th
May 15 , 2014
Unfortunately our streak of positive months ended just one shy of an entire year. Much like an elevator
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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
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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
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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
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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.
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Or in the case of something we are short, inflated or hyped by the structure in which they are held.
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It’s always important to point out that is who shareholders are – the rightful owners of the business.
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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.
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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.
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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
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Many fund managers are restricted from being activist, either tacitly or overtly.
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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.
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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
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