Mediware Information Systems
(NDAQ: MEDW) is under pressure to put itself up for sale by a major
shareholder. Cannell Capital, which owns a 12.9 percent stake in the
firm, sent a letter to the board of directors illustrating just how
cheap MEDW was on both an absolute and relative basis. The activist
hedge fund encouraged Mediware to interview an agent to solicit a
transaction that could result in an auction or merger in order to
produce the highest economic benefit to shareholders. So, is this a
company worth buying?
Cannell believes that there is a massive valuation disparity between
Mediware and its peers. In particular, the hedge fund showed that the
company’s EV/LTM EBITDA was a mere 3.2x compared to peer levels of
between 16x and 18x. Similarly, its EV/LTM Sales was just 0.7x compared
to peer levels of between 2.1x and 2.6x. It is also useful to note that
Mediware’s market capitalization stands at just $50 million, which
means that a substantial portion of the company’s income is devoted to
simply paying the costs of remaining public.
So, what does all of this mean? Well, Mediware would make for a
cheap acquisition that could become even cheaper if the suitor accounts
for savings in administrative costs associated with being a public
company. With the company’s shares well off of their $10.44 highs,
shareholders are more likely than ever to support such a transaction.
Mediware also has many potential strategic suitors, including Cerner
Corp. (NDAQ: CERN), Eclipsys Corp. (NDAQ: ECLP), and Global Med
Technologies Inc. (GLOB).
In the end, Mediware is a great candidate for this type of
transaction given its valuation disparity and potential synergies.
Whether or not management decides to pursue such a transaction remains
to be seen, but this is definitely a stock worth watching over the next
few months!
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