Ideas Elsewhere: Target Hospitality (Ticker: TH)

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Thomas Moroder

In 2019, Thomas Moroder founded RealEstate.it Srl, aiming to provide comprehensive services in real estate research and investment.

Potential Higher Offer

Recently, Target Hospitality (TH) has caught the attention of investors as an interesting bet on a potential higher offer from a controlling shareholder. This situation was discussed on the Yet Another Value Podcast and then taken up also by Special Situations Investments, highlighting potential future developments for this company with a market capitalization of $1.2 billion. TH provides temporary accommodations, primarily focusing on housing for migrants and workers in the energy exploration industry.

In late March, Target Hospitality received a non-binding takeover bid from its majority shareholder, TDR Capital, which owns 65% of the shares, at a price of $10.80 per share. Currently, TH shares are trading 4% above the offer level. Several factors suggest that a higher bid might be forthcoming.

TDR’s bid comes with a modest 21% premium to pre-announcement levels and values the company at approximately 5.5 times the FY24 expected EBITDA. Shortly after the offer announcement, the second-largest minority shareholder, Conversant Capital, increased its stake in the company from 4.7% to 5%, indicating an intention to carefully evaluate the offer. Given that the transaction would likely require approval from TH’s minority equity holders, the presence of the large minority shareholder seems to increase the chances of a higher bid from TDR Capital.

There is also a possibility that other interested parties may emerge. TDR previously tried to acquire TH in 2020 and stated at the time that it was not interested in any alternative transactions. This time, however, the offer announcement did not include similar language. This, coupled with the fact that TDR is a Europe-focused private equity firm with no other US-based companies in its portfolio, suggests that the controlling shareholder might be open to a sale to third parties.

While there are no close publicly-listed peers, valuing TH at a blended 7.5x EV/EBITDA multiple of its comparables CVEO (trades at 5x EBITDA) and VVX (8.5x) would imply a price target of $14.5 per share (25% upside). Even if the ongoing sale process does not result in a transaction, the downside seems to be protected by TH’s low valuation.


Note: The “Ideas Elsewhere” category is intended to highlight interesting event-driven investment ideas suggested by other authors. These ideas are not our own, and we are simply summarizing them to bring them to the attention of RealEstate.IT subscribers. We might not actively follow the developments of these ideas, so there might be limited updates or follow-ups in the comments section.