JDP Capital Management’s Full Presentation On ALJ Regional Holdings

Updated on

JDP Capital Management’s Full Presentation On ALJ Regional Holdings via The Manual Of Ideas

Get The Timeless Reading eBook in PDF

Get the entire 10-part series on Timeless Reading in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

JDP Capital Management

  • Founded in 2011, seeded by Bay Area family offices
  • 23.4% gross, 17.3% net annualized returns since inception
  • Value strategy focused on companies in transition
  • 2 - 5 year time horizon per idea
  • Highly organized process around idea generation, due diligence and allocation
  • 7 - 10 focused positions
  • Long-biased, No leverage

Last MOI presentation

Wide-Moat Investing Summit, July 1, 2014

ALJ Regional Holdings Inc. OTCBB:ALJJ - Company Overview


Obscure micro-cap that could double from the current $4.59 per share within 3 years (2018)

  • Former tech-bust shell with excessive NOLs converted to permanent capital vehicle by investment banker Jess Ravich in 2006
  • Strategy to absorb NOLs by buying low-capex corporate orphaned divestitures for 4x-5x free cash flow
  • NOLs make existing cash flows and future acquisitions more valuable
  • Completed three acquisitions since 2013, sold steel mill KES in 2012
  • Unique partnership and incentive structure with subsidiary CEOs

Financial Overview

JDP Capital Management ALJ Regional Holdings

Current subsidiaries

JDP Capital Management ALJ Regional Holdings

ALJ Subsidiary overview


  • Acquired in October 2013 for $53 million from McAndrews & Forbes (half cash, half seller-note, 5% ALJJ stock)
  • Call center focused on infrastructure and government services, sticky long-term contracts
  • Verticals include toll booths, utilities, healthcare exchanges, and emergency services
  • At close: $106 million revenue, $14 million EBITDA
  • CEO Anna Van Buren co-invested $1M, earns 10% of EBITDA above $5 million
  • Today: more than doubled contract backlog to $290 million (Q3 ’15), increased EBITDA margins should follow

Carpets N More

  • Acquired in April 2014 for $5.47 million from Levine Leichtman Capital Partners (40% ALJ stock, 37% note, 22% cash)
  • Levine Leichtman Capital paid $46.5 million for the company in 2007*
  • Largest flooring and and cabinets retailer in the Las Vegas area: retail, home builder and commercial end markets
  • Estimated at close: $33 million revenue, $2.6 million EBITDA
  • CEO Steve Chesin contributed 12% equity, stayed on board to restructure
  • Today: revenue up 36% to $45 million, slightly positive cash flow, JDP estimates normalized 10% EBITDA margins in 2016

Phoenix Color

  • Acquired in August 2015 for $90 million from KKR/ Visant (100% debt)
  • Leading manufacturer of book components and commercial color printing
  • High cash flow margins, established niche player in a stagnant industry
  • Stats at close: $88 million revenue, $22.9 million EBITDA
  • CEO Marc Reisch purchased 400,000 ALJ shares and joined the Board
  • Estimated 30%+ annualized cash-on-cash IRR for ALJ

Company history and idea background

Part 1

  • Mid 1990s: Jess Ravich’s Libra Securities raises $17 million in convertible debt for tech startup Network Entertainment
  • 1996: IPO during tech-boom and becomes YouthStream Media Networks (YSTM), Credit Suisse raises $250 million, acquires internet companies
  • 2002: Post dot-com bust sells most assets for $7 million, balance sold in 2004, triggers ~$300 million in net operating losses (NOLs)
  • January 2003: Restructures debt, new board is created including Libra’s Hal Byer, intends to acquire new businesses and harvest NOLs

Part 2

  • September 2003: Ravich leads investor group that includes YSTM (1%), to purchase Kentucky Electric Steel (KES) out of bankruptcy for $2.6 million
  • Ravich buys YSTM convertible note with the intention of converting for control (JDP unsure of purchase date)
  • March 2005: YSTM acquires Kentucky Electric Steel (KES) from Ravich-led investor group for $65 million in a combination of preferred stock and sub debt
  • June 2006: Ravich joins YSTM board, becomes Chairman in August 2006
  • October/November 2006: Changes company name to ALJ Regional Holdings (after Jess’s high school), delists to Pink sheets to save money

Part 3

  • November 2012: Sells KES for $112.5 million, ALJ nets $51 million
  • Simultaneously tenders for 50% of ALJJ outstanding shares to provide liquidity for long-time investors
  • Post-tender ALJ retains $28 million in cash, no operations, and Jess is the largest shareholder, stock starts to trade for a discount to cash
  • October 2013: Acquires Faneuil for $53 million
  • April 2014: Acquires Carpets N More for $5.47 million
  • August 2015: Acquires Phoenix Color for $90 million

ALJJ stock price since Ravich took over on June 26th 2006: $0.16 to $4.59 as of December 31, 2015

JDP Capital Management ALJ Regional Holdings

How JDP got involved

Idea background

  • Introduced to ALJ by fund manager Steven Kiel in mid 2013, passed initially
  • Uniqueness of the Faneuil acquisition in October 2013 led us to reach out to ALJ's CFO Rob Christ with questions, led to a dinner meeting
  • We loved ALJ's vision and asked if there was a way to get involved
  • ALJ was considering a private placement to fund an acquisition, we signed a confidentially agreement and began due diligence immediately
  • Met with Ravich in March 2014, agreed to price of $1.60 per share to help finance Carpets N More, closed in April
  • ALJ remains a core JDP holding

JDP private placement

JDP ownership: April 2014 – December 31, 2015

JDP Capital Management ALJ Regional Holdings

See full slides below.

Leave a Comment