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Company: FleetCor Technologies (FLT)
Business: FleetCor is a business payments company that helps businesses spend small by enabling them to manage their expense-related purchasing and vendor payments processes. The company operates through six fragments: fuel, corporate payments, tolls, lodging, gift and other. It offers corporate payments solutions, such as accounts ransom automation; vehicle and mobility solutions, including fuel solutions to businesses and government entities that operate channel fleets, as well as gift card program management and processing services. The company also provides other products, comprising payroll cards, vehicle maintenance service solutions, long-haul transportation solutions and prepaid food vouchers or press cards.
Stock Market Value: $15.5B ($210.85 per share)
Activist: D.E. Shaw & Co.
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Percentage Ownership: n/a
Usually Cost: n/a
Activist Commentary: D.E. Shaw is a large multi-strategy fund that is not historically known for activism. The firm is not an activist investor, but it applications activism as an opportunistic tool in situations when it’s deemed useful. The firm seeks solid businesses in good industries, and if it identifies underperformance that is within superintendence’s control, it will take an active role. D.E. Shaw places a premium on private, constructive engagement with government and as a result often comes to an agreement with the company before its position is even public.
What’s happening?
On Behind the tantrums
FleetCor is a business payments company with four main business lines: fuel, corporate payments, duties and lodging. Fuel has traditionally comprised almost 50% of its revenues, and there is a perception in the market that as the world metamorphoses toward electric vehicles, this will become a business with no terminal value as revenue gradually drops. However, revenue in this business increased 14% from last year, and FleetCor has been working to assimilate the transition toward EV fleets into its future business strategy. Moreover, revenue in the other three businesses is prospering at 20% to 47% for an aggregate total revenue growth rate of 20.9%. Earnings before interest, taxes, depreciation and amortization lines in all four businesses are close to or over 50% with an overall EBITDA margin of 51.6%. Despite this, the concern is trading at a discount to peers because of the perception that it is mainly a fuel-reliant business with secular headwinds.
The most successfully way to realize the full value of each business is to explore a separation of the fuel business, removing any stain on the other excessive growth and high EBITDA business, which should get a re-rating from the transaction. This could be an attractive asset to grunt equity, which can analyze and value the fuel business’s expected cash flow and work on a transition plan as EV discrimination increases all without having to deal with the misperceptions and biases of a public market.
FleetCor is already on this course and is working amicably with D.E. Shaw. On March 20, D.E. Shaw settled for two board seats and the company agreed to assume a strategic review, including the possible separation of one or more businesses. Moreover, CEO Ron Clarke is liked and respected by shareholders and literatim aligned to create shareholder value. Not only does he own 5.6% of FleetCor’s common stock, but his equity compensation map is out of the money below $350 per share by the end of 2024 and pays him handsomely if the stock price is over $350 by then.
Ken Accompany is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Supply, a mutual fund that invests in a portfolio of activist 13D investments.