Description
This situation is highly illiquid, and as such likely only for PA consideration. The opportunity is to make a quick, idiosyncratic 10% gain in 6 months.
Industrial Services of America, Inc. (NASDAQ: IDSA) (the “Company” or “ISA”), is a nano-cap (~$9mm market cap) company that buys, processes and markets ferrous and non-ferrous metals and other recyclable commodities. On August 19th, ISA announced that they would be sold in an asset sale to River Metals Recycling (a sub of the large steel producer Nucor Corporation) for $23.3mm.
The Company is expecting proceeds available for distribution to shareholders to be $1.15 to $1.35 per share following the payment of debt, transaction costs and other expenses. The midpoint of this range is $1.25, or ~10% above the current share price, and ISA expects the amount to be paid out in one or more distribution payments. Management is expecting a close date in late Q4 2019 or early Q1 2020, potentially leading to a highly attractive IRR.
The BoD unanimously voted yes on the transaction, but it still needs to be approved by shareholder vote.
Insider Holdings: The former CEO’s family trust still holds over 20% of the shares, meaning (1) interests should likely be aligned with shareholders and (2) the deal should likely pass the shareholder vote.
The way I look at this is, in the downside case you have dead money for 6 months, and in the upside you get an attractive short-term gain with limited downside risk. Apologies for the abbreviated write-up; in the comments section I will attempt to breakdown the NAV in a more granular fashion based on the purchase agreement. Still, management's range is likely a good starting point.
Risks to the Transaction
--Shareholder Approval: High insider ownership and attractive liquidation should make this go through
--Transaction conditioned on the issuance of a storm water permit: After a bit of searching around, this seems like a fairly routine item for companies in this line of business
--Wind-up costs: If OpEx does not decrease as the IDSA winds down or the liquidation process is longer than expected, IRR could be negatively impacted. However, this is mitigated by the insider ownership, and they should seek to ensure a timely distribution
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.
Catalyst
--Final closing of the transaction in Q4 2019 - Q1 2020