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On New Information, I've Doubled My Share-Price Target On P10 Holdings
Mar. 27, 2018 2:19 PM ET| | About: P10 Holdings, Inc. (PIOE)
Timothy Conway
Timothy Conway
Long only, Growth, special situations, Deep Value
Rare Leadership
(206 followers)
Summary
PIOE soon files its first 10-K since acquiring RCP Advisors 2, followed in mid-May by a 10-Q with a full picture on joint results for RCP 2 and RCP 3.
Previously for Seeking Alpha I had written on PIOE/RCP and posited a share-price valuation around $1.80 to $2.05 based on brief info provided in a PR announcing the 2-step acquisition.
Since then, we’ve found the documents on RCP Advisors’ ownership of their RCP Funds, indicating over $140 million in cash-equivalents and so a much higher book value.
This new info, plus an already higher AUM figure for RCP Funds and likely more fee revenue from this and other sources, suggests higher earnings and much higher PIOE share-price.
The stock has almost doubled since my last article; tightly held shares might be had in the $1.30s - $1.40s. My new price target has doubled to $3.50-$4.00,for much further upside from here.
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On Nov. 21, 2107, SeekingAlpha editors kindly published as a “Must Read” PRO Pick my lengthy essay “P10 Industries’ Purchase of RCP Advisors Can Bring 150% Upside.” That article, now behind the pay-wall, can be read by anyone with the free two-week trial offer for SeekingAlpha PRO Subscribers.
At the time I wrote, shares of PIOE could be bought for about $0.72 - $0.75. Since the share-price recently soared above $1 on March 15, tens of thousands of shares have been bought by parties unknown in the $1.30s to upper $1.40s, so PIOE has nearly doubled since my article released during Thanksgiving week.
Meanwhile, over these past four months, a few of us retail shareholders have sleuthed out remarkable further positive information about RCP Advisors (www.rcpadvisors.com), the highly-regarded private-equity investment management firm based in Chicago that P10 Holdings (www.p10holdings.com) (formerly P10 Industries) acquired in a 2-step process: RCP Advisors 2 was acquired last Oct. 6, 2017, and PIOE’s purchase of RCP Advisors 3 closed on Jan. 3 of this year. An older investment-related segment, “RCP Advisors 1,” is not relevant for PIOE.
By way of background, as explained in the most recent Form ADV Part 2A Brochure for RCP Advisors 2, LLC and RCP Advisors 3, LLC (filed at the IAPD website for the SEC and dated Feb. 1, 2018): “RCP provides investment advisory services to private equity funds-of-funds and funds that invest directly (or indirectly through special purpose vehicles) in companies alongside private equity sponsors (collectively, the “RCP Fund(s)”). For RCP Funds formed prior to 2011, RCP 1 serves as investment manager and has delegated investment responsibilities to RCP 3 as sub-adviser. For RCP Funds formed between 2011 and 2015, RCP 2 serves as investment manager and has delegated investment responsibilities to RCP 3 as sub-adviser. For RCP Funds formed after 2015, RCP 3 serves as investment manager. RCP 3 provides investment advisory services to clients of RCP 1 and RCP 2 through a sub-advisory agreement with RCP 1 and RCP 2, respectively.” (p. 4)
One need not be confused about this—all three segments of RCP Advisors share the same headquarters office space and involve the same personnel.
RCP Advisors 2 & 3, which I estimate to presently advise and manage around $4.2 billion in assets under management (AUM) as of March 2018 with its newest RCP Funds and separate advisory accounts, is now a wholly-owned subsidiary of P10 Holdings (OTC: OTCPK:PIOE). As has been stated in the Form ADV Brochure, “The Transaction did not result in any changes to the management of RCP 2 or RCP 3 and the senior management and Board of Managers of both RCP 2 and RCP 3 remain the same both before and after the Transaction.”
Just to briefly re-hash a few points out of numerous facts stated in my previous article, PIOE was able to make this hefty acquisition in large part because of its $275 million in NOLs or Net Operating Loss carry-forwards from its former incarnation as Active Power Inc. (Nasdaq: ACPW). P10 Holdings thereby offers RCP a huge tax-relief opportunity worth at least several tens of millions of dollars. PIOE also provides access to the public markets for RCP Advisors, which since its founding in 2001 has been focused on the robust but less liquid Private Equity sector in the lower-middle-market sector (on this lucrative sector, see an informative white paper by three of RCP Advisors’ in-house academics). Last but not least, RCP Advisors’ management team of several principals (whose two leads William “Fritz” Souder and Jeff Gehl are now Directors on the PIOE Board) were given 49.5% ownership or 44.17 million common shares of PIOE (not preferred shares) to merge themselves into P10 Holdings. PIOE’s new co-CEOs Robert Alpert (also Chairman of the Board) and C. Clark Webb (another Board Director), via their 210/P10 Acquisition Partners entity, together hold 21.65 million shares (bought at $0.215 last Spring during the tenure of CEO Mark Ascolese, who shepherded the NOLs since the birth of shell company P10 Industries in Nov. 2016 and who helped put this merger together).
Together, that’s 65.82 million shares, or fully 73.7% of the total outstanding count of 89.23 million PIOE shares, now held by key insiders.
Furthermore, up to 7.88 million shares are still probably held by various parties known from last year’s 10-K (filed in March 2017) to have held significant amounts of shares of ACPW before it became PIOI and then PIOE. Current CFO Jay Powers held 347.8k shares at that time; former CEO Mark Ascolese held 835.4k shares; and several former Beneficial Owners held even larger positions -- e.g., we find 3.53 million shares for former Board Member Stephen Clearman; 1.8 million shares for R.Scott Asen; and 1.2 million shares for Joshua Ruch, before the new shares given to Alpert & Webb and then to RCP Advisors almost quadrupled PIOE’s share-count and put these former insiders under the 5% ownership mark.
Add this all together and one gets a figure of up to 73.7 million shares, or a whopping 82.5% of the total O/S held by current and former Beneficial Owners.
This leaves a relatively small public share-float to be fought over by anyone wanting to buy a stake in the emerging PIOE/RCP story.
What this also means is that we retail shareholders are “riding a colossal whale.” I phrase it this way because PIOE’s giant insider-shareholders Alpert, Webb, and the RCP Advisors principals, along with CFO Jay Powers, obviously have an enormous incentive to see PIOE’s shareprice run as high as possible before they start selling shares. They’re not selling here in the $1.30s-$1.40s. They weren’t selling after PIOE’s shareprice initially soared to the $0.80s from the $0.32 level on the Oct. 6, 2017 news of completing the first step in acquiring RCP, nor when the shareprice jumped for a few days over $1 after the Jan. 3, 2018 news of the second acquisition step closing. I surmise these insiders will probably hold their shares well into the $3s, $4s, $5s or even significantly higher down the road.
With the knowledge that all the big insider holders of this stock want it to eventually go as high as possible, I’m able to be quite patient and sleep very well at night with PIOE as a longterm holding. (I’m also impressed with the quality of the combined P10 Holdings and RCP Advisors executive team—see here for their CV / vitae.)
My strong hunch (take it for what it’s worth as plausible speculation) is that whenever PIOE is ready to up-list to either the NYSE or NASDAQ—a virtual certainty given RCP Advisors’ prestige among its mega-investors (it’s rather “unseemly” for RCP Advisors to be owned by an OTC stock for very long)—the principals just might offer a private placement of a few million of their 65.8 million shares. This could be part of an IPO onto a big board exchange to allow some big institutions to get into this publicly-traded pure-play investment on the Private Equity lower-middle sector. Given the small, tightly-held share-float, there’s simply no other way for an institution to initiate a substantial position at this point without skyrocketing the share-price. And once the institutions get involved in PIOE/RCP for the longer term growth of RCP Advisors’ AUM — and PIOE’s “additional alternative investments” that it has pointedly mentioned in the last two PRs — there’s no telling how high this stock could run on analyst coverage, optimistic price targets, and most likely some resulting rather lofty price-to-earnings and price-to-book valuations.
In the remaining sections of this article I would like to reveal what some of us “small fry” shareholders have found about RCP Advisors’ considerable cash-equivalents and some other positives, such as the diverse revenue streams and the identity of some of their mega-investors in the many RCP Funds that RCP Advisors launch, manage and advise. I also want to clarify why shareholders have nothing to fear about the seller’s note that PIOE granted to RCP Advisors because in the final analysis it’s all a wash. As we proceed here with this article, I’ll also indicate what to look for in PIOE’s upcoming 10-K full-year earnings report due this week and, more importantly, the 10-Q earnings report due in mid-May that will finally give us a complete picture on what PIOE owns in both segments of RCP Advisors (RCP 2 and RCP 3).
Let me reiterate that the retrospective financial results for PIOE’s fourth quarter and fiscal year 2017 reported this week will not give the full picture of PIOE’s full assets and earnings power now that RCP Advisors 2 & 3 both comprise its wholly-owned subsidiary.
Note: If you are interested in the PIOE and RCP Advisors investment story, please re-visit the comments section here below this article in several days, because after earnings are reported along with the 10-K SEC filing document, I’ll provide additional comments on what I find noteworthy. I will likely draft my third SeekingAlpha article on PIOE after the Q1 10-Q earnings report is filed in mid-May, when we have an even more complete financial picture on both segments of RCP Advisors -- unless course PIOE’s management decides to give us all the necessary “recent highlights” about pertinent RCP 3 financial metrics in the upcoming 10-K document.
