Well, they paid what, about $12 million for it? One could argue that the Datametrics business is perhaps now worth more, or maybe that it is now worth less -- but unless we're willing to dig and do some valuating, let's just assume it is still worth $12M today
(sanity check: let's assume fair weather ahead, what's the best we could expect if we were to buy Zitel outright? The most generous interpretation of Zitel's balance sheet that I can imagine would be to take their balance sheet's shareholder equity of $7.1M and add to it the $4.8M convertible debenture (since we all know that that will be eventually converted into equity), giving an adjusted book value of $11.9M. Assume also you could suck out virtually all the cash without killing the business, say $6M. This would leave our adjusted book value of the operating business at $5.9M, including goodwill etc -- so paying $12M for the Datametrics operating business would be paying about 2X book value (seems within the ballpark of sanity), or about 0.75X sales of $16M (also seems in the ballpark). So if you thought you could run Datametrics in a profitable manner, you might be willing to pay $6M for Zitel's cash plus $12M for Datametrics, for a total of about $18M)
Zitel's market cap today is about $30M so buying the company outright doesn't jump out at you as a bargain, though admittedly it is less than 2X a back-of-the-envelope guess of a conceivable fair value.
So, does anyone agree or disagree with my quick-and-dirty guess of how much Zitel could be worth? Is anyone still reading? ;-)
- Daniel |
