Author Topic: SYTE - Enterprise Diversified  (Read 162973 times)

BG2008

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Re: SYTE - Enterprise Diversified
« Reply #500 on: October 08, 2018, 07:18:19 AM »
I see a pattern with "fund managers" who wind up buying businesses like WEB.  WEB at one point bought a gas station in Omaha and he quickly found out that it is a tough business and he and his family wind up working on the weekends and pumping gas and cleaning windows.  I think a lot of us, asset managers, don't know or forget how hard it is to run actual businesses.  We read annual reports and argue about what is a good business move and what is a bad business move and how we would do things differently.  We're kind of like the talking heads doing Monday morning quarterbacking.  In reality, if you ever played an actual sport or ran a business, you will know that the real world is very different and much harder.  Your opponents don't just lay down and let you run all over them.  Your employees don't do exactly what you tell them to do.  On paper, running a Chinese food take place is a great business because you don't need to manage working capital.  It is a capital light business.  Yes, it cost $100-150k to open up a place, but if you run it well, you can net $100k in a year.  Your customers pay you at the point of sale, but you pay your vendors after 1-2 months.  It's fairly recession proof.  Everyone has to eat, right?  $6 lunch specials is the cheapest you will get.  As a fund manager, we would mistaken many of these view points as being advantages and someone may say "hey, let's roll them up"  I'm sure that the mom and pop people don't know how to run it as well as a professional fund manager.  What the fund manager forget is that the owner's got his wife and three kids working pretty much full time to make that $100k a year.  It is not representative of the true business.  I have an uncle who does very well as a HVAC guy.  But he works like 12-14 hours a day and he's very good at what he does.  You can't take him out and replace him with a 20 year old who clocks in and clocks out.   

Peter Lynch mentioned that some financial entities tried to roll up the lobster fishing industry mentioning scale etc.  The truth is lobster fisherman is a irrational breed of people who smoke Marlboros, are grumpy, but work like hell, and loves being on the water.  Yes, it's a shitty living and they don't make anything.  But they go to work everyday being on the water.  They may even dislike their job/business, but they show up everyday to do it.  It's being a part of a shitty American dream.  You try to roll up the lobster fishing industry, you will go broke.  If an industry is fragmented, there is likely a good reason why it is.  As a manager, you really need to understand why and examine what you're bringing to the table that will alter the economics.   

Rant over.  I think guys like Keith Smith are salt of the earth and great assets for SYTE.  I also think that the asset management business offers something that is truly differentiated from the S&P 500.     


Jurgis

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Re: SYTE - Enterprise Diversified
« Reply #501 on: October 08, 2018, 07:21:33 AM »
I see a pattern with "fund managers" who wind up buying businesses like WEB.  WEB at one point bought a gas station in Omaha and he quickly found out that it is a tough business and he and his family wind up working on the weekends and pumping gas and cleaning windows.  I think a lot of us, asset managers, don't know or forget how hard it is to run actual businesses.  We read annual reports and argue about what is a good business move and what is a bad business move and how we would do things differently.  We're kind of like the talking heads doing Monday morning quarterbacking.  In reality, if you ever played an actual sport or ran a business, you will know that the real world is very different and much harder.  Your opponents don't just lay down and let you run all over them.  Your employees don't do exactly what you tell them to do.  On paper, running a Chinese food take place is a great business because you don't need to manage working capital.  It is a capital light business.  Yes, it cost $100-150k to open up a place, but if you run it well, you can net $100k in a year.  Your customers pay you at the point of sale, but you pay your vendors after 1-2 months.  It's fairly recession proof.  Everyone has to eat, right?  $6 lunch specials is the cheapest you will get.  As a fund manager, we would mistaken many of these view points as being advantages and someone may say "hey, let's roll them up"  I'm sure that the mom and pop people don't know how to run it as well as a professional fund manager.  What the fund manager forget is that the owner's got his wife and three kids working pretty much full time to make that $100k a year.  It is not representative of the true business.  I have an uncle who does very well as a HVAC guy.  But he works like 12-14 hours a day and he's very good at what he does.  You can't take him out and replace him with a 20 year old who clocks in and clocks out.   

Peter Lynch mentioned that some financial entities tried to roll up the lobster fishing industry mentioning scale etc.  The truth is lobster fisherman is a irrational breed of people who smoke Marlboros, are grumpy, but work like hell, and loves being on the water.  Yes, it's a shitty living and they don't make anything.  But they go to work everyday being on the water.  They may even dislike their job/business, but they show up everyday to do it.  It's being a part of a shitty American dream.  You try to roll up the lobster fishing industry, you will go broke.  If an industry is fragmented, there is likely a good reason why it is.  As a manager, you really need to understand why and examine what you're bringing to the table that will alter the economics.   

Good post.
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globalfinancepartners

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Re: SYTE - Enterprise Diversified
« Reply #502 on: October 08, 2018, 07:24:21 AM »
+1, good post.  I think a lot of folks on this board can attest that investment management and real estate investment can be really good businesses.  There are certainly worse strategies than focusing on these strengths.

Spekulatius

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Re: SYTE - Enterprise Diversified
« Reply #503 on: October 08, 2018, 09:26:00 AM »
It’s not odd. If it doesn’t get mentioned, it means it get sold off.  It’s implied ,the way I read this letter. I have been in the corporate world long enough to read the tea leaves, and this seem as clear as they come.

What I was trying to convey: that they possibly want to get rid of the HVAC business isn't odd at all. But if HVAC is a disaster then I believe our great value investing hero WEB would say just that in his shareholder letter. I'd expect the same from these guys. But maybe there are some (legal) issues with that that I am not aware of - explaining the 'stay tuned for more details' in the shareholder letter.

You don‘t state that a business is a disaster before you sell it obviously, but they will probably more frank regarding their assessment, once the business is sold.

BG2008 hit the nail on the head, imo.
« Last Edit: October 08, 2018, 03:01:54 PM by Spekulatius »
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BG2008

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Re: SYTE - Enterprise Diversified
« Reply #504 on: October 08, 2018, 02:53:25 PM »
I see a pattern with "fund managers" who wind up buying businesses like WEB.  WEB at one point bought a gas station in Omaha and he quickly found out that it is a tough business and he and his family wind up working on the weekends and pumping gas and cleaning windows.  I think a lot of us, asset managers, don't know or forget how hard it is to run actual businesses.  We read annual reports and argue about what is a good business move and what is a bad business move and how we would do things differently.  We're kind of like the talking heads doing Monday morning quarterbacking.  In reality, if you ever played an actual sport or ran a business, you will know that the real world is very different and much harder.  Your opponents don't just lay down and let you run all over them.  Your employees don't do exactly what you tell them to do.  On paper, running a Chinese food take place is a great business because you don't need to manage working capital.  It is a capital light business.  Yes, it cost $100-150k to open up a place, but if you run it well, you can net $100k in a year.  Your customers pay you at the point of sale, but you pay your vendors after 1-2 months.  It's fairly recession proof.  Everyone has to eat, right?  $6 lunch specials is the cheapest you will get.  As a fund manager, we would mistaken many of these view points as being advantages and someone may say "hey, let's roll them up"  I'm sure that the mom and pop people don't know how to run it as well as a professional fund manager.  What the fund manager forget is that the owner's got his wife and three kids working pretty much full time to make that $100k a year.  It is not representative of the true business.  I have an uncle who does very well as a HVAC guy.  But he works like 12-14 hours a day and he's very good at what he does.  You can't take him out and replace him with a 20 year old who clocks in and clocks out.   

Peter Lynch mentioned that some financial entities tried to roll up the lobster fishing industry mentioning scale etc.  The truth is lobster fisherman is a irrational breed of people who smoke Marlboros, are grumpy, but work like hell, and loves being on the water.  Yes, it's a shitty living and they don't make anything.  But they go to work everyday being on the water.  They may even dislike their job/business, but they show up everyday to do it.  It's being a part of a shitty American dream.  You try to roll up the lobster fishing industry, you will go broke.  If an industry is fragmented, there is likely a good reason why it is.  As a manager, you really need to understand why and examine what you're bringing to the table that will alter the economics.   

Rant over.  I think guys like Keith Smith are salt of the earth and great assets for SYTE.  I also think that the asset management business offers something that is truly differentiated from the S&P 500.   

BTW, I meant to say the asset management business of SYTE (not just any asset management business) offers something that is truly differentiated from the S&P 500. 

Junto

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Re: SYTE - Enterprise Diversified
« Reply #505 on: October 09, 2018, 08:20:01 PM »
I see a pattern with "fund managers" who wind up buying businesses like WEB.  WEB at one point bought a gas station in Omaha and he quickly found out that it is a tough business and he and his family wind up working on the weekends and pumping gas and cleaning windows.  I think a lot of us, asset managers, don't know or forget how hard it is to run actual businesses.  We read annual reports and argue about what is a good business move and what is a bad business move and how we would do things differently.  We're kind of like the talking heads doing Monday morning quarterbacking.  In reality, if you ever played an actual sport or ran a business, you will know that the real world is very different and much harder.  Your opponents don't just lay down and let you run all over them.  Your employees don't do exactly what you tell them to do.  On paper, running a Chinese food take place is a great business because you don't need to manage working capital.  It is a capital light business.  Yes, it cost $100-150k to open up a place, but if you run it well, you can net $100k in a year.  Your customers pay you at the point of sale, but you pay your vendors after 1-2 months.  It's fairly recession proof.  Everyone has to eat, right?  $6 lunch specials is the cheapest you will get.  As a fund manager, we would mistaken many of these view points as being advantages and someone may say "hey, let's roll them up"  I'm sure that the mom and pop people don't know how to run it as well as a professional fund manager.  What the fund manager forget is that the owner's got his wife and three kids working pretty much full time to make that $100k a year.  It is not representative of the true business.  I have an uncle who does very well as a HVAC guy.  But he works like 12-14 hours a day and he's very good at what he does.  You can't take him out and replace him with a 20 year old who clocks in and clocks out.   

Peter Lynch mentioned that some financial entities tried to roll up the lobster fishing industry mentioning scale etc.  The truth is lobster fisherman is a irrational breed of people who smoke Marlboros, are grumpy, but work like hell, and loves being on the water.  Yes, it's a shitty living and they don't make anything.  But they go to work everyday being on the water.  They may even dislike their job/business, but they show up everyday to do it.  It's being a part of a shitty American dream.  You try to roll up the lobster fishing industry, you will go broke.  If an industry is fragmented, there is likely a good reason why it is.  As a manager, you really need to understand why and examine what you're bringing to the table that will alter the economics.   

Rant over.  I think guys like Keith Smith are salt of the earth and great assets for SYTE.  I also think that the asset management business offers something that is truly differentiated from the S&P 500.   

There are real reasons why private equity firms have operating partners. Very insightful post and applicable in many industries.

globalfinancepartners

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Re: SYTE - Enterprise Diversified
« Reply #506 on: October 26, 2018, 10:32:39 AM »
https://www.valuewalk.com/2018/10/arquitos-3q18-commentary-long-endi/

Seems relevant to post the Arquitos letter here.  Contains more detail on Willow Oak and the other positions might be of interest to some.  I, for one, am a large shareholder of MMAC, which is attractively priced today at 25.xx.  Not as familiar with Westaim, but I remember some here following it.

globalfinancepartners

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Re: SYTE - Enterprise Diversified
« Reply #507 on: November 05, 2018, 12:08:08 PM »
https://www.sec.gov/Archives/edgar/data/1096934/000143774918019519/syte20181105_8k.htm

Quote
The Company’s determination to terminate the Purchase Agreement resulted from the Company’s management conducting a detailed budget process in the third quarter of this year that revealed that in addition to the 113 properties previously acquired under the Purchase Agreement, Mt Melrose’s management had significantly expanded Mt Melrose’s staffing and operations and had purchased 34 additional other properties during the quarter ended June 30, 2018—with Mt Melrose carrying, in accordance with the requirements of generally accepted accounting principles concerning consolidation, a total of 195 properties on its balance sheet as of September 30, 2018—and that the carrying costs of certain of Mt Melrose’s holdings together with Mt Melrose’s increased general and administrative expenses were not financially prudent, and, if continued, would not be in the best interests of the Company and its shareholders. The Company’s management is in the process of implementing an outsourced property management model at Mt Melrose similar to what it implemented at its EDI Real Estate property operations in Roanoke, Virginia. A third-party property manager has been engaged as of November 1, 2018 to manage certain of the real properties previously acquired by Mt Melrose. In addition, the Company’s management currently is undertaking an assessment of all of the real properties previously acquired by Mt Melrose to determine which holdings should be divested or restructured, depending upon, for example, each property’s current physical condition, any renovation costs projected to be required for each property, the current state of occupancy of each property, the amount and interest rate of debt of each property and each property’s current and projected cash flow. The Company expects to sell a significant number of the Mt Melrose real properties that are not currently generating revenue.

Quote
In addition, and also in connection with the above, Mt Melrose and Moore have entered into a certain Termination of Employment Agreement also effective November 1, 2018, pursuant to which the parties mutually agreed to terminate the above-noted Moore Employment Agreement as of November 1, 2018. Under the termination agreement, Moore irrevocably waived any and all right and interest that Moore may have had to receive any further payment or other amounts of any kind under the Moore Employment Agreement (including with respect to any annual bonus compensation and any right of first refusal as to the Company’s equity interests in Mt Melrose). Accordingly, Moore’s employment by and with Mt Melrose was terminated, and Moore was removed as an officer of Mt Melrose, effective as of November 1, 2018. Moore’s termination resulted from the Company’s determination, made in connection with the other matters above, to terminate the employment of all Mt Melrose staff and outsource Mt Melrose’s property management and renovation operations to a third-party service provider. Notwithstanding Moore’s termination, Moore and Mt Melrose have agreed that Mt Melrose will pay to Moore on March 31, 2019 a one-time fee equal to 0.25% of the aggregate amount of any indebtedness secured by the real properties owned by Mt Melrose for which Moore provides a personal guaranty, provided that Moore maintains each such personal guaranty throughout the term of the applicable loan.
« Last Edit: November 05, 2018, 12:11:16 PM by globalfinancepartners »

NBL0303

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Re: SYTE - Enterprise Diversified
« Reply #508 on: November 05, 2018, 12:37:21 PM »
https://www.sec.gov/Archives/edgar/data/1096934/000143774918019519/syte20181105_8k.htm

Quote
The Company’s determination to terminate the Purchase Agreement resulted from the Company’s management conducting a detailed budget process in the third quarter of this year that revealed that in addition to the 113 properties previously acquired under the Purchase Agreement, Mt Melrose’s management had significantly expanded Mt Melrose’s staffing and operations and had purchased 34 additional other properties during the quarter ended June 30, 2018—with Mt Melrose carrying, in accordance with the requirements of generally accepted accounting principles concerning consolidation, a total of 195 properties on its balance sheet as of September 30, 2018—and that the carrying costs of certain of Mt Melrose’s holdings together with Mt Melrose’s increased general and administrative expenses were not financially prudent, and, if continued, would not be in the best interests of the Company and its shareholders. The Company’s management is in the process of implementing an outsourced property management model at Mt Melrose similar to what it implemented at its EDI Real Estate property operations in Roanoke, Virginia. A third-party property manager has been engaged as of November 1, 2018 to manage certain of the real properties previously acquired by Mt Melrose. In addition, the Company’s management currently is undertaking an assessment of all of the real properties previously acquired by Mt Melrose to determine which holdings should be divested or restructured, depending upon, for example, each property’s current physical condition, any renovation costs projected to be required for each property, the current state of occupancy of each property, the amount and interest rate of debt of each property and each property’s current and projected cash flow. The Company expects to sell a significant number of the Mt Melrose real properties that are not currently generating revenue.

Quote
In addition, and also in connection with the above, Mt Melrose and Moore have entered into a certain Termination of Employment Agreement also effective November 1, 2018, pursuant to which the parties mutually agreed to terminate the above-noted Moore Employment Agreement as of November 1, 2018. Under the termination agreement, Moore irrevocably waived any and all right and interest that Moore may have had to receive any further payment or other amounts of any kind under the Moore Employment Agreement (including with respect to any annual bonus compensation and any right of first refusal as to the Company’s equity interests in Mt Melrose). Accordingly, Moore’s employment by and with Mt Melrose was terminated, and Moore was removed as an officer of Mt Melrose, effective as of November 1, 2018. Moore’s termination resulted from the Company’s determination, made in connection with the other matters above, to terminate the employment of all Mt Melrose staff and outsource Mt Melrose’s property management and renovation operations to a third-party service provider. Notwithstanding Moore’s termination, Moore and Mt Melrose have agreed that Mt Melrose will pay to Moore on March 31, 2019 a one-time fee equal to 0.25% of the aggregate amount of any indebtedness secured by the real properties owned by Mt Melrose for which Moore provides a personal guaranty, provided that Moore maintains each such personal guaranty throughout the term of the applicable loan.

Wow - this seems like a huge deal. Moore was the reason or the catalyst for all of the others getting involved with this right. And wasn't the Mt. Melrose deal just struck in January or so of this year?

So is what Enterprise Diversified is now saying is that the properties were not as advertised or expected in the purchase agreement? And additionally that since the purchase agreement for Mt. Melrose was struck - that they added expenses beyond what were warranted? This makes me quite sad, because I enjoyed following what Moore did with Sitestar when he learned of its problems and I guess I'm just really surprised by this turn of events.

globalfinancepartners

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Re: SYTE - Enterprise Diversified
« Reply #509 on: November 05, 2018, 12:41:15 PM »
Not sure thats the exact story - but we do know there is a new CEO and they are exiting a bunch of businesses.