By Jeff Sanford
Toronto, Ontario -- August 26, 2015 -- Solera Holdings released results for the fourth quarter this week. The company provides software to the automobile-claims-processing industry and is the owner of Audatex. The company reported that revenue grew to $297 million this year from $268 million in the same period last year. The organizations “service, repair and maintenance facilities” segment posted remarkably strong revenue growth of 31 percent.
The company did take a one-time charge this quarter, partly related to taxes on revenues held in foreign subsidiaries. As a result the company posted a loss of $147 million, or $2.19 a share. The company also reported that even without the one-time items it still would have reported a loss on the year. Even so, investors were able to look through that news and drove the stock up almost 8 percent in after hours trading Tuesday evening.
Why buy stock in a company that’s losing money? Savvy speculators seem to be piling into the stock on expectations that Solera is about to be acquired by another company within the year. The list of clues suggesting an acquisition is quite lengthy.
The company also announced Tuesday that the Solera board has approved a $33 million retention award program for certain “key employees” to remain during a transition should the company be sold. Such compensation agreements are considered a good strategy for executing a successful acquisition (Boyd/Gerber uses this strategy). Offering bonuses to important executives to keep them from departing the company on sale can help smooth the transition.
Solera founder and CEO Tony Aquila will receive $9 million for staying around through August 22, 2016 according to an SEC filing. He’ll get another $9 million as of “the sale closing date or Aug. 22, 2016, whichever is first.” The SEC also mentions Chief Financial Officer Renato Geiger will get $815,000 if he stays through an acquisition, while general counsel Jason Brady will earn $3.5 million if he stays.
According to the SEC filing, “The purposes of the Program are to preserve the value of the Company and to provide an additional incentive for the key employees to continue in employment and contribute towards the successful (i) ongoing operations of the Company’s business and (ii) completion of any strategic transaction involving a ‘change of control’ of the Company currently being explored…”
There are other clues as well. Two weeks ago Solera filled a so-called 8-K form with the Securities and Exchange Commission indicating that the company was “exploring strategic alternatives, including a possible sale.”
Reuters ran a report citing an unnamed source that “at least one private equity firm has already arranged financing to buy Solera.” So something seems to be in the works.
A reporter taking part in Tuesday night’s earnings call thought it interesting to note that executives opted against taking any questions “sale-related or otherwise” and that the call was quite short. Normally Solera executives offer up some “colour” on the results. But Solera executives were especially tight lipped.
Executives can get tangled up in securities regulations if they speak out before an acquisition. The silence seemed to say it all.
Solera stock jumped almost $7 to $45 Tuesday evening in after hours trading. The advance was a very rare bright spot in equity markets that have been suffering huge sell-offs this week. Analysts have an average rating of “strong buy” on Solera stock.
Also interesting is a recent report from credit rating firm, S&P, which lowered its rating on Solera debt, suggesting that as the company looks at “strategic alternatives,” there is a chance a buyer could use leverage to boost the company’s performance in the future. “The CreditWatch listing reflects our expectation that the company’s strategic review may result in increased leverage or the potential adoption of a more aggressive financial policy,” said S&P analyst Peter Bourdon in a statement.
Bloomberg News has reported that Solera has approached buyout firms Pamplona Capital Management and Thoma Bravo LLC. According to the Bloomberg report private equity firms “have been active acquirer of insurance services providers” of late and are “attracted by their resilience in financial downturns.”