Zack Buckley on $PRTH's take private

Episode Summary

Executive Summary: The episode examines Priority Technology Holdings (PRTH), focusing on its underappreciated high-margin Treasury segment and the ongoing special committee process after CEO/chairman Tom Priore proposed taking the company private at $6.00-$6.15 per share. Both hosts argue the bid appears far below intrinsic value, citing public and private comps and the business’s recurring cash flow.

Main Topics: Priority Tech business breakdown (Priority: 5/5): Zach Buckley explains PRTH as three businesses—merchant solutions, payables, and treasury solutions—with Treasury as the core value driver due to its software-like recurring economics and high margins. Treasury Solutions economics (Priority: 5/5): The Treasury segment, led by CFTPay, is framed as a high-margin embedded infrastructure business serving debt settlement and other enterprise partners, with recurring enrollment, servicing, and transaction revenue. Valuation versus payment-sector comps (Priority: 5/5): The discussion contrasts PRTH’s current valuation with recent payment and software comps, arguing that even conservative multiples imply materially higher upside than the market price. Take-private proposal and fairness debate (Priority: 5/5): The hosts dissect Priore’s November offer to buy PRTH at $6.00-$6.15, arguing the bid is opportunistic and well below fair value, especially given prior trading levels and later comps. Special committee process and timeline (Priority: 4/5): They discuss the long-running special committee review, the retention of Barclays and Paul Weiss, and how a prolonged timeline may indicate serious negotiations or a third-party sale process. Disclosure, governance, and strategic alternatives (Priority: 4/5): The conversation covers the January 2025 secondary offering, the chairman’s majority ownership, the lack of public updates on the process, and the possibility of a strategic buyer or higher private bid.

Key Arguments: PRTH is not a simple payments company; Treasury Solutions is the economically dominant business and deserves a higher multiple than conventional payments processors. Over 90% of the company’s business is recurring or reoccurring, supporting predictability and free-cash-flow durability. Treasury generated about $215 million of revenue and about $180 million of adjusted EBITDA, implying roughly an 84% EBITDA margin. The take-private offer of $6.00-$6.15 per share is far below estimated intrinsic value, with sum-of-the-parts estimates around $17-$19 per share. Recent transaction comps, especially Payoneer, support significantly higher implied valuations even after accounting for comp differences. The long special-committee process may reflect real negotiation, a search for third-party bids, or price discovery after recent market comps. Even in a downside case, the offer provides some floor value; in the upside case, a transaction or rerating could produce substantial gains. PRTH’s leverage is manageable relative to peers because cash flow is recurring and debt is being paid down quarter by quarter.

Data Points: Recurring/reoccurring revenue mix: Over 90% - Zach says most of Priority’s business is recurring or reoccurring, supporting predictability. Treasury share of business: About 60% - Treasury Solutions is described as the majority of value and revenue contribution. Treasury revenue: $215 million - Approximate annual revenue cited for the Treasury segment. Treasury adjusted EBITDA: About $180 million - Approximate EBITDA generated by Treasury Solutions. Treasury EBITDA margin: Roughly 84% - Used to show software-like economics and high profitability. Treasury gross margin at acquisition: 93.5% - FinSera/CFTPay was sub-scale but already very high gross margin when acquired in 2021. Treasury EBITDA margin at acquisition: 68% - Margin at the time of the FinSera acquisition in 2021. Business growth: Tripled EBITDA in the last four years - Used to illustrate strong execution in Treasury Solutions. Current free cash flow valuation: 4x-5x free cash flow - Zach argues PRTH trades at a very low FCF multiple today. Free cash flow per share growth: 10%+ annually - Describes recent growth in per-share cash generation. Merchant comp valuation: 8.3x EBITDA - Payoneer transaction cited as a recent public/private comp for the payments component. Implied price from Payoneer comp: About $12/share - Zach says even that conservative comp implies more than 100% upside from around $5.50. Current share price mentioned: Around $5.50 - Used as a reference point in the discussion of upside from valuation comps. Take-private offer: $6.00-$6.15/share - Priore’s proposed acquisition range for minority holders. Stock drawdown before bid: Over 50% - Zach notes the stock had fallen sharply before the proposal. Chairman ownership: About 56% - Priore’s controlling stake was cited as a key governance factor. Board/insider ownership: About 2%-3% - Additional insider ownership beyond the chairman’s stake. Net debt / EBITDA: 3.8x - Current leverage level discussed as declining quickly. January 2025 secondary offering price: $7.75/share - Used as a data point showing prior market-clearing value above the take-private bid. Special committee legal add-backs: About $3 million - Host notes legal costs associated with the strategic process increased adjusted EBITDA add-backs. Potential public company cost savings: $4 million-$5 million per year - Used to argue a take-private transaction could create additional value through SG&A savings.

Pivotal Quotes: "Priority today is trading between four and five times free cash flow for a business that's consistently growing free cash flow per share at 10% plus." — Zach Buckley: Core valuation argument for why PRTH is deeply undervalued. "Treasury Solutions isn't going anywhere. Like AI is not displacing that." — Zach Buckley: Response to concerns about disruption risk and business durability. "I think fair value is likely to be realized." — Zach Buckley: Comment on the special committee process and expected outcome.

Implications: Listeners should view PRTH as a special-situation value idea with asymmetric upside: a low-ball take-private offer may anchor downside, but Treasury’s economics and comparable transactions suggest materially higher fair value if the process results in a sale or rerating.