1) Corporate Risk Holdings is currently an undiscovered and underfollowed name, traded via broker desks (mainly Baird and Stifel). Corporate Risk Holdings is trading at a significant discount to value (we think there’s a potential to more than double) from $14/share today to $30/share. Each turn of estimated 2016 EBITDA is $7/share.
2) Corporate Risk Holdings’ holders are distressed debt investors whose motivation is to monetize their investment now that it has emerged from bankruptcy.
3) Corporate Risk Holdings has three discrete businesses which can be sold one by one.
4) Corporate Risk Holdings was a Providence Equity buy-out. Providence’s equity went to zero. Altegrity’s second liens were given 96% of the equity in Chapter 11.
In February 2015, Altegrity, the security firm that vetted the infamous NSA contractor Edward Snowden for the U.S., filed for bankruptcy after state-sponsored hackers cost it two government contracts which closed down one of its subsidiaries, USIS.
Altegrity was left with three discrete businesses:
HireRight: Provider of employment background screening, drug/health screening and employment eligibility solutions.
Kroll Ontrack: E-discovery technologies and data recovery solutions.
Kroll Investigation (which contains ID Shield): Investigations and due diligence advisory services, risk mitigation and verification services, cybersecurity practice and compliance/ monitor ships, and ID Shield.
Second-tier bondholders exchanged debt for 96% of stock in the refinanced company. Bondholders promoted David Fontaine from within to be CEO and reconstituted the board. Providence no longer has any equity or managerial control. The U.S. government released Corporate Risk Holdings from any past liability.
Providence could not sell the pieces, pay down debt and be left with anything for its equity due to its low tax basis. In
Chapter 11, the tax basis stepped up to fair market value at the time of emergence, or approximately $1.3B TEV, or
approximately $14/share on the current capital structure.
(See Disclosure Stmt. pp. 127-128 and Ex. F-3) Given the step up, bondholders can monetize the pieces with minimal tax
consequences.
5) Corporate Risk Holdings is trading at a significant discount to value (we think there’s a potential for a 130% upside - or
from $14/share today to $30/share). Corporate Risk Holdings is currently trading at $14/share or 9.7 times est. 2016
(FYE 9/30) EBITDA of $143mm. Current market price of $14/share times 22mm fully diluted shares outstanding, plus
$1082mm of debt, equals $1389mm or 9.7 times $143mm of estimated FYE 2016 EBITDA. (I am not including BS cash). I
believe acquisitions of companies comparable to two of Corporate Risk Holdings’ parts make it worth north of 12 times
or over $30/share. Each turn of estimated 2016 EBITDA is $7/share.
Goldman Sachs bought Sterling Backcheck, a HireRight comparable for 13.7 times adj/ EBITDA. OMERS bought
Document Technologies, an Ontrack comparable, for an estimated 12 times EBITDA.
