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Concentrix Insiders Buying After Announcing a Mega Merger – Insider Weekends

  • July 9, 2023

Over the past few weeks, as companies get ready to report earnings for Q2 2023, we’ve seen insider purchases slow down and enter a “quiet period.” As a result, we dig deeper and sometimes go beyond the top five insider purchases and sales to find interesting opportunities. This was on of those weeks where we found the customer experience (CX) oriented company, Concentrix Corporation (CNXC) interesting because both an EVP and a Director recently purchased shares.

On the selling side it was interesting to see a cluster of insiders of Coinbase (COIN), including the CEO and Chief Legal Officer, continue selling shares. Given the regulatory issues the cryptocurrency brokerage is facing, I would have expected them to take a break from selling under their established 10b5-1 plans but that was not the case.

Getting back to Concentrix, the company offers a wide range of services and solutions to augment the customer experience (CX) as a whole. Concentrix has managed to expand to all parts of the CX process: designing, building, and running the product – and this is what has solidified the company’s position as one of the largest CX outsourcers in the world.

Concentrix was acquired by the Synnex Corporation (SNX) in 2008 – an IT distribution company which is now known as TD Synnex following Synnex’s merger with Tech Data in September 2021. In the period in which Concentrix was being incubated within Synnex, the company acquired IBM’s CX division in addition to the customer managemnted business Convergys.

On December 1st, 2020, Concentrix was spun out of Synnex and went public with shares priced at $80 each, with shareholders of Synnex receiving one share of Concentrix for every share of Synnex that they owned. By 2022, Concentrix’s stock had run up to over $200 a share, but recently dropped back down to its IPO price, sitting at $82.90 a share as of July 7, 2023.

Part of this sharp drop can be attributed to the difficult market conditions faced especially by companies in the tech sector throughout 2022. The other reasons for the big drop in the stock include tepid revenue guidance for 2023 and the company announcing a merger with Webhelp, a CX company headquartered in Paris. When the transaction closes, shareholders of Concentrix will own roughly 78% of the combined company.

More often than not, large transformative acquisitions leave the parent company with a lot debt and expected synergies are not realized. Hence the word “diworsification”, attributed to Peter Lynch, comes to mind. When NortonLifelock decided to pay $8.1 billion to acquire Europe based Avast, I decided to exit the position in both the InsideArbitrage model portfolio and my personal portfolio. The company, now called Gen Digital (GEN) is down more than 16% year-to-date, despite a big rally in tech stocks.

In a deal valued at around $4.8 billion (including net debt), the merger of Concentrix with Webhelp is meant to help the combined company expand further into the CX market, especially considering that Webhelp has a strong presence in Europe, Latin America, and Africa. Concentrix’s consumer base would expand to more than 2,000 clients, in addition to generating more revenue for the company. The deal is structured as a cash plus stock deal and considering how much Concentrix’s stock has dropped since the deal was announced, the deal value has dropped by almost $600 million. There is also a clause in the deal that gives Webhelp shareholders an additional 750,000 shares of Concentrix if the stock price reaches $170, within seven years after the closing of the deal.

The primary concern is how leveraged this deal would leave Concentrix’s balance sheet, which already has nearly $2 billion of net debt. Concentrix’s market cap is only $4.32 billion. Nevertheless, as reported in the results for Concentrix’s second quarter of 2023 (ended on May 31st, 2023) – over the last twelve months, Concentrix managed to generate $484.93 million in free cash flow. Furthermore, most of Concentrix’s cash has been going into paying off its debt, as seen in the graph below:

Concentrix uses much of its cash to pay off debt
Use of Cash by Concentrix (Factset data)

Concentrix has also managed to return value to its shareholders through both a dividend and a share repurchase program. The  dividend is quite low at $0.28 per share (on a quarterly basis) and the dividend yield is 1.30%. The company slowed down its share repurchases after announcing the Webhelp deal but expects to resume repurchases again under an existing authorization, primarily to offset dilution from the deal.

My initial reaction to the deal was that this is not going to be accretive and will be another case of diworsification. However as I looked at how much faster Webhelp is growing and that Concentrix’s own growth has slowed to the low single digits, the deal at about 8 times expected Webhelp EBITDA started to make more sense.

Concentrix trades at a forward EV/EBITDA of just 6.26. I have not modeled the combined company but based on management commentary during the last earnings conference call, it appears that the combined company will grow revenue in the mid-single digit range and will likely trade below 10 times EBITDA. While not entirely exciting, I can see why the insiders are buying, especially if they feel the merger is going to be transformative and that the market is significantly discounting the success of the merger. I have added Concentrix to my watchlist and plan to monitor the company for now.

Welcome to edition 689 of Insider Weekends. Insider buying decreased significantly last week with insiders purchasing $10.34 million of stock compared to $61.7 million in the week prior. Selling also declined significantly to $600.5 million compared to $1.52 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 the total insider purchases that week. The adjusted ratio for last week went up to 58.1. In other words, insiders sold more than 58 times as much stock as they purchased. This week, the Sell/Buy ratio was unfavorable, compared to the prior week when the ratio stood at 24.56.

Notable Insider Buys:

1. The Children’s Place, Inc. (PLCE): $26.45

President and CEO Jane T. Elfers acquired 43,000 shares of this apparel retail company, paying $23.70 per share for a total amount of $1.1 million. Ms. Elfers increased her stake by 13.15% to 370,033 shares with this purchase.

You can view the list of recent insider transactions for The Children’s Place, Inc. here.

P/E: N/AForward P/E: 7.17Industry P/E: 16.39
P/S: 0.2Price/Book: 2.61EV/EBITDA: 111.83
Market Cap: $330.01MAvg. Daily Volume: 873,16152 Week Range: $14.27 – $57

2. The Simply Good Foods Company (SMPL): $36.53

President and COO Geoff E. Tanner acquired 6,850 shares of this packaged foods company, paying $36.61 per share for a total amount of $250,758. Mr. Tanner increased his stake by 25.45% to 33,762 shares with this purchase.

You can view the list of recent insider transactions for The Simply Good Foods Company here.

P/E: 27.06Forward P/E: 20.07Industry P/E: 22.27
P/S: 3.04Price/Book: 2.38EV/EBITDA: 18.4
Market Cap: $3.64BAvg. Daily Volume: 616,55352 Week Range: $29.21 – $40.155

3. Upexi, Inc. (UPXI): $2.175

Chief Executive Officer Allan Marshall acquired 79,945 shares of this personal care products company, paying $2.36 per share for a total amount of $188,783. Mr. Marshall increased his stake by 3.06% to 2,690,803 shares with this purchase.

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

P/E: N/AForward P/E: -10.88Industry P/E: 22.27
P/S: 0.42Price/Book: 1.06EV/EBITDA: 176.67
Market Cap: $39.36MAvg. Daily Volume: 83,94652 Week Range: $2.04 – $6.08

4. Walgreens Boots Alliance, Inc. (WBA): $29.1

EVP, President U.S. Healthcare John Patrick Driscoll acquired 5,172 shares of this pharmacy-led health and wellbeing company, paying $28.42 per share for a total amount of $146,984. Mr. Driscoll increased his stake by 9.60% to 59,050 shares with this purchase.

You can view the list of recent insider transactions for Walgreens Boots Alliance, Inc. here.

P/E: N/AForward P/E: 7.33Industry P/E: 22.27
P/S: 0.18Price/Book: 1.19EV/EBITDA: 24.52
Market Cap: $25.12BAvg. Daily Volume: 8,429,98552 Week Range: $28.14 – $42.29

5. Tellurian Inc. (TELL): $1.43

Director Jonathan S. Gross acquired 100,000 shares of this natural gas company, paying $1.38 per share for a total amount of $138,000. These shares were purchased indirectly through a trust.

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

P/E: N/AForward P/E: -3.4Industry P/E: 7.11
P/S: 2.72Price/Book: 1.25EV/EBITDA: 19.95
Market Cap: $804.82MAvg. Daily Volume: 9,709,65052 Week Range: $0.94 – $4.89

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

Notable Insider Sales:

1. Netflix, Inc. (NFLX): $438.1

Shares of Netflix were sold by 3 insiders:

  • Director Jay C. Hoag sold 46,057 shares for $450.15, generating $20.73 million from the sale. These shares were sold indirectly through a trust.
  • Executive Chairman Reed Hastings sold 23,415 shares for $436.92, generating $10.23 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
  • Director Timothy M. Haley sold 1,022 shares for $450.19, generating $460,098 from the sale. These shares were sold as a result of exercising options immediately prior to the sale.

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

P/E: 46.21Forward P/E: 30.42Industry P/E: 18.43
P/S: 6.1Price/Book: 8.92EV/EBITDA: 36.2
Market Cap: $194.75BAvg. Daily Volume: 6,835,65852 Week Range: $169.7 – $450.97

2. Joby Aviation, Inc. (JOBY): $9.54

Shares of this vertically integrated air mobility company were sold by 3 insiders:

  • CEO and Chief Architect Joeben Bevirt sold 1,153,394 shares for $10.68, generating $12.32 million from the sale. These shares were sold indirectly through a trust.
  • Head of Aircraft OEM Didier Papadopoulos sold 83,897 shares for $10.59, generating $888,484 from the sale.
  • Head of Government & Regulatory Affairs Gregory Bowles sold 20,000 shares for $11.00, generating $220,000 from the sale. These shares were sold as a result of exercising options immediately prior to the sale.

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

P/E: N/AForward P/E: -14.91Industry P/E: 19.32
P/S: N/APrice/Book: 5.62EV/EBITDA: -13.16
Market Cap: $6.46BAvg. Daily Volume: 8,150,03852 Week Range: $3.15 – $11.98

3. Axon Enterprise, Inc. (AXON): $188.1

Shares of this defense weapons and body camera company were sold by 2 insiders:

  • President Joshua Isner sold 26,883 shares for $193.10, generating $5.19 million from the sale.
  • CPO & CTO Jeffrey C. Kunins sold 22,900 shares for $193.12, generating $4.42 million from the sale.

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

P/E: 102.79Forward P/E: 50.84Industry P/E: 19.32
P/S: 10.89Price/Book: 9.9EV/EBITDA: 112.98
Market Cap: $13.9BAvg. Daily Volume: 1,156,69552 Week Range: $88.61 – $229.95

4. Airbnb, Inc. (ABNB): $130.32

Shares of Airbnb were sold by 3 insiders:

  • CEO and Chairman Brian Chesky sold 30,000 shares for $132.47, generating $3.97 million from the sale.
  • Chief Technology Officer Aristotle N. Balogh sold 25,500 shares for $132.32, generating $3.37 million from the sale. 20,000 of these shares were sold as a result of exercising options immediately prior to the sale.
  • Chief Financial Officer Dave Stephenson sold 4,919 shares for $129.28, generating $635,928 from the sale.

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

P/E: 42.59Forward P/E: 35.9Industry P/E: 16.39
P/S: 9.43Price/Book: 15.52EV/EBITDA: 38.3
Market Cap: $82.13BAvg. Daily Volume: 6,324,25652 Week Range: $81.91 – $144.63

5. Blackstone Inc. (BX): $91.91

Director Joseph Baratta sold 85,000 shares of this asset management company for $93.08, generating $7.91 million from the sale.

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

P/E: 114.89Forward P/E: 15.34Industry P/E: 9.05
P/S: 25.91Price/Book: 9.24EV/EBITDA: N/A
Market Cap: $110.44BAvg. Daily Volume: 3,783,47752 Week Range: $71.72 – $110.9

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:  I hold a long position in Netflix. 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.