial capital and other resources. Each of the businesses in our vertical cloud
    (venture) reporting segment, the most significant of which are InstaMed and Parchment, are accounted
    for under the cost method of accounting, since we own less than 20% in each of these businesses (see
    Note 2 , "Significant Accounting Policies," to our Consolidated Financial Statements).
     
    During the year ended December 31, 2016, Actua increased its interest in Parchment Inc. ("Parchment"),
    a cost method business, by $0.7 million . Actua also elected to sell a portion of its interest in InstaMed
    Holdings, Inc. ("InstaMed"), a cost method business, pursuant to a tender offer. This sale resulted in
    a $1.6 million decrease in Actua's interest in InstaMed, as well as a gain of $2.8 million .
     
    This implies to me that they are still believers in Parchment enough to invest more at least. It also
    implies that the Instamed valuation might be up by 75% from original cost.
     
     
     
     
     
     
     
     
     
     
    All I know for sure is that they probably aren’t worth exactly $17 million. I’m taking the over. The
    reason for that is two fold: First, in theory, If they were to become aware that the value of what they
    hold is lower than 17 million they should have taken an impairment charge at some point on these
    investments. Second, I’m making the assumption that management possesses at least an average IQ. I
    think that if the value is below $17 million, it would have been a great time to take a write down prior to
    delivering the liquidation guidance. This is what I like most about liquidations, there are a lot of
    incentives to be conservative and no incentives to be aggressive.
     
    The other moving part is collection from an escrow payment from GovDelivery due to Actua in the
    amount of approximately $9 million. GovDelivery was sold to Vista Equity Partners in 2016. It does
    appear though that they have put a bit of a discount on that asset:
     
    As of September 30, 2017 , $11.3 million related to Actua’s potential proceeds from sales of former
    businesses, particularly GovDelivery, remained in escrow to satisfy potential or unresolved
    indemnification claims. The release of these outstanding escrow amounts is subject to the resolution of
    pending and potential indemnity claims pursuant to the terms of the applicable acquisition agreements.
     
    Although the company trades OTC, they still file with the SEC. They expect to file a preliminary proxy
    soon that will have more detailed information related to the liquidation of the company. Once they
    receive the requisite shareholder vote, they will adopt the liquidation basis of accounting.
     

     

    I do not hold a position with the issuer such as employment, directorship, or consultancy.
    I and/or others I advise hold a material investment in the issuer's securities.

    Catalyst

    Approval of liquidation.  Adoption on Liquidation Basis Accounting.  Liquidating dividends paid over next 12 to 18 months.

    Messages


    SubjectFew questions
    Entry02/13/2018 12:13 PM
    Memberblmsvalue

    Thanks for the write-up, very interesting idea. Had a few points on which it would be helpful to get your take: (i) any potential capital gains tax from the asset sales (the company doesn't seem to expect any and curious as to why), (ii) do you have a sense on the valuation of the remaining assets; agreed that if it was lower they would have taken a write-down, (iii) expected timeline for this to play out. Also, it seems that it has been solved but they had a material weakness.


    SubjectRe: Few questions
    Entry02/13/2018 07:07 PM
    Memberbroncos727

    Thanks blmsvalue.  My understanding is that C-corps get the benefit of washing realized losses versus realized gains if it is in the same category.  Losses in equity investments can't be washed against gains in the operating business, for example.  But any gain is taxed at ordinary income rate (ordinary corporate rates, which I guess is now 21%) - there is no capital gains specific tax rate within a c-corp.  That being said, I dont know if the opposite is true: Having capital gains in the equity category and washing against losses in operating business.  I have made inquiries with a friend that brokers "pre-ipo" stocks and he is going to see what he can dig up.  Normally these companies have the ability to use right of first refusal on transactions, and my guess is that they know the valuations where people have been "rofr'd" according to the lingo.  I'm hoping that is where they got the range of valuations.  Based on what they realized from a partial sale of Instamed, they have some nice gains there.  THe company thinks they will complete the liquidation in 12-18 months.  My experience is that liquidations always take longer than predicted.  Lastly, to be honest, I didnt read the part of the 10k describing material weakness until you brought it up - but it appears to be in the past but doesnt add comfort.  I expect a preliminary proxy to be issues this week, and hoping there is more analysis available to determine remaining value.


    SubjectMore detail on potential asset values
    Entry02/15/2018 02:41 PM
    Memberengrm842

    Really interesting write-up.

    It seems as though the asset side of this arithmetic exercise is predominantly driven by 3 things: 1) corporate cash in excess of the, expense burn rate, severance obligations, and other liabilities (lease buyout?, litigation?) in the wind down; 2) the value of ACTA's stake in InstaMed; and 3) the value of ACTA's stake in Parchment. Other items like Anthem's holdings, the release of the GovDelivery escrow do contribute to the math but are less significant. Have you been able to identify any specific gauge of the value of those two businesses, like how they were valued at their last fundraising rounds?


    SubjectRe: proxy out
    Entry02/28/2018 06:26 PM
    Memberbroncos727

    Havent had a chance to read thoroughly, but it appears that they raised the top end of their estimate to 2.07.  A positive development I think.  Will read full proxy and see if something else jumps out.  Thanks for the heads up.


    Subjectfirst distribution
    Entry06/22/2018 04:21 PM
    Memberbroncos727

    8k today....43 cent dividend.


    SubjectRe: first distribution
    Entry06/24/2018 12:40 PM
    Memberengrm842

    Thanks Broncos,

    Is this at all telling in terms of what total distributions might amount to?

    Thanks


    SubjectRe: Re: Re: first distribution
    Entry06/25/2018 11:31 AM
    Membercpdodger

    The range was updated from $0.80 - $2.07 ---> $1.06 - $1.96

    For what it's worth my model has $1.31 given the final purchase price adjustment 

    https://www.sec.gov/Archives/edgar/data/1085621/000119312518199617/d617669dex991.htm  

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