Aurelius is a German holding company that has a portfolio of companies across a wide range of sectors. They specialize in buying distressed businesses (some even have negative EBITDA margins) that others do not want. If you get a chance to meet with management, it is fun to hear some of the stories about how some of the distressed situations which allowed them to acquire a company materialized. When acquiring a company, Aurelius establishes a holding company as a special investment vehicle set up as a GmbH in Germany which minimizes the risk for Aurelius if something goes bad with the acquired company. In the event of a problem with an acquired company, the only significant loss to Aurelius comes from the loss of what they paid to acquire the company. The debt you see on the balance sheet is mostly held at the individual company level and is non-recourse to Aurelius. Aurelius can put a company it buys into bankruptcy or liquidation with no impairment to the holding company where most of the cash is held. After Aurelius acquires a business, it relies on its own employees to restructure it. You can read about all their businesses in their annual filings, so I will not write about them here. The only two businesses which are struggling right now are SECOP and Sit-up TV.
It is easy to overlook how cheap this company is trading if you do not read the footnotes carefully. The reason for this is because around $60 million of the debt that you see is owed in earn-outs only if the SECOP business does well. As I mentioned above, SECOP is performing poorly so the earn-outs have not been earned. This means that around $60 million of debt does not really exist. I expect the company to do $90 million in EBITDA in 2011 and at least $100 million in 2012. The way I look at EV/EBITDA is:
Stock Price: 32.92
Shares Outstanding: 9.6
Market Cap: 316
Financial liabilities – non-current (Strip out SECOP Earnouts): 95.8
Pension Obligations – non-current: 34.4
Pension Obligations –current: 1.2
Financial Liabilities – current 56.8
HanseYacht Acquisition: 20.7
Wellman Sale: -42
EBITDA Estimate 2012: 100
In buying Aurelius, you are making a bet on management. I have personally met with Dr. Markus and have great confidence in him to continue buying cheap companies and turning them around. I know that some complain that European companies are hard to deal with and not always shareholder friendly, but I have found management very receptive to answering our questions. Dr. Markus also controls over 30% of the stock, so he is greatly incentivized to create value. With the large amount of cash Aurelius has on hand, management is going to get numerous shots on goal, and I have high confidence Aurelius will be successful in scoring on a lot of those shots.
Recognition of uniquie business model and asymmetric risk from non-recourse subsidiaries