Verticalscope IPO

I’ve got it give it to the people that bought the Toronto Star back in May of 2020, they got a very low valuation which assumed the residual business was relatively worthless (the company had a lot of cash on the balance sheet and the pension debts weren’t too onerous). They really cashed in the middle of the COVID-19 crisis.

However, never in my mind did I anticipate that they’d be able to bring public their Verticalscope subsidiary (TSX: FORA) for triple the value that they bought Torstar for.

My, oh my, are the founding shareholders of Torstar probably feeling like they got ripped off.

Skimming the Verticalscope June 14, 2021 prospectus, we see a corporation that is flat on revenues (approx. $57-58 million/year in 2020 and 2019) and capitalized with about $100 million in debt on the balance sheet. The net debt will be gone with proceeds from the public offering. The entity does generate cash (about $14 million in operating cash flow in 2020) but overall it isn’t exactly what one would consider to be a huge money-winner, especially given what has been invested in it.

The business itself is a collection of online properties. It is a faint resemblance of what the Yellow Pages (TSX: Y) was probably trying to originally execute on their “digital strategy” before management (rightly) corrected that course from 2017 onwards. And just like Yellow’s original digital strategy, it’s likely they’ll use their enhanced liquidity position and/or their stock to acquire more online properties.

Indeed, one of the businesses that Verticalscope owns, Red Flag Deals, was sold to them by none other than the Yellow Pages.

Verticalscope extensively uses the phrase “adjusted EBITDA” to justify valuation and it indeed appears that investors are happy to overlook all the adjustments. At least with the IPO, there won’t be much in the way of interest expenses anymore.

It won’t be myself buying shares of this offering. I really wonder what the thought process of the institutional managers that do, or people that bidded it up another 10% on the after-market trading today!