Insider Weekends: A SOTP Opportunity With Insider Buying

  • November 27, 2022

Founded by Barry Diller (former CEO of Paramount Pictures (PARA) and 20th Century Fox, and currently on Coca-Cola’s (KO) Board of Directors) in August 1995, IAC Interactive (IAC) is a well-known sum-of-the-parts (SOTP) opportunity. We’ve written about SOTP opportunities in the past, including our April 2022 Mid-Month Update where we said:

You don’t hear a lot about sum-of-the-parts (SOTP) opportunities these days because it is both difficult to come across companies that are selling at a discount to their component parts and more importantly there may not be a clear catalyst to realize value through the narrowing of that discount. For investors that look at SOTP opportunities, a few situations from the past that come to mind include,

  • Yahoo (or later Altaba after Verizon acquired the operating assets) with its significant stake in Alibaba (BABA). Investors that invested in Yahoo for the SOTP opportunity ended up doing very well but it took a long time for the thesis to play out and there were several management missteps along the way.

  • IAC Interactive (IAC) with its numerous spin-offs including the very successful separation from dating websites operator Match Group (MTCH) in July 2020, the recent spin-off of video streaming company Vimeo (VMEO) and a plethora of prior spinoffs like LendingTree, Ticketmaster, etc. The company still holds a position in peer-to-peer car rental company Turo.

  • Sears Holdings with its various divisions and companies that were either sold or spun-off including Orchard Supply Hardware, a REIT spinoff through Seritage Growth Properties (SRG), the spin-off of its apparel brand Lands’ End (LE) and the sale of their Crafstman brand to Stanley Black & Decker.

As mentioned in the April Mid-Month update, IAC Interactive has had numerous brands under its umbrella, ranging from Ticketmaster in 1998 to Expedia in 2003. Since then, IAC has successfully spun out many of these businesses, ushering in a new era for the company – centered around the publisher Dotdash Meredith (which owns magazines like People and websites like Investopedia), the search engine Ask.com, and family care provider Care.com.

IAC also has,

  • an 85% stake in Angi (ANGI) (formerly Angie’s List, a website to find professionals and services for various home projects),
  • an existing 27% stake in the car-sharing platform Turo (and warrants to purchase an additional 10% of the company), and
  • a 15% stake in MGM Resorts International (MGM).

Turo is the world’s largest car-sharing marketplace with over 2.3 million active users and MGM is the largest operator on resort casinos on the Las Vegas Strip. IAC is MGM Resorts’ largest shareholder.

However, as mentioned by current CEO Joey Levin in the Q3 2022 Shareholder Letter, IAC has made some significant “missteps” recently, specifically with Angi and Dotdash Meredith. Mr. Levin actually took control of Angi himself, becoming the fourth CEO the company in the past five years. Mr. Levin describes poor results for Angi being attributed to the consolidation of Angie’s List and HomeAdvisor into one brand, as well as the burning of capital due to it being spread too thin on nonfundamental aspects of the business. Similarly, Dotdash Meredith has also experienced issues with site migration, due to the sheer size of Meredith before it was acquired by Dotdash. The recent downturn in advertising has resulted in three straight quarters of revenue declines.

Recent IAC spinoffs haven’t exactly performed the way their predecessors did. While the dating website operator Match Group (MTCH) did successfully separate from IAC, the video hosting and sharing company Vimeo (VMEO) has lost over 90% of its value from when it was spun out of IAC.

The SOTP opportunity Cannae Holdings (CNNE), discussed in our April Mid-Month Update, came to our attention due to insider purchases. Similar, IAC also showed up on our radar after recent insider purchases by Director Michael D. Eisner. Mr. Eisner was the president of Paramount Pictures (PARA) from 1976 to 1984, as well as the chairman and CEO of The Walt Disney Company (DIS) from 1984 to 2005. Mr. Eisner met Mr. Diller (who currently serves as Chairman and Senior Executive at IAC) when working at ABC, and followed him to Paramount Pictures, eventually joining IAC’s Board of Directors in 2011.

We wrote the following about the intricacies and difficulties in valuing a sum-of-the-parts company:

Analyzing SOTP opportunities can be time consuming as you have to determine the various components, what they might be worth in public or private markets and ascertain the likelihood of unlocking value through spin-offs or sales. Even if management were to sell a division, are they likely to be good stewards of that capital or send the proceeds to shareholders as a special dividend. 

In page 8 of his latest shareholder letter, IAC’s CEO hints at how undervalued IAC’s various businesses are once you adjust for its stakes in publicly traded companies Angi and MGM Resorts as you can see from the table below.

IAC Sum Of The Parts

An enterprise value of $1.2 billion gives investors access to IAC’s stake in Turo and various other assets including Dotdash Meredith and Care.com. An independent Director that has served on the Board for over a decade buying stock is also another positive. However the fact that SOTP situations take a long time to play out and our exposure to another SOTP opportunity, Cannae, gives me pause. Cannae is almost flat with a 1% drop since we purchased it for the model portfolio in April, outperforming the 8% decline in the S&P 500 since then. I’ll continue to monitor IAC to see if it could become a candidate for one of our spotlight ideas and find its way into the model portfolio.

Welcome to edition 648 of Insider Weekends. Insider buying decreased last week with insiders purchasing $134.22 million of stock compared to $225.22 million in the week prior. Selling also decreased to $1.13 billion compared to $3.66 billion in the week prior.

Sell/Buy Ratio: The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by total insider purchases that week. The adjusted ratio for last week dropped to 8.45. In other words, insiders sold more than 8 times as much stock as they purchased. The Sell/Buy ratio this week was favorable compared to the prior week when the ratio stood at 16.

Notable Insider Buys:

1. Ryan Specialty Holdings, Inc. (RYAN): $39.33

Chief Executive Officer Patrick G. Ryan acquired 1,130,599 shares of this specialty insurance company, paying $38.30 per share for a total amount of $43.29 million. These shares were purchased indirectly through a trust.

You can view the list of recent insider transactions for Ryan Specialty Holdings, Inc. here.

P/E: 85.5 Forward P/E: 29.35 Industry P/E: 11.46
P/S: 6.16 Price/Book: 9.97 EV/EBITDA: 14.32
Market Cap: $10.24B Avg. Daily Volume: 823,907 52 Week Range: $32.13 – $46.4

2. Energy Transfer LP (ET): $12.36

Executive Chairman Kelcy L. Warren acquired 500,000 units of this oil & gas pipelines and storage company, paying $12.36 per unit for a total amount of $6.18 million. Mr. Warren increased his stake by 0.93% to 54,278,477 shares with this purchase.

You can view the list of recent insider transactions for Energy Transfer LP here.

P/E: 9.22 Forward P/E: 7.77 Industry P/E: 8.88
P/S: 0.43 Price/Book: 1.43 EV/EBITDA: 8.3
Market Cap: $38.17B Avg. Daily Volume: 18,852,817 52 Week Range: $7.96 – $12.95

3. IAC Inc. (IAC): $47.91

Director Michael D. Eisner acquired 106,241 shares of this holding company, paying $47.13 per share for a total amount of $5.01 million. Mr. Eisner increased his stake by 208.96% to 157,084 shares with this purchase.

You can view the list of recent insider transactions for IAC Inc. here.

P/E: 177.44 Forward P/E: -22.08 Industry P/E: 17.26
P/S: 0.83 Price/Book: 0.72 EV/EBITDA: 31.77
Market Cap: $4.26B Avg. Daily Volume: 1,112,488 52 Week Range: $43.8 – $140.77

4. Element Solutions Inc (ESI): $19.45

Director Martin E. Franklin acquired 135,000 shares of this specialty chemicals company, paying $18.90 per share for a total amount of $2.55 million. These shares were purchased indirectly by a charitable foundation.

You can view the list of recent insider transactions for Element Solutions Inc here.

P/E: 26.28 Forward P/E: 13.7 Industry P/E: 12.11
P/S: 1.8 Price/Book: 2.06 EV/EBITDA: 12.44
Market Cap: $4.71B Avg. Daily Volume: 1,367,895 52 Week Range: $15.31 – $25.26

5. Carvana Co. (CVNA): $7.97

Shares of this auto dealer were acquired by 2 insiders:

  • Chief Product Officer Daniel J. Gill acquired 133,000 shares, paying $7.62 per share for a total amount of $1.01 million. Mr. Gill increased his stake by 101.98% to 263,415 shares with this purchase.
  • President, Special Projects Thomas Taira acquired 35,000 shares, paying $6.86 per share for a total amount of $240,100. Mr. Taira increased his stake by 82.32% to 77,518 shares with this purchase.

You can view the list of recent insider transactions for Carvana Co. here.

P/E: N/A Forward P/E: -1.08 Industry P/E: 13.30
P/S: 0.1 Price/Book: 3.08 EV/EBITDA: -9.11
Market Cap: $1.42B Avg. Daily Volume: 14,654,750 52 Week Range: $6.5 – $296.7

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. Rollins, Inc. (ROL): $39.99

Chairman CEO Gary W. Rollins sold 7,750,000 shares of this pest and wildlife control services provider for $39.62, generating $307.05 million from the sale. These shares were sold indirectly by LOR, Inc.

You can view the list of recent insider transactions for Rollins, Inc. here.

P/E: 57.13 Forward P/E: 48.18 Industry P/E: 19.68
P/S: 7.47 Price/Book: 16.46 EV/EBITDA: 35.86
Market Cap: $19.69B Avg. Daily Volume: 1,447,306 52 Week Range: $28.51 – $43.06

2. BlackRock, Inc. (BLK): $737.78

Chairman and CEO Laurence Fink sold 40,960 shares of this asset management company for $732.25, generating $29.99 million from the sale.

You can view the list of recent insider transactions for BlackRock, Inc. here.

P/E: 20.32 Forward P/E: 21.94 Industry P/E: 11.46
P/S: 5.94 Price/Book: 2.99 EV/EBITDA: 15.32
Market Cap: $110.81B Avg. Daily Volume: 850,242 52 Week Range: $503.12 – $934.76

3. PTC Inc. (PTC): $124.63

Shares of this software and services company were sold by 2 insiders:

  • Director Blake D. Moret sold 174,000 shares for $123.40, generating $21.47 million from the sale. These shares were sold indirectly by Rockwell Automation, Inc.
  • President, Digital Thread Michael Ditullio sold 15,085 shares for $123.55, generating $1.86 million from the sale.

You can view the list of recent insider transactions for PTC Inc. here.

P/E: 47.21 Forward P/E: 23.38 Industry P/E: 23.73
P/S: 7.57 Price/Book: 6.38 EV/EBITDA: 28.37
Market Cap: $14.64B Avg. Daily Volume: 840,642 52 Week Range: $96.55 – $133.14

4. Catalyst Pharmaceuticals, Inc. (CPRX): $16.97

Shares of this commercial-stage biopharmaceutical company were sold by 4 insiders:

  • President and CEO Patrick J. McEnany sold 500,000 shares for $15.53, generating $7.77 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
  • VP, Treasurer and CFO Alicia Grande sold 120,000 shares for $16.53, generating $1.98 million from the sale.
  • Chief Operating Officer Steve Miller sold 100,000 shares for $15.69, generating $1.57 million from the sale.
  • Director Philip H. Coelho sold 100,000 shares for $15.87, generating $1.59 million from the sale.

You can view the list of recent insider transactions for Catalyst Pharmaceuticals, Inc. here.

P/E: 28.76 Forward P/E: 19.28 Industry P/E: 25.54
P/S: 9.21 Price/Book: 6.54 EV/EBITDA: 18.01
Market Cap: $1.77B Avg. Daily Volume: 3,223,125 52 Week Range: $5.24 – $17.76

5. The Charles Schwab Corporation (SCHW): $81.61

Co-Chairman Charles R. Schwab sold 132,050 shares of Charles Schwab for $79.66, generating $10.52 million from the sale. These shares were sold indirectly by a trust.

You can view the list of recent insider transactions for The Charles Schwab Corporation here.

P/E: 24.73 Forward P/E: 16.79 Industry P/E: 11.46
P/S: 7.65 Price/Book: 5.73 EV/EBITDA: N/A
Market Cap: $152.34B Avg. Daily Volume: 7,640,333 52 Week Range: $59.35 – $96.24

You can view the full list of sales from this Insider Sales page.

The list of all insider purchases and sales by management people is only available to InsideArbitrage Premium and Plus members.

Disclaimer: Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.