Updates #30 - Making some corrections to my Altus view.
A new road map
Held.
And when we get ourselves focused on what we’ll be showing you today, we feel really good about where we’re going. You’re not going to hear anything about the market. I may regret saying this, I care about the market, but we don’t -- we’re not defined by the market. As a software data and analytics company that has some of the best advisers in the business, we make our own way.
Mike Gordon, incoming CEO and Executive Chairman of Altus Group
Not long after my last Altus update, I was somewhat inundated with emails pointing to evidence of a much more positive outlook than I was giving the incoming management team credit for. In the spirit of good intellectual hygiene, the intervening investor day, and my own proclivity to jump the gun, I think it’s necessary to follow up here.
To reiterate, my hopes for Altus under Jim Hannon’s leadership was the following:
In my mind, I envisioned more regular buybacks (a possibility somewhat handicapped by TSX listing rules which limit them over various time periods), the eventual sale of the appraisal business, and much cleaner, and predictable financials catalysed by the simplification of the business into a traditional quality enterprise software company which was de facto raising prices on its largest clients. The end goal was one of two imminently feasible possibilities: 1). an “uplisting” (although that’s not exactly the right word) to either NYSE or NASDAQ to reflect the business’s mostly US customer base and operations, and/or 2). an eventual sale to a strategic buyer (or possibly PE if the price was right). A girl can dream.
My understanding of the game of thrones like management retransition back to Mike Gordon was:
Courteau and Gordon’s track record in M&A can probably be summed up as extraordinarily mediocre. Aside from the original Argus acquisition, most other M&A that the company has undertaken has been value destructive, not necessarily from a strategic point of view, but certainly from the point of view of the prices paid for various assets. Many of which were shuttered due to the Argus platform transition. We will see what comes out of the review, but I am firmly in the camp of continuing on Hannon’s program, sans the premature business sale. I think that the likelihood of this occurring is probably quite low, especially in the same vein as it was before. Further M&A has the potential to be thesis breaking in my opinion, especially if it is transformative. To what other end they might end up investing in growth is illusive to me - the company is well and truly in a “reaping” phase of its development, after the many years of building and transitioning clients to the new platforms.
One of the things which is always underestimated by outsiders during management turmoil, is that business strategy remains in stasis, if not entirely suspended, while new leadership looks for consensus, both with the board and with the company’s employees. While the strategic review plays out, nothing will happen. If you had certain timeline assumptions about various parts of the thesis playing out, you can pretty much put them back a couple of quarters. At the end of the review, we may also have a completely novel trajectory. One might be given to be sympathetic to a brand new CEO, but we are already able to measure this new-old CEO. We are at a moment of some risk, but perhaps without the commensurate shareholder reward that we had some weeks ago.
A few points here have turned out, happily, to be off the mark. Quite surprisingly, Gordon has started his new tenure by literally sprinting out of the gates and promising all that the active investor base could dream of. This is very encouraging, but the fact that he’s had to step over his friend and former subordinate to slip back into the top job is a little disconcerting. This is especially true when you consider that the plan that Gordon is promising to execut is essentially the more shareholder-friendly version of Hannon’s strategy.
