DALLAS, TX / ACCESSWIRE / March 9, 2018 / Safeguard Scientifics, Inc. (NYSE: SFE).
COMPANY DESCRIPTION
Safeguard Scientifics, Inc. (NYSE: SFE) is a publicly traded private equity and venture capital firm that provides growth capital to early stage businesses. Safeguard has a noted track record of cultivating innovation and building market leaders that spans more than six decades. Safeguard provides the relevant expertise and capital to fuel the growth of technology-driven businesses in financial services, digital media, and healthcare. Safeguard targets companies that utilize the next wave of enabling technologies with a particular focus on the Internet of Everything, enhanced security, and predictive analytics. Safeguard is a proven partner for entrepreneurs looking to accelerate growth and build long-term value in their businesses.
SAFEGUARD ANNOUNCES CHANGE IN STRATEGY AND OPERATIONS
Safeguard Scientifics' Board of Directors and management announced their decision to change the Company's overall strategy and direction. Following extensive review and consideration of all options to increase shareholder value Safeguard will be implementing several significant changes going forward.
First, Safeguard will no longer deploy capital into any new prospective portfolio companies. Safeguard is going to exclusively focus on supporting current existing partner companies and maximizing monetization opportunities with the end goal of distributing net proceeds of exits to shareholders after satisfying the upcoming debt obligations and various working capital requirements.
Safeguard will explore different avenues to exit partner companies including the sale of individual companies, the sale of certain interests in secondary market transactions, combinations of the two and other options.
In addition to the other initiatives, Safeguard announced it will be instituting cost saving efforts to save between $5 and $6 million annually. These savings represent changes in Safeguard's personnel and operating cost requirements under the new strategy. Stephen Zarrilli, President and CEO, believes that Safeguard will also "realize additional savings over time as assets are monetized and resource needs are further decreased."
Corporate expenses were $16 million (excluding interest, depreciation, and stock-based compensation) in 2017, so this initiative represents an effort to reduce expenses by between 31% and 37.5%. The Company announced that the shift in strategy will result in the termination of certain employees. Thus, Safeguard expects to recognize a charge of $1.3 million in the first quarter of 2018 in connection to the terminations. The $1.3 million will likely be paid out in cash over the next year.
With all things considered, these operational changes should be beneficial to shareholders and help to close the gap between Safeguard's stock price and true underlying value. As Safeguard begins to liquidate their portfolio holdings (which we estimate will be completed in roughly 36-60 months), the exits should serve as a catalyst to narrow the discount to the Company's true NAV, representing significant upside from the Company's current valuation.
To gain a clearer view of the potential impact on Safeguard's valuation, in Exhibit 1 (on page 4), we have provided three scenarios, applying multiples of 1.8x, 2.0x and 2.0x (adjusted) the Company's initial purchase price of its portfolio positions resulting in potential cash-on-cash returns from position exits. Using a conservative discount rate of 20% and estimating exit dates for each partner company based on their revenue stage and other news, we derived a net present value for each portfolio Company. For one of the Company's "high-traction" revenue stage companies (MediaMath), we adjusted the multiple to estimate their potential near-term exit multiple more accurately. It should be noted that Transactis also received an increased multiple, in light of their past financing coming at a 2x valuation of initial investment. Syapse and Spongecell both received adjusted multiples, as well, due to an up-round financing and a positive merger, respectively.
The full report can be accessed by clicking the following link:
http://www.stonegateinc.com/reports/SFE_4Q17_update_FINAL2.pdf
Stonegate Capital Partners is a Dallas-based corporate advisory firm dedicated to serving the specialized needs of small-cap public companies. Since our inception, our mission has been to find innovative, undervalued public companies for our network of leading institutional investors who seek high quality investment opportunities.
SOURCE: Stonegate Capital Partners
