Lessons from one that got away

by admin on June 18, 2012

This post is about Nabuko Door – one that got away

Nabuko Door slipped out between my fingers a few weeks ago. I was following the company for a little while, and I was ready to press the trigger, when it got away, agreeing to an acquisition by Nabtesco (6268, ナブテスコ). It is an all-stock deal (0.6 Nabtesco share per 1 share of Nabuko Door, arbitrage op. = c. 1% as of Friday close), and Nabtesco is trading at 15x earnings – wouldn’t you do the same?

Nabuko Door was previously a borderline net-net, as can be seen here:

Nabuko Door stock takeover Nabuko Door stock takeover

However, what made it attractive was its stable earnings – it had (it still has, but it feels as if they no longer exist) – long-term contracts for door maintenance, and also were able to sell spare parts, which they had a captive market for (try tell the repairman that you would rather buy parts from elsewhere – might work in the US, but not in Japan).

Nabuko Door net margins Nabuko Door net margins

The business was (or is) capital-light, and free cash flow was fairly stable:

Nabuko Door cashflow Nabuko Door cashflow

Now, all that info is pretty useless now – but…

…there is one thing that we can learn from this (although you knew it already). Nabutesco was the main shareholder of Nabuko Door. There are other opportunities like this, such as with this net-net stock.

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