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How Did Bain Find The Value In Skillsoft (SKIL)? March 3, 2010

Posted by Bernard Lunn in Uncategorized.

When Bain made their offer to take Skillsoft private, there were the predictable howls of protest from SKIL shareholders:

“we wuz robbed”

This is of course how the game is played. Shareholders aim to get a higher price. Merger arbitrage traders jump in. But why did public market investors not see the same value that Bain did? All Bain probably did were was some basic number crunching to identify value candidates.

We found out how Bain did it – or something close to that – when we were compiling the SaaS Insights Report (available here for $725).

We looked at two plays:

1. Value

2. Revenue Momentum.

SKIL did well on Value. We started by looking at PEG. Anything below 1.0 is a candidate for a value investment. SKIL jumped out as # 1 candidate there.

We then looked at cash as a % of market cap. And then we looked for stocks that might be in both value and momentum (the magic quadrant if you like). Find out more by buying the Report here.

But the point here is simply that private buyout groups have easy pickings because small cap companies are ignored by investors.



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