DE Shaw recognizes an opportunity to increase margins at FleetCor

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Company: FleetCor Technology (FLT)

Business: Fleet Cor is a business payments company that helps businesses spend less by allowing them to manage their cost-related purchasing and supplier payment processes. The company operates through six segments: fuel, corporate payments, tolls, accommodation, gifts and other. It provides corporate payment solutions, such as automation of accounts payable; vehicles and mobility solutions, including fuel solutions for businesses and government organizations that operate fleets, as well as gift card program management and processing services. The company also offers other products, including pay cards, vehicle maintenance service solutions, long-distance transportation solutions, and prepaid meal cards or vouchers.

Stock market value: $15.5 billion ($210.85 per share)

Activist: DE Shaw & Co.

Ownership rate: Not available

Average costs: Not available

Activist comments: DE Shaw is an unprecedentedly large multi-strategy fund with a strong track record. The company is not an activist investor, but it uses active activity as an opportunistic tool in situations when it is deemed useful. The company looks for solid businesses in good industries, and if it identifies underperformance that is within the control of management, it takes an active role. DE Shaw places a premium on private, constructive interaction with management, and as a result, often reaches an agreement with the company before its position is even made public.

What is happening?

ABOVE March 15, DE Shaw Group and FleetCor Technologies have entered into an agreement whereby the company agrees to appoint Rahul Gupta (former CEO of RevSpring, a healthcare billing and billing company) to the board of directors. and agree to add another person, by mutual agreement, to the Board of Directors. In addition, the company has agreed to establish a special strategy review committee to assist the board as it considers various strategic alternatives. DE Shaw has agreed to abide by some voting and deadlock restrictions.

Behind the scene

FleetCor is a business payments company with four main business areas: fuel, corporate payments, tolls and accommodation. Fuels traditionally account for almost 50% of sales, and the market has a perception that as the world transitions to electric vehicles, it will become an ultimate valueless business as sales dwindle. However, revenue in this business grew 14% year-over-year, and FleetCor is working to incorporate the transition to electric vehicle fleets into its future business strategy. In addition, the revenue of the remaining three business segments is growing from 20% to 47% with a growth rate of total revenue of 20.9%. Earnings before interest, taxes, depreciation and amortization rates at all four businesses are close to or above 50% for an overall EBITDA ratio of 51.6%. Even so, the company is trading at a lower price than its peers because of the perception that it is primarily a fuel-dependent business with secular headwinds.

The best way to realize the full value of each business is to explore the segregation of the fuel business, removing any stain on the other high growth and high EBITDA business, capital will be reclassified from the transaction. This could be an attractive asset for private equity, which can analyze and value the expected cash flow of the fuel business and execute a transition plan as penetration levels rise. of electric vehicles increased without facing the misconceptions and prejudices of the mass market.

FleetCor has followed this trajectory and is working in a friendly partnership with DE Shaw. ABOVE March 20th, DE Shaw won two seats on the board, and the company agreed to undertake a strategic review, including possibly splitting one or more businesses. Furthermore, CEO Ron Clarke is loved and respected by shareholders and is perfectly suited to creating shareholder value. Not only does he own 5.6% of FleetCor’s common stock, but his equity compensation plan is under $350 a share by the end of 2024 and pays him handsomely if the stock price was above $350 at the time.

Ken Squire is the founder and president of 13D Monitor, an institutional research service for shareholder activism, and the founder and portfolio manager of 13D Activist Fund, a mutual fund. Support investing in the portfolio of 13D activists.


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