th May 15 , 2014 Unfortunately our streak of positive months ended just one shy of an entire year. Much like an elevator 1 ride with Beyonce’s sister , we faced a barrage of little kicks and punches. In the end, we didn’t sustain any real damage, but we come out of it a bit embarrassed and ready to move on. Compared to the smooth ride of the preceding eleven months, April was one to forget. We had nine separate positions that each cost us 20 or more basis points in the month, indicating how dispersed the downticks were. Some were shorts, but most were long positions with a concentration on our U.S. book. The market south of the border has lost some of the risk appetite that we still see present up here in Canada. In fact, while the American momentum stories fade, their Northern neighbours seem to be picking up speed. That’s about all the market commentary you’re bound to get from us. We have historically added value (created “alpha” in Hedgie parlance) through stock picking, not broad market calls. We are good at 2 identifying mispriced assets and cash flow streams obscured by the structure in which they are held . In a perfect world, value is surfaced as the market starts to see what we see, either through its own discovery or by the actions of the company’s engaged and shareholder-friendly leadership. That, unfortunately, is not always the case. Sometimes the market needs a bit of help and sometimes the management and/or the board of directors need a bit of a nudge. The latter case is what can broadly be referred to as shareholder activism. Activism: Broadview’s Version and a Real-Time Example: Most often activism is associated with high-profile, public spats (think Carl Icahn or Bill Ackman) whereby a shareholder (or shareholder group) is attempting to force out management and/or the board of directors to put their guys in charge. There is much indignation spewed, both righteous and otherwise, as the 3 aggrieved owners of the business claim their interests are being overlooked in favour of private jets, nepotism or sundry other self-serving offenses. This is not, however, an all-encompassing definition of activism. Shareholder activism is simply any active role that shareholders take on to effect change. It can be either public or private, contentious or cooperative. We have engaged in all forms of activism including, as of this morning, the more public form. As you may know, Lee is on the board of two of our investee companies (Medworxx Solutions Inc. (MWX:TSX-V) and RDM Corp (RC:TSX)). This is a clear example of being activist, though not necessarily contentious. In both cases, we support the current strategic plans and the management teams implementing them. We are also engaged and active with many other holdings behind the scenes as we work alongside the board and management (where possible) in bringing about a positive outcome for all shareholders. We write letters to boards, we ask pointed questions on 1 Apparently she was upset when she found out Jay-Z had paid off the refs to allow his Nets to win their round one series against the Toronto Raptors. You and me both, Solange. 2 Or in the case of something we are short, inflated or hyped by the structure in which they are held. 3 It’s always important to point out that is who shareholders are – the rightful owners of the business. 1 conference calls, we consult on how companies communicate with shareholders. There are many ways to be active beyond simply demanding a company sell itself or fire everyone. One distinction we would like to make between our use of activism and its more typical application is that we never invest in a situation where we know we will become activist. Activist investors, specifically those running dedicated activist funds, will usually underwrite an investment based on what they can create through activism. It is the central part of their investment thesis. For us, it is an option that we hold in reserve. Ideally, as we stated earlier, companies (and their stock prices) sort themselves out without the additional time and cost of an activist campaign. If we notice that the board and/or management are acting counter to the interests of the shareholders we will then engage in some form of activism. Now, on to today’s example…. Those who have been reading these letters for the past few years would undoubtedly recognize the name PAR Technology Corp. (PAR:NYSE) – the company whose headquarters is the destination for our annual roadtrips to Utica. We first invested in the company nearly three years ago. Our thesis was that hidden beyond the conglomerate structure (it operates two very distinct businesses) and middling consolidated results, was an established and valuable provider of technology solutions to the global hospitality industry. Hidden even deeper were a couple of very “hot” technologies that, while currently costing a fortune in R&D, had the potential to be absolute homeruns. Three years on, the thesis and the stock price remain about the same. The announced resignation of all three independent directors without any named replacements was the final straw for us. It also provided a window of opportunity for shareholders to demand that the available spots be filled with representatives serving the interests of all the company’s owners. That spurred us to send the following letter to the board, which was press released this morning: Broadview Capital Management Inc. Urges PAR Technology Corp. to Form Strategic Review Committee TORONTO, ONTARIO--(Marketwired - May 15, 2014) - Broadview Capital Management sent the following letter to the Board of Directors of PAR Technology Corporation yesterday requesting direct shareholder input into filling the soon to be vacant board seats and the expeditious formation of a strategic review committee. Below is the full text of Broadview Capital Management's letter to the Company: May 14, 2014 Dr. John Sammon Mr. Ron Casciano Board of Directors PAR Technology Corp. As long-term shareholders of PAR Technology Corporation ("PAR"), Broadview Capital Management is deeply frustrated with the Company's lack of progress in monetizing its massive research & development spending or justifying its conglomerate-like structure. It is Broadview's belief that these two factors are most responsible for a stock price that languishes far below any reasonable estimate of PAR's true intrinsic value. We simply can no longer blame this poor performance on an inefficient or indifferent market. 2 Years of heightened spending have yielded far too little in the way of tangible returns. Promising technologies such as SureCheck® and ATRIO® from years past remain just that - promising, yet not yielding anything meaningful for shareholders. Furthermore, PAR has taken no further steps since its divestment of the LMS business in June of 2012 to simplify the company's conglomerate structure. At a time when comparable businesses in hospitality technology are commanding aggressive multiples to revenue and EBITDA, PAR's share price is struggling barely above book value. We have lost faith that this situation will improve under the current direction. Long-suffering shareholders deserve a board of directors that is willing to take dramatic steps to close the gap between the share price and the company's private market value. The time has come for PAR to be managed as a true public company for the benefit of all shareholders. The announced departure of the three independent board members provides the opportunity for true and substantive change. We encourage the company to re-constitute its board of directors with three new members mutually agreed upon by the company and concerned shareholders. Furthermore, we would ask that once this new board is formed it commence immediately with the creation of a committee to review PAR's strategic alternatives. In our view, such a review should begin with a fulsome analysis of the merits of a sale of all or parts of the Company. From our recent conversations, we believe an appropriate board capable of carrying out a strategic review process can be constructed in short order without undue animosity or more aggressive shareholder activism. We thank you for your attention to this letter and look forward to your response. With respect, Lee Matheson Portfolio Manager Anthony Hammill Portfolio Manager Broadview Capital Management Inc. as portfolio manager of the Broadview Dark Horse L.P., and its principals control roughly 333,500 shares of PAR Technology Corp. representing 2.2% of the current shares outstanding. In no way, are we alleging anything untoward regarding the board’s past actions or integrity. We are simply frustrated with the lack of progress and no longer have faith that a positive outcome will be reached without more direct involvement from outside shareholders at the board level. We are hopeful that the letter and press release will push those in charge towards substantive change and we will update you with any progress when we are able to. 4 So, in general, why is activism still considered taboo with money managers ? On principal, this makes very little sense as fiduciaries should not rule out any avenue to protect and grow the capital entrusted to them by their investors. Practically, however, it is understandable that some would prefer to just sell the stock and move on. We mentioned the time and cost issues earlier. These can be substantial and include lawyers, proxy solicitors, PR firms and even private investigators in some cases. To publicly take a company to task and play out the process to its most extreme conclusion (i.e. a proxy fight), the activist must believe that there is a substantial return to be had in winning. There must be a tangible payback as there are no such things as moral victories in investing. There are business considerations as well. Many larger money management firms have existing relationships with executives and other well-off individuals as clients. From a pure marketing point of view, it is far more prudent to take on a publicly passive stance than stick your finger in the eye of your 4 Many fund managers are restricted from being activist, either tacitly or overtly. 3 clients or prospective clients. This goes back to the concept of agents versus principals. Agents will always favour the approach of not making any waves if it means more clients, while principals investing with their own capital (or treating others’ capital with the same care as their own) will stand and fight. Finally, there is the human factor. In being activist, one has to be prepared to be a bit of an ass. This is not something that comes natural to most people, particularly us supposedly polite Canadians. Quite frankly, it’s uncomfortable for us as well, but we have to remind ourselves why we’re at this point of frustration. Our investors, those who have entrusted us with their capital, are not being properly respected by our investee companies. As such, we must stand up for them. We’d far rather come off as a couple of jerks in the eyes of some entrenched board members than sit idly by while they fritter away our limited partners’ money. Until next month, Anthony Hammill Lee Matheson All numbers reported after fees and expenses. See subscription confirmations for your Series. Series 1-2013 Feb-2014 Apr-2014 March 31, 2014 $225.1077 $225.0006 $225.1077 April 30, 2014 $221.8285 $221.7230 $220.7151 Monthly Return YTD Return -1.46% -1.46% -1.95% 3.88% 3.79% -1.95% Annualized Return Since Inception (April 3, 2009) 16.97% - *From inception return used for series launched during the quarter and year This letter is not to be construed as an offer, solicitation or recommendation to buy or sell any of the securities herein named. At the time of reading the investments mentioned may no longer be held by the Broadview Dark Horse LP (“the Fund”). This information is intended only for existing investors in the fund, is as of the date indicated, is not complete and is subject to change. Performance information is net of applicable fees unless otherwise specifically noted. Past performance is no guarantee of future results. Performance results will vary, depending on the series in which one is invested. The information contained herein has been supplied by Broadview Capital Management Inc. (“Broadview”), the Fund’s Investment Manager and not the Fund’s Administrator who is responsible for the final calculation for the actual performance and final month-end Net Asset Values. Every effort has been made to ensure that the material contained herein is accurate as of publication. Broadview makes no representations or warranties as to the accuracy or completeness of such information and accepts no responsibility for any loss arising from any use of or reliance on the information contained herein. Broadview has no obligation to update the information at any point in the future. 4 About Broadview Capital Management Inc. and the Broadview Dark Horse LP: Broadview is the manager of the Broadview Dark Horse LP (“The Dark Horse”), a fundamental-based long/short investment partnership. Broadview utilizes its relatively small size, contrarian nature and willingness to perform extensive due diligence to deliver strong risk-adjusted returns for its investors. The managers concentrate on going where others can’t or won’t to find investment opportunities. The firm is run with the philosophy that it will manage “as much money as it deserves to manage” and that a dedication to working hard for existing clients is the best way to grow the business in a sustainable fashion. It is not Broadview’s intention to take on additional investment mandates for the foreseeable future beyond the Dark Horse LP. Broadview was founded in October of 2008 and the Dark Horse was launched in April of 2009. CONTACTS: Anthony Hammill, CFA (416) 406-4808 or [email protected] Lee Matheson, CFA (416) 406-4800 or [email protected] Jason Bernstein (416) 406-4802 or [email protected] Broadview Capital Management Inc. 181 Carlaw, Suite 302 Toronto, Ontario M4M 2S1 www.broadviewcapital.ca 5
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