Thanks for your response, you dug deep once again! Very hard to pass this one. As you said, there’s also a margin of error on the acquisition. Closing a deal would validate the investment...
Thanks for the well-written article Chris, this looks rather promising. Referencing your slides, could I ask how you determined the diluted share count of 45 and 79mm for scenarios 1 and 2 (slide 8) respectively? Was it meant to factor in performance shares and potential equity dilution due to acquisitions?
Thanks for reading. The current share count is 26.3mm but assuming the BC Partners convertable debt converts ($8 conversion price that will likely be met on an acquisition) increases to 45.3mm. So BC effectively has 40% of the diluted share count today. That's scenario #1.
Then scenario #2 assumes a $1bn acquisition partly funded by another $300mm of equity issunance/preferred equity/convertible debt, this time at a higher $9 conversion price because the company will be in a significantly better position than at the time of the BC Partners deal given it now has the BC funding and a bigger deal would unlock more NOL value. $300mm / $9 =33.3mm additional shares, so 45.3mm + 33.3mm = 78.6 mm.
Thanks, Chris, this idea of a workout style investment à la "young Buffett Partnership" seems highly asymmetric, with a relatively short deadline.
However, I was wondering about Altai's capital allocation strategy and Rishi Bajaj’s overall investment style. Looking at Altai’s 13Fs, it’s clear that the portfolio is extremely concentrated, with very few actual investment decisions (which could be a sign of a great capital allocator).
The issue is, none of those bets seem to be working.
Digimarc — by far the largest ($100M as of Q4 2024) — has never posted positive operating results and is now facing a class action lawsuit for failing to disclose the loss of a recurring contract:
Mr. Bajaj has held that investment since at least Q2 2021. As of the last 13F, the position was down to $35.5M.
E2open appears in the 13F filings from Q1 2021, when the stock traded around $10. It recently received a cash buyout offer from Wisetech at $3.30. E2open is the only company in Altai’s visible portfolio generating positive operating income.
Then there’s Sky Harbour, the one I know best. It started out as a SPAC with Boston Omaha as its lead backer : the Rozek Buffett-Peterson team. You can check the comments on the Value Investors Club about Peterson. But briefly: he seems to have ridden the speculative Buffett/mini-Berkshire narrative to issue shares and, in the end, Rozek exited entirely via a combination of cash and a Sky Harbour stock swap.
I've long tried to understand Sky Harbour's business model... too hard pile for me. Some even compare it to WeWork (also on VIC).
Peterson made a very similar bet to ContextLogic with Nicholas Financial (now Old Market Capital): he sold off its core subprime auto lending business to Westlake, received cash roughly equal to market cap, and retained significant NOLs on the balance sheet. Part of the cash was used to acquire a new business. But so far, the value creation has been quite mediocre.
To me, this strategy of taking over a shell with cash and NOLs seems like a win lose situation. The State is a complete looser in this situation. And I believe a good capital allocator is essential.
Do you have any additional insights into Mr. Bajaj’s investment style ?
Hi Philippe, great comment. I have been through all of Altai’s disclosed investments since inception and the results are mixed. I’m aware of the comments on VIC about Sky Harbour (I don’t know the stock well but agree with the general negative sentiment) - I believe Altai made quite a bit of money off getting shares and warrants via private placement at $6.5 then selling around $10, although they have since lost money. Channel Advisor and Amber Road were both big successes and involved two of the current LOGC board members (Marshall Heinberg and Michael Farlekas). Still, I agree his track record is mixed and perhaps LOGC is a way out for him. I actually think the acquisition setup is quite simple at LOGC since there is little cash burn and lots of NOLs, which makes it attractive to private businesses wanting to go public. The hard part is the financing to make an acquisition and structure to not trigger a change of control / section 382 violation. I understand BC Partners are very involved on that front and the acquisition side, which gives me comfort.
Thanks for your response, you dug deep once again! Very hard to pass this one. As you said, there’s also a margin of error on the acquisition. Closing a deal would validate the investment...
Thanks for the well-written article Chris, this looks rather promising. Referencing your slides, could I ask how you determined the diluted share count of 45 and 79mm for scenarios 1 and 2 (slide 8) respectively? Was it meant to factor in performance shares and potential equity dilution due to acquisitions?
Thanks for reading. The current share count is 26.3mm but assuming the BC Partners convertable debt converts ($8 conversion price that will likely be met on an acquisition) increases to 45.3mm. So BC effectively has 40% of the diluted share count today. That's scenario #1.
Then scenario #2 assumes a $1bn acquisition partly funded by another $300mm of equity issunance/preferred equity/convertible debt, this time at a higher $9 conversion price because the company will be in a significantly better position than at the time of the BC Partners deal given it now has the BC funding and a bigger deal would unlock more NOL value. $300mm / $9 =33.3mm additional shares, so 45.3mm + 33.3mm = 78.6 mm.
Thanks, Chris, this idea of a workout style investment à la "young Buffett Partnership" seems highly asymmetric, with a relatively short deadline.
However, I was wondering about Altai's capital allocation strategy and Rishi Bajaj’s overall investment style. Looking at Altai’s 13Fs, it’s clear that the portfolio is extremely concentrated, with very few actual investment decisions (which could be a sign of a great capital allocator).
The issue is, none of those bets seem to be working.
Digimarc — by far the largest ($100M as of Q4 2024) — has never posted positive operating results and is now facing a class action lawsuit for failing to disclose the loss of a recurring contract:
https://www.wvnstv.com/business/press-releases/cision/20250702LA22834/drmc-securities-lawsuit-filed-against-digimarc-corporation-contact-the-djs-law-group-to-discuss-your-rights/
Mr. Bajaj has held that investment since at least Q2 2021. As of the last 13F, the position was down to $35.5M.
E2open appears in the 13F filings from Q1 2021, when the stock traded around $10. It recently received a cash buyout offer from Wisetech at $3.30. E2open is the only company in Altai’s visible portfolio generating positive operating income.
Then there’s Sky Harbour, the one I know best. It started out as a SPAC with Boston Omaha as its lead backer : the Rozek Buffett-Peterson team. You can check the comments on the Value Investors Club about Peterson. But briefly: he seems to have ridden the speculative Buffett/mini-Berkshire narrative to issue shares and, in the end, Rozek exited entirely via a combination of cash and a Sky Harbour stock swap.
I've long tried to understand Sky Harbour's business model... too hard pile for me. Some even compare it to WeWork (also on VIC).
Peterson made a very similar bet to ContextLogic with Nicholas Financial (now Old Market Capital): he sold off its core subprime auto lending business to Westlake, received cash roughly equal to market cap, and retained significant NOLs on the balance sheet. Part of the cash was used to acquire a new business. But so far, the value creation has been quite mediocre.
To me, this strategy of taking over a shell with cash and NOLs seems like a win lose situation. The State is a complete looser in this situation. And I believe a good capital allocator is essential.
Do you have any additional insights into Mr. Bajaj’s investment style ?
Hi Philippe, great comment. I have been through all of Altai’s disclosed investments since inception and the results are mixed. I’m aware of the comments on VIC about Sky Harbour (I don’t know the stock well but agree with the general negative sentiment) - I believe Altai made quite a bit of money off getting shares and warrants via private placement at $6.5 then selling around $10, although they have since lost money. Channel Advisor and Amber Road were both big successes and involved two of the current LOGC board members (Marshall Heinberg and Michael Farlekas). Still, I agree his track record is mixed and perhaps LOGC is a way out for him. I actually think the acquisition setup is quite simple at LOGC since there is little cash burn and lots of NOLs, which makes it attractive to private businesses wanting to go public. The hard part is the financing to make an acquisition and structure to not trigger a change of control / section 382 violation. I understand BC Partners are very involved on that front and the acquisition side, which gives me comfort.