John Jannarone, editor in chief of IPO Edge, explains why shares of Pivotal Acquisition have significant upside potential over the next year. He analyzes the company’s acquisition of KLDiscovery, notes how they use technology to gain a competitive edge in data discovery, and reviews how traders can play the current opportunity, in this interview with Jake Merl. Filmed on July 22, 2019.
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KLDiscovery's Acquisition & Upside Return (w/John Jannarone)
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Transcript:
For the full transcript visit: https://rvtv.io/2NwPHFV
JAKE MERL: Welcome to Trade Ideas. I'm Jake Merl sitting down with John Jannarone, editor in chief of IPO Edge. John, great to have you back on the show.
JOHN JANNARONE: Thanks, Jake.
JAKE MERL: So let's get right into it, today. What's your trade idea?
JOHN JANNARONE: So my idea today is a special purpose acquisition company, or a SPAC. And it is acquiring a company called KL Discovery. KL Discovery does something that happens all the time, but we probably don't think that much about it. They're basically doing data discovery with their civil lawsuits. That's about 4/5 of the business. So this is a huge, huge thing that is going on, these days. If you go back to the '90s, there was all this paper, right? But now, the amount of data and all of our different devices, it's just dispersed in so many different places that it takes some real firepower to collect it quickly.
JAKE MERL: So John, how exactly does this company work? Let's say, for example, if I'm suing someone, and I need their information, do I hire this company? How exactly does it work?
JOHN JANNARONE: Yeah, so what happens when there's a civil lawsuit- and most of this business is in civil lawsuits- one party will get to have discovery of a whole lot of information from the other party. And what used to happen, 25 years ago, is you would just get access a bunch of file cabinets. But the world's changed dramatically. So we're not just talking about email. We're talking social media, what's on my iPhone, iPad, BlackBerry, servers, whatever. And it takes a lot of firepower to collect this stuff quickly. So law firms and major companies will both hire KL Discovery or one of their competitors to do this. They don't have the capability to do it internally.
JAKE MERL: So overall, it seems like a great opportunity. But why, specifically, do you like this company?
JOHN JANNARONE: Well, I think that these guys are head and shoulders above the competition, in terms of their growth prospects, because they're very, very good at doing acquisitions. So these aren't always game changing acquisitions. Some of them are tuck-ins, but they're adding on all this technology that's built them up. So they're able to offer way more than the other competitors do. And by the way, this is a SPAC, so there's a merger that's going to happen here with a sponsor. And the sponsor is being run by a guy named John Lettiki, who is basically a legend in rolling up companies. This is what he does, so it's a real match made in heaven, I think.
JAKE MERL: And so in terms of fundamentals, what does the valuation look like, right now?
JOHN JANNARONE: So it's priced, I think, quite fairly. I think that when you do these SPACs, people have started to learn that they need to be priced that they're going to go up. So it's a little bit under an 11 times 2019 EBITDA. And that's considerably less than some of the competitors. So if you look at listed competitors or comps, I should say, SSNC is a good one. It trades about 20% higher than that. So I think there's a real good amount of upside there.
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