Description

This is a short idea, its a liquidation situation.  It is relatively thinly traded, so its more of a PA trade.  It is pretty simple and straightfoward an idea.

Zovio is the former Bridgepoint Education and in the process of liquidating the company.  It has sold all but one remaining asset, Full Stack Acadamy (FSA).  They bought FSA for $33m a couple years ago, it was doing $10-12m in revenue at the time.  Since then it has grown nicely and is doing more than $30m of revenue today, growing at a 35% yoy clip.  Education businesses are counter-cyclical in nature which should help the sale process.  Currently, the company has several suitors (a couple strategic, one or two financial sponsors) that are in the bidding process.  The company would like to announce a sale by year-end and complete the transaction shortly thereafter.  Below is a liquidation analysis that they provided.  It seems reasonable.  They had some cash as of the beginning, the burn is about 1m/month.  The faster the process moves, the less burn and less drawn on the revolver.  If they complete the process relatively quickly there will be less of the bridge loan to pay down.  So even in their low scenario, I would anticipate a couple million left over.  There's also a 1m reserve that may or may not be needed.  There are 37m shares out, so every 3.7m above the low end is 9c or so adjusting for taxes.  Earlier this year ZVOI sold another asset, GoGuardian, for $55m, my understanding is that it was much smaller but more scalable and spring was a better time to be selling assets generally.  That said, its not hard to see a sale of FSA coming in above the low end, how much more is debatable but it seems like a good asset with multiple interested parties.  Its possible this could be a 0, but I think if a sale happens relatively quickly there should be at least something close to the current quotation available and there's a lot of convexity to the situation.  

Catalyst

Sale of Full Stack.