SSI Weekly – Quick Pitches For SGA, DNTL.TO, CBIO

SGA – Potential Company Sale – 25%+ Upside

DNTL.TO – Potential Buyout – Upside TBD

CBIO – Liquidation – 29% Upside



Saga Communications (SGA) – Potential Company Sale – 25%+ Upside
The situation was previously highlighted here. Saga Communication is a small-cap owner and operator of local radio stations in the US. The company’s founder passed away earlier this year, which triggered an automatic conversion of his voting shares and eliminated previous voting control over SGA. This conversion transformed SGA from a family-controlled company, into one that is 54% owned by 6 institutional investors + 16% by the late founder’s trust. The largest shareholder – TowerView – mentioned in 13D filling that in light of the change of control structure of the company, it might discuss the future direction of SGA with the board and senior management. SGA is the second largest TowerView’s position accounting for 17% of the total portfolio. I think sale of the company might be brewing behind the scenes. Several recent updates worth highlighting

  • Last week, SGA announced that over the last few months it has been exploring strategic initiatives and received a non-binding takeover interest from a smaller broadcaster with two potential transaction structures. The first one was a cash buyout at $30-$33/share (vs $28.5 current price) and the second was a reverse merger where SGA shareholders would receive $12.47/share in cash and 83% of the combined entity. Both offers were rejected as undervaluing SGA and the board noted that the buyer still lacked financing for either structure. The announcement itself seems to be a large ‘We are for sale’ sign although the rest of the text did not exclude other strategic directions.
  • A few days ago, Hoak Public Equities joined the major shareholder list with a 6.9% stake and 13D filling. Most of the position was acquired at an average price of $26.5/share. Hoak Public Equities is a small hedge fund/family office with very limited information available. It doesn’t file 13F and has only reported one or two 13Ds annually for the past 10 years. Lately, the fund seems to be focusing on special situations and these have worked out well so far – e.g. Verso takeover in late 2021 (also covered on SSI here), magicJack VocalTec takeover in 2017 (also covered on SSI here).
  • Management has also announced the acceleration of capital return to shareholders. The quarterly dividends were increased from $0.20/share to $0.25/share and a special dividend of $2/share is to be paid out in Jan’23. This comes on top of $2/share special dividend in Sep’22. The company also declared a new variable dividend policy where SGA will pay 70% of the preceding year’s FCF in Q2 of each year. So far, TTM FCF stands at $1.75/share (or $2.38/share if one-off $3.8m accrual related to the founder’s passing is excluded).
  • SGA’s recent Q3 results were solid. Excluding the election-driven revenue boost this year, Q3 revenue was up 6% YoY, while adjusting for the one-off accrual, the operating income was up 5%.

Overall SGA remains quite cheap at 4.7x TTM EBITDA (adjusted for the one-off accrual). While the peers trade at seemingly similar levels of 4.5x-5.8x, SGA clearly stands out from the bunch with net cash on the balance sheet – all radio peers appeared to be highly levered. Given such a strong balance sheet, I think SGA would deserve a decent premium in a takeover scenario. A potential bid could come in the 6.5-7x range – a much higher levered peer CMLS received a bid at 7x+ in April this year and rejected it. Such a multiple would result in $36-$38/share target or 25%-32% upside from the current prices.

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SGA also owns a substantial amount of RE – properties/towers. At their conservative estimate – the depreciated historical value – real estate assets are currently worth 47% of the EV. A potential suitor might be interested in pursuing a sale-leaseback transaction which is apparently common practice for radio broadcasters (some examples herehere and here).


dentalcorp Holdings (DNTL.TO) – Potential Buyout – Upside TBD
A recently announced strategic review with a potential short-term catalyst. dentalcorp Holdings is a C$1.6bn market cap owner and operator of a large Canadian network of dental clinics. Several weeks ago, in response to the receipt of unsolicited expressions of interest, the company launched a strategic review. Special committee was formed to consider the offers. A particularly interesting nuance here is that the two board members representing the largest shareholder L Catterton, a private equity firm with 40% ownership, are not part of the special committee. L Catterton’s distancing from the strategic review is rather unusual and might be a sign that it is interested in acquiring dentalcorp itself. The PE firm also took DNTL public in May of last year at C$14/share (vs C$8.4/share currently).

The interest in DNTL is not surprising and comes amidst the rapidly consolidating Canada’s dental practice industry fuelled by increasing PE buyout activity. In recent years, dental service organizations (or DSOs) such as DNTL have been scooping up smaller independent dental practices and have expanded their market share from 3-4% in 2020 to the most recent 7%. The dental practice market in Canada remains highly fragmented (93% of TAM is served by independent practices) and the potential for further consolidation is vast (see here and here). Similar dynamics have already played out in the US where DSO penetration stood at 3-4% a decade ago and is now at over 30%. The business of dental practices is quite stable and should be rather resistant to recession.

The setup here is surely intriguing. Although shares jumped after the announcement of interest in the company, DNTL currently trades at similar levels as during September and October and is also materially below its Sep’21 IPO (C$14/share) and Jan’22 secondary offering (C$16.30/share) prices. DNTL used the C$1bn IPO/secondary proceeds to significantly reduce leverage and continue the roll-up strategy. Pro-forma EBITDA has grown by 26% over the last year. The potential playbook for privatization could be to lever up DNTL to previous levels, accelerate acquisitions of smaller practices, and then spin the company again to the public markets several years later. DNTL is currently leaner, larger, and cheaper compared to its IPO – this should leave ample financial gains to be squeezed out for interested acquirers.

My main concern here is valuation. The business has grown rapidly through acquisitions over the last several years and currently sits at 12x pro-forma EBITDA (including incremental full-period EBITDA from acquisitions completed over the last year) and 11.7x adj LTM FCF. Management expects the company to double EBITDA over the next 4 years and have 140-plus deals in advanced stages of discussions. But, DNTL has to pay up close to 8xEBITDA for the private practices it puts under its belt whereas synergies and returns on investment are rather limited (from Q3’22 conf call):

“When we look at multiples, multiples for our single and maybe 2 to 3 location practices have been fairly consistent over the last 3 years in the high 7s, low 8s, as multiple of EBITDA. We will immediately increase that EBITDA by about 10% to 15% through cost reductions on the supply side, labor efficiencies driven by our technology stack and revenue growth in year 1 through our in-sourcing agenda. So we feel good. And we always relate back to can we drive sustained 15% plus returns on invested capital on an unlevered basis.”

There are no directly comparable public peers. Certain private industry transactions were done at higher multiples, such as US Oral Surgery Management (Nov’21, 14-15x LTM EBITDA), Affordable Care (Jun’21, 17x LTM EBITDA), however, these peers focused on higher margin dental surgery/implantation businesses as opposed to more standard dental care practices. Moreover, both of these peer transactions were done during the market peak last year and multiples have likely moved down since then.

L Catterton is a joint business between previous the Catterton and private equity operations of LVMH+Groupe Arnault. It focuses on consumer businesses and has substantial experience in dental clinics business globally. It has several other dental industry holdings outside NA including OdontoCompany (acquired in 2019, Brazil) and CareDent (2016, Italy). In 2017, the PE firm sold ClearChoice, a dental implant-focused practice network operator in the US.


Catalyst Bioscenes (CBIO) – Liquidation – 29% Upside
Catalyst Biosciences is a failed biopharma company in liquidation – although it’s a tiny nano-cap, the trading volume stands at a rather liquid $250k/day. The company has already sold its main development drug in May’22 and paid out a large $1.43/share special dividend in September (the setup was previously highlighted here and here). Management is now looking to sell the 3 remaining smaller assets. Meanwhile, the balance sheet is comprised of $23m cash ($0.73/share) and $5m receivable ($0.15/share) from the previous asset sale that will be paid by the end of May’23. Under the most recent management’s expectations as of Aug’22, the final liquidation proceeds should amount to $0.63/share, or a 29% upside from the current prices. The expected timeline of full liquidation and further distributions has not been provided yet but the liquidation will most likely stretch until at least mid’23 when the receivable is due. There are several aspects / risks worth considering:

  • The details on the $0.63/share estimated liquidation proceeds were very limited and no further updates on this have been shared by management over the last 5 months. On a positive side, management noted that distributions could be higher if the company manages to monetize the remaining assets.
  • The key risk here is further cash burn till the liquidation is completed. It remains to be seen to what levels the admin expenses have been cut after all the development programs have been suspended and employee count reduced to 6 persons. As of Q3’22 the cash buffer to management’s projected distributions stands $8m, whereas Q3 G&A expense was $4.4m – the expenses were likely elevated due to the proxy war/stockholder litigation that has now been concluded. G&A cash burn must drop much closer to $2m/quarter for management’s liquidation proceeds to be achievable. That definitely seems possible, however, the continuing silence from management adds a bit of unease. Investors will probably stay in the dark until Q4 results are released in March next year.
  • The activist, JEC II Associate, which had previously supported management’s liquidation plan, fully sold out of its 8% stake in September, a few days after the special $1.43/share dividend was paid out. Most of the shares were disposed at $0.52/share (vs $0.49/share current price). The reason for the sale has not been disclosed.



Evergreen Gaming Corporation (TNA.V) – Merger Arbitrage / Bidding War – Completed +25%
Evergreen Gaming Corporation was originally covered in September and delivered much juicier results than expected initially. House-banked card room operator TNA agreed to merge with larger peer Maverick Gaming. Consideration was US$0.55/share and 6.5% spread was there at the time of our initial highlight. This seemed to be a done deal with TNA insiders (78% ownership) in support of the merger. However, the offer seemed lowball compared to peers and similar industry transactions. On November 23, TNA received a competing proposal from another private peer TIL Gaming at US$0.605/share. Maverick Gaming promptly matched the bid and then raised it two more times to the final US$0.65/share. Due to this bidding war, the initial 6.5% arb spread idea delivered a total of 25% over 3 months.


26 thoughts on “SSI Weekly – Quick Pitches For SGA, DNTL.TO, CBIO”

  1. Saga Communications (SGA)
    “TTM FCF stands at $1.75/share (or $2.38/share if one-off $3.8m accrual related to the founder’s passing is excluded).”
    TTM Free Cash Flow from TIKR is $24.62m, or $4.07 on a per share basis (24.62m/6.05m shares outstanding).
    Would you please detail how you calculated $1.75/share and $2.38 per shares respectively.

    Assuming TTM FCF of $24.62m is accurate, would you forecast the same FCF for the forward 12 months? If so, taking the 70% of FCF as a dividend payout and the market cap of 136m (at 22-Dec-2022 with a share price of $22.51) it results in a forward dividend yield of 12.65%.

    Finally, did you (or anyone) find any information that would explain the ~9% drop yesterday (I haven’t thus far).


    • I used the FCF that SGA reports in its financials. I think they calculate it as adj. EBITDA less capex and, as I understand, that is what they will use to calculate the upcoming dividend. So for 9M’22 it was $6.7m + $3.9m in Q4’21 for a total of $10.6m ($1.75/share) or $14.4m ($2.38/share) when adjusted for the $3.8m accrual.

      As to Tikr’s FCF, in financials/cash flow statement section LTM FCF is reported at $13.49m (operating cash flow – capex). I think the FCF you’ve mentioned (shown in the valuation section) might be incorrect. It is calculated a bit differently but even with that method I still get LTM FCF around $13m.

      Regarding the sell-off, pretty brutal week, but haven’t seen any news or updates to cause this.

  2. There have been several Amended Statement of Ownership filings by Saga Communications in the past 2 weeks. Is anyone following those and can explain the context of these filings? Are they in any way meaningful?

    • The documents that you are referring to are simple regulatory updates. Institutional investors with 5%+ ownership need to file it annually within 45 days of the end of the year. You can see these reports were also filed by the same shareholders at the same time last year

  3. Is DNTL still in play? Just had a price alert because I prob liked it at these levels back when primarily posted – but is the story intact?

    • No updates have been made since the strategic review announcement in November. Hopefully management will provide more details in the upcoming Q4 earnings, set to be released on March 23.

  4. With SGA, I was reading a substack that rather flippantly suggested that the sale wasn’t going ahead and therefore they sold out of their position. However, I found no filings to confirm that the sales process has ceased.

    Can anyone confirm if the sales process has formally ended/been suspended etc.?


  5. On Saga: i dont think a sales process was ever run? They received an offer, rejected it, and that’s that. If there was a “sales process” it would have probably been mentioned – at least in passing – on the earnings call in March?

    Why do you think there is a process happening at all? Aside from this quick pitch’s author interpreting the announcement as a “we are for sale” sign (which may or may not be right) there isn’t much to go by, is there?

    • “Finished what I started last week and completely sold out of Saga Communications. Dissappointing trade overall, lost roughly 13% on this despite collecting 9% in divies. In hindsight I was too naive about the sales process rumors… Oh well, can’t win them all.”

      @Sven no, my clumsy wording came from my mimicking the words used in the substack article referred to above.

      Looking at the proxy, they have specifically stated accelerated exercisability of stock options etc. in the event of change in control. I’m not sure if that was also in last year’s proxy, but if it is a new addition that suggests they are attempting to incentive the sale etc.

  6. I have hopes Hoak might be able to make something happen at SGA. Excess cash could be used to boost returns with a special dividend or buyback.

    Returning another $25m + $11m of regular dividend out of $13m of expected profit this year, to shareholders, and valuing business at 12x FCF a year from now, would bring a 40% return here. With a small chance of a home run in an outright sale.

    The large dividend and the way the last bid was rejected, signals to me that Ed Christian estate is mainly interested in $$$. So Hoak should have their ear?

    • It’s possible and I hope you are correct. Given the current valuation, I’m happy to wait.

  7. SGA @ $22 looks juicy/good support, good time to get in if you missed it

  8. To be honest, it was rather uneventful. Nothing was mentioned about the strategic review or possible sale. Instead, management talked about potential M&A strategy and brushed off a question about initiating a buyback program. The company remains cheap, but the possibility of any short-term catalyst seems more distant now.

  9. Thanks for the quick reply. Is it accurate that we can expect $2+ dividend while waiting? Special dividend is a % of FCF I think.

    • Most likely not. The variable dividend is described as “70% of the preceding year’s annual Free Cash Flow, as reported in the Company’s fourth-quarter earnings release, net of acquisitions, special and quarterly dividends, debt paydowns and debt issuance costs, and stock buybacks.”

      Last year’s FCF was $10.5m, which is $1.715/share. The quarterly and special dividends alone last year were $4.86/share (due to two large special dividends of $2/share each). So it seems like there will be no variable dividend payment this year.

  10. DNTL seemed like a decent quarter – just getting hammered due to lack of deal talk? Maybe all holders are special sitters now.

  11. Closing out my optimism for an SGA variable dividend this year with Sam Bush’s (CFO) response to my question. Anyone interested in joining me on a call, feel free to email me [email protected].

    “There won’t be one declared this quarter. The variable dividend is declared, if applicable, once a year in the 2nd quarter based on the previous years actual results adjusted for dividends paid, stock buybacks, acquisitions, etc. Give that we declared two $2.00/share dividends last year in addition to our regular quarterly dividends more had been paid out than the variable formula would have called for. We declared aprox. $29.6 million in quarterly and special dividends in 2022. We will look at the variable dividend again 2nd quarter of next year based on our 2023 actual results and do the calculation again. I would be happy to walk thru the formula in more detail with you but probably better to do on the phone instead of thru email. Let me know if a call would help.”

  12. Following the release of the Q2 financial statements does anyone think SGA is still likely to be sold by year end?


    • Hi G,

      Yes, the situation is clearly not moving in that direction. The company remains rather cheap, however, I don’t see any short-term catalyst that would prompt the re-rate. Initiation of a material buyback program would be the most obvious catalyst at this point, as is always pointed out by analysts during the conf. calls. However, management seems to always find excuses and redirects the questions toward M&A opportunities. Meanwhile, it seems that accretive acquisitions are simply not feasible here in the current market.

      • Held SGA for a little bit, got a fat special div, sold it for about what I paid for it. The levered CMLS stub seems more interesting… some chance management is just stupid, but they sure seem convinced the thing is undervalued and are willing to deploy capital to that end. It will either work brilliantly or end in disaster, but that’s a lot more fun that having the mgmt team say, “well if we paid you out that cash we wouldn’t have it and if we sold out we wouldn’t have jobs.”


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