PYTM.OB --
OK--anybody got a spare $32MM sitting around in the sofa cushions? Have I got a deal for you!
To recap--PYTM has $32MM in debt, due 9/30/05. THeir lender has given them some extensions, and they have retained an investment banker. PYTM has revenues of $30MM (growing nicely) and net income of $3.6MM (after paying about 1.3MM+ in debt service). 10MM shares outstanding. Stock is trading at .38, giving a silly-stupid PE of about 1.25
Clearly, PYTM has to deal with their debt to move forward. Everyone knows it, that is why they have engaged an investment banker.
Here's my proposition--somebody front me $32MM. With that, we'd offer PYTM management the following deal--they issue us 40MM shares, giving us 80% of the company (there are now 10MM shares out, approximately). We take the $32MM and pay off the debt. Exit our current creditor.
What would be left is a debt-free company with 50MM shares out, with net income of about $5MM per year (3.6MM in the last 12 months, plus the 1.3MM now spent on debt service gives about $5MM--maybe more, assuming some growth which seems to be there, but let's keep it simple and conservative). $5MM net income would be .10 per share on 50MM shares. Putting a PE of 10 on that (admittedly, might be a shade high for construction, but I like round numbers) makes the resulting entity worth about $1.00 per share. Voila--our 80% stake (40MM shares) is now worth $40MM, a paper profit of $8MM (before fees, etc).
Obviously, no one will front ME $32MM. You should, but probably, and understandably won't.
But an investment banker worth anything at all (and the guys PYTM has retained seem to have a good track record, based on a casual poke around their website) would be able to find several groups with theat kind of ready capital.
There are variations on this--if the investor group gets 90%, there would be 100MM shares out, and at a PE of 10 the stock would be worth .50 per share, the investor group's stake is worth $45MM, etc. Higher PE and growth make the case better.
More significantly, this assumes paying off the entire $32MM. Sweeter deals can be constructed if the lender can be coerced to forgive some of that $32MM, and/or carry some of it as new debt for 5-10 years. The lender probably has to give some--if they call in the loan, PYTM would go into CH 11, and the lender would be left with first claim on the assets--about $4MM (Book value per share is -2.80 or so, implying about 4MM in assets against the $32MM in debt). A far cry from getting their $32MM back, let alone an income stream above that.
I would hope an investment banker with M&A and financing experiene could easily construct a more imaginative, and more attractive, deal that I just did with brute force on the back of an envelope.
The only thing I see here is that Seoptember 30 is very close.
Taking my case above, a buy at today's .38 looks pretty safe--a move to $1.00 would be a return of just over 150%.
What am I missing?
Seriously, anybody got $32MM to spare? It seems to me that unless one of the parties decides to cut off their nose to spite their face, there's an easy double and maybe more from today's .38
Joe
AI
