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Contest: Which Fairfax Private Companies Are Going Public?


Parsad
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I was listening to the 3rd Q conference call, and Prem made an interesting statement regarding monetizing assets within Fairfax, including taking public certain private businesses within Fairfax in 2021.  What businesses do you think he was referring to and what type of valuation do you expect? 

 

The closest three guesses...both company and valuation...will each win a gift basket prize next year.  The winners will be selected based on net value they expect from the transaction and getting correct which private business...myself and two other moderators will pick the winners.

 

Selection(s) need to be posted before December 31st, 2020, and the winners will be announced at the end of Q2 2021.

 

Cheers!

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My guess is no Fairfax sub will have gone public by Q2 2021.

 

Hey, that's worth a prize too if you are right.  ;D  Cheers!

 

I'm either going to be exactly right or 100% wrong, which is an excellent position to take for a contest! ;)

 

I think a late 2021 IPO of Anchorage, the Bangalore Airport holdco is likely, but that's FIH not FFH...

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Maybe Farmers Edge

 

 

Given that Farmers Edge has been losing money, so it's a bit of a shit-cake I'd be a bit surprised if it were IPO'd on its own.  But in the Michael Lewis tradition, FFH could put some icing on the shit-cake by merging Farmers Edge and AGT into a single agri-food technology and marketing company, and then doing an IPO.

 

 

SJ

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Tech companies that lose money are a winning combo at the moment!

 

My guesses would be Farmer’s Edge, Quantum, and what I will call Retail Crapco, a Frankenstein entity with all their retail assets. Total market cap about $1bn. *Wild guess*

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The comment was made in his prepared remarks and not something blurted out during Q&A session by accident.

Therefore, he is either teasing his audience or there is something in the pipeline, and given the recent divestures probably the latter.

 

FFH doesn't have any entity on its own balance sheet (except for its insurance subs). (i.e. unlike Onex that has gluskin sheff)

 

If the intent is to "free up capital" at holding level, than the excerise is largely futile, given that today the money, for the purpose to invest in the hard market, is directionally going from hold-co to the insurance entities that own various bits of the far-flung portfolio. Unless perhaps the capital that is being freed at the portfolio is way more than their needs to investment in the subs + the cost of annual dividend at FFH-level, so that the rest can be dividend back from the subs to the hold-co. while still being able to re-invest in the subs (i.e. changing the direction of net fund flow to hold-co so that it could cover its $300 million dividend)

 

With that in mind, the target needs either (1) be something that he wants to get rid of at a good price. However, the world is not fair and there is no marketability for rubbish at a good price. Or (2) he needs to monetize something that he does't want to sell but get a good price instead. That should help narrow down the list.

 

If the monetization is from camp (1) with limited marketability, there would be a BV driven solution as oppose to a hard cash solution in camp (2). 

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Lol retail crapco. Think they'll name it that?

 

In going out to left field - My vote goes to a minority interest in one of the larger insurers who have consistently done well YOY.  Similiar to what they did early in early 2000s with Lombard I believe. I could be off but I believe this was done years ago and then later bought back

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Lol retail crapco. Think they'll name it that?

 

In going out to left field - My vote goes to a minority interest in one of the larger insurers who have consistently done well YOY.  Similiar to what they did early in early 2000s with Lombard I believe. I could be off but I believe this was done years ago and then later bought back

 

It was done with Odyssey but under duress and I can’t think why they’d do it now. The point is to monetise investments.

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Petec

What private asset on holding company B/S are you thinking of :

 

I am seeing cash + some receivables as shown on page 3 of Q3 results showing the consolidated B/S.

everything else rolls up under $39 billion as shown as “portfolio investments”

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No indication of the price ? Should we assume it's a small book that was sold?

 

Wasn't Scott the man Prem mentioned is leading the Fairfax worldwide initiative?  I asumed by the language in that press release that he is leaving FFH altogether.  He may have had a required time to stay after the  acquisition of allied so maybe his time was up but he seemed like someone they wanted to keep to run their global platform.

 

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^Vault is quite small but potentially promising.

 

It's a niche reciprocal insurance entity formed in 1997 that is in a start-up mode. At end of 2018, it had earned premiums of 2.3m and capital surplus of 47.9m, funded by surplus notes (Allied World participating, majority 80% control). It looks like it was aiming to expand in the US.

 

This is inferred indirectly but Mr. Carmilani perhaps wanted a challenge to build from scratch. Talent leaving can be concerning but there may be valid personal reasons.

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Wasn't Scott the man Prem mentioned is leading the Fairfax worldwide initiative?  I asumed by the language in that press release that he is leaving FFH altogether.  He may have had a required time to stay after the  acquisition of allied so maybe his time was up but he seemed like someone they wanted to keep to run their global platform.

 

I got the sense he was meant to be a Fairfax lifer and possibly Bernard’s heir apparent, so this is a blow.

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Wasn't Scott the man Prem mentioned is leading the Fairfax worldwide initiative?  I asumed by the language in that press release that he is leaving FFH altogether.  He may have had a required time to stay after the  acquisition of allied so maybe his time was up but he seemed like someone they wanted to keep to run their global platform.

 

I got the sense he was meant to be a Fairfax lifer and possibly Bernard’s heir apparent, so this is a blow.

 

 

I would not automatically assume that this is a blow or a loss.  Situations change within companies all of the time.  It is sometimes the case that rising stars lose their shine and become problem employees -- too good to fire outright, but not the right fit to promote.  In those cases, organizations struggle to push them out and move forward. 

 

This is the second instance in less than a year where senior people who were seemingly leadership material have left through the side-door, with a little assistance from FFH (Paul Rivett and now Scott Carmialani).  My curiosity is piqued about why they have both left through the side door.  What the hell is going on at FFH that the company is facilitating the departure of its executives?  In the end, if there is some irreconcilable conflict between the execs and Prem, then they absolutely need to go and their departure should not be viewed as a loss.  But, we should ask why this is occurring?  Is it just chance (fooled by randomness) or is there something else going on that is unhealthy within the outfit?

 

 

SJ

 

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Not unhealthy from the outside from where i am sitting, but in someways, i see Prem taking a big chunk of the stock in summer, as a validation that Fairfax is him, and he is Fairfax and he is going to right the ship and that it will be his strategy.

 

I don't see him buying the stock that big (no matter how under valued it was) if other 'rising star(s)' was slowly taking over the going forward corporate strategy.

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https://www.insurancebusinessmag.com/ca/news/breaking-news/fairfax-financial-and-allied-world-to-offload-stake-in-vault-238990.aspx

 

"Following the transaction, Vault co-founder and former Allied World Assurance Company Holdings chairman & CEO Scott Carmilani will continue to serve as chairman of Vault’s board. Vault’s leadership team will continue to operate under the guidance of co-founder and CEO Charles Williamson.

 

"The market demand for premium personal insurance is growing rapidly," said Carmilani.

 

Carmilani commented that there are more than 12 million US households in Vault’s target market, up from 6.8 million in 2009. He also said that nearly 80% of those households do not currently utilize the services of a high net worth insurance specialist – this presents Vault with a large market, the co-founder noted.

 

“With the investment by Cornell Capital and HSCM, we see significant growth potential for Vault in the underserved high net worth insurance market,” Carmilani prefaced.

 

"I'm extremely confident in Vault's future and the balance-sheet flexibility this transaction provides," said Williamson.

 

"Our team brings significant experience partnering with and growing leading insurance companies, and we look forward to working closely with Scott, Charles, and the Vault team to execute on our shared vision for continued growth,” stated Cornell Capital founder and senior partner Henry Cornell.

 

"We were a founding investor in Vault, and our additional investment is a testament to our confidence in the Company's business model," added HSCM founder and managing partner Michael Millette."

 

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Not going public but monetizing assets

 

Canada’s biggest patent holder, BlackBerry Ltd., is looking to unload most of its intellectual property in a deal that could mark another turning point for the fallen former smartphone giant.

 

 

Recuperating some capital from BB would be excellent news, indeed.  The capital has been tied up for what, 7 or 8 years now?

 

Interestingly, BB shares have been edging up since the vaccine announcement of last week.  The renegotiated debs are not yet in-the-money, but at least there is some prospect that they might head there during 2021.  Starting from today's price, a doubling of the BB share price would take some sting out of the equity investment and it would obtain a nice return on the debs.  A tripling of the share price would get the investment up to the status of mediocre.

 

It would be nice to have a favourable exit from this one during 2021...

 

 

SJ

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