Exited EBIX: 34.41% Return in 44 Days

Ebix Inc has entered into an agreement to be acquired by Goldman Sachs for $20/share. After the news broke (May 1, 2013), I recommended members to sell all EBIX stock and sold my position at $20.50/share.

We were able to sell the shares at prices ABOVE the acquisition price for two reasons:

  1. The market believes a new suitor will emerge, and,
  2. 44% of EBIX outstanding shares were shorted, so there is going to be a lot of churn above the acquisition price, as the scramble to buy increasingly small float to cover ensues

Opportunistic Investment

Ebix as a company has been a fast grower in the recent years through acquisitions and has generated tremendous amounts of cash flow. However, it has had no shortage of skeptics. I recommended EBIX on Mar 15 and purchased the stock on Mar 18, 2013 at an average cost of $15.14/share, which was a very good value. As recently as February, the stock was selling for $19+/share. On Feb 21, there was an article in Seeking Alpha claiming accounting irregularities at the company causing the stock to plunge to the $13/share level. It took me some time to go through the accusations and the financial statements of the company at the end of which I concluded that the article made false and misleading claims to support their short positions, and the author has actually offered us an incredible short term opportunity on a platter.

So we bought and profited.

In the end, due diligence by Goldman Sachs (for this acquisition) should command more credibility than that by anonymous poster on Seeking Alpha going by the moniker “Gotham Research” with no known track record.

What is Next for the Company (and EBIX Stock)

The company has 45 days to solicit other bids and it is entirely possible that a better offer will come along. This deal does not do justice to the real value of the company although I will accept that the complexity of the business structure may be a drag on the stock price anyway. Many value investors wait to lock in the last drop of return from a position, but normally I prefer to take the big gains upfront and exit, even if I leave a little bit on the table. I operate from a very simple truth:

The risk in a stock is more when the price is high and less when the price is low

Besides, a 34% return in 44 days is better than 45% return in 90 days as long as capital can be redeployed.

At this time I expect the stock to settle down below $20/share in the next few days, after which it is anybody’s guess. Investing in this stock today is pure speculation for new bids to materialize and I do not wish to speculate.

PS. I waited for the buyout price to improve in case of American Greetings, but the particulars of the deal were different.

Also read: Original recommendation to the members, now public

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