Park City Capital, LLC, the beneficial owner of approximately
5.7% of the shares of ARI Network Services, Inc. (Nasdaq Capital
Market: ARIS) that initiated a proxy contest at ARI’s annual
meeting held today, has released the statement made by its Chief
Executive Officer Michael J. Fox at the annual meeting.
Mr. Fox delivered the following statement to shareholders at the
meeting:
Good morning and thank you for your time
today. As many of you know, Park City Capital is a private
investment firm in Dallas, TX and we own 1 million shares of ARI,
which is equal to 5.7% of the company.
I’d like to share our point of view and
perspective with everyone here today, and we are planning to file
this speech with the SEC so that those not in attendance can hear
what we have to say.
We have been shareholders of ARI for over two
years, and we have actively engaged with management and the board
over that time. In our initial meetings and discussions with
management, we were pleased with our initial impressions. However,
after the past 12 months and especially the past three months,
since we submitted our nominees, we now believe that management and
the board have been disingenuous and have continuously used
half-truths and “clever language” to mislead shareholders,
independent proxy advisors and any other constituents that
management feels they need to sway.
It is our firm belief that public
companies exist for one reason--to create and maximize value for
all shareholders. Given that management’s strategy has been
unable to produce an acceptable return on invested capital and the
stock has persistently traded at a significant discount to its
peers, including MAM Software (MAMS), which is about the same size
as ARI, but trades at a 90% premium to ARI, we believe that the
company should immediately engage a financial advisor to review
strategic alternatives, including running a robust process to sell
the company. We believe there are ample interested parties and both
private equity and strategic buyers would be very interested in
bidding for the company. Based on our analysis and speaking with
several investment banking firms and private equity firms, we
believe a robust process would yield a buyout offer of $8 to $10
per share.
One question that may arise is why would
someone pay $8 to $10 per share for a company that is trading at
$5.50 per share. ARI operates in very fragmented markets and it
should be making significantly larger and more frequent
acquisitions. However, since it has very little access to capital,
the company cannot properly or fully execute this strategy and is
forced to make small and less frequent acquisitions, while bigger
companies can grow faster and continue to gain share. If ARI was
acquired by a private equity firm, the buyer could infuse a large
amount of capital into ARI and it could better capitalize on its
likely robust pipeline of larger acquisitions, and we believe ARI
could be a $100 million revenue company within 12 months. It could
also utilize more debt and in the near-term could focus less on
margins and more on growth. As a result, five years from now the
company could be significantly larger, more profitable and also be
in a better position strategically.
One argument against selling the company is
that current shareholders would like to participate in the expected
growth. My answer to that point is that current shareholders would
participate in that growth in an upfront payment, “TODAY”, as the
upside for the buyer would be so large that it would be willing to
pay a significant premium to current shareholders. In fact, I
haven’t spoken with any shareholder that would be disappointed with
receiving $8 to $10 per share in the next six months.
Despite Roy Olivier and Will Luden telling me
on multiple occasions that they would immediately accept an $8 per
share offer, they have communicated to shareholders and independent
proxy advisory firms a plan that they believe could result in a $15
stock price over the next five years. I think it’s important to
look at management’s plan so we can hold them accountable. In one
of its recent releases, the company noted that
“we have grown ARI at a 16-17% CAGR over the
past 3- and 5-years…We believe we can continue to execute, which
would result in a $75M company in three (3) years and a $100M
company in five (5) years. At $100M, our adjusted EBITDA would be
about triple what it is now. Given no change in our trading
multiple, which we believe will happen as we scale the business,
that would result in a stock price roughly triple what it is
now.”
We would like to point out that management is
committing to a 16% compounded annual growth rate in revenue over
the next five years and a $15 stock price over that same time
period. While $15 per share sounds great, five years is a long time
and we believe there are significant risks that could cause a lot
of value destruction if management is left to pursue its status quo
strategy over that time period.
First, the end markets for ARI’s services are
mostly cyclical and while the economy appears robust, the
probability that we will experience a recession at some point in
the next five years is extremely high and we believe that if we do
enter a recession, there is significant downside to ARI’s stock
price.
Second, the company is pursuing an
acquisition driven growth strategy in an M&A market that is
very robust and that we would characterize as a “seller’s market”.
In other words, ARI is a buyer when it’s clearly more opportunistic
to be a seller. And to make things worse, the company is pursuing
this strategy with very little access to capital, which is likely
to result in management over promising and under delivering.
Third, while management and the board like to
take credit for the solid stock price performance over the past two
years, and that’s fine with us since we own more stock than any of
them, we would like to point out that Park City Capital has
persistently highlighted to shareholders and the investment
community that ARI would be an attractive acquisition candidate,
and we believe that our efforts have helped raise the profile of
ARI in the investment community and its stock price. If we go away
and ARI’s stock no longer gets the benefit of this premium, we
believe there would be significant downside in ARI’s stock
price.
In conclusion, we continue to believe that
ARI should immediately engage a financial advisor to execute a
robust process to maximize value for all shareholders. While it
appears that management was able to sway more shareholders than we
were, we believe it had to use mis-truths and “clever language” as
well as committing to unrealistic financial objectives to do so. We
are hopeful that the board will realize that the path that has the
least risk and the highest reward for all shareholders is to sell
the company, as we believe the price it could receive today would
significantly outweigh the risks of management continuing to pursue
its status quo strategy. We will be watching closely and will hold
the board and management accountable and will frequently
communicate to shareholders our analysis and critique of their
performance.
Thank you!
Park City Capital would like to thank
the ARI shareholders who voted for its director nominees and/or
expressed support for Park City Capital’s efforts.
If you would like to speak with Michael J.
Fox of Park City Capital, you are invited to contact him directly
at 214-855-0801.
Park City Capital, LLC and Park City Capital Offshore Master,
Ltd. have filed with the Securities and Exchange Commission, and
mailed to shareholders on or about November 29, 2016, a definitive
proxy statement and a blue proxy card in connection with their
solicitation of votes for the election of director nominees at the
“2017” annual meeting of shareholders of ARI Network Services,
Inc.
Park City Capital Offshore Master, Ltd. beneficially owns
1,000,000 shares of common stock of ARI. Park City Capital, LLC,
which is the investment manager of Park City Capital Offshore
Master, Ltd., and Michael J. Fox, who serves as the managing member
of Park City Capital, LLC, also beneficially own these shares.
Park City Capital, LLC, Park City Capital Offshore Master, Ltd.,
their control persons, and their nominees to the ARI board are the
participants in this proxy solicitation. Information regarding the
participants and their interests in the solicitation is included in
Park City Capital’s definitive proxy statement and other materials
filed with the SEC. SHAREHOLDERS OF ARI SHOULD READ SUCH PROXY
STATEMENT AND OTHER PROXY MATERIALS CAREFULLY AND IN THEIR ENTIRETY
AS THEY BECOME AVAILABLE AS THEY WILL CONTAIN IMPORTANT INFORMATION
RELATING TO THE ANNUAL MEETING AND PARK CITY CAPITAL’S NOMINEES TO
THE BOARD AND SOLICITATION OF PROXIES. SUCH PROXY MATERIALS ARE
AVAILABLE AT NO CHARGE ON THE SEC’S WEBSITE AT WWW.SEC.GOV OR FROM
ALLIANCE ADVISORS, LLC.
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version on businesswire.com: http://www.businesswire.com/news/home/20170105005992/en/
Alliance AdvisorsPeter Casey, 973-873-7710Toll-free number:
855-737-3183
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