Identiv (INVE) has been a company we have written a lot about over the last six months. Normally, we only trade small cap companies and rarely invest in them, but Identiv is one we believe is a worthy investment because of its undervaluation and growth potential.
Well known activist investor David Callan first pointed out Identiv to us as a legitimate small cap investment and convinced us to do deeper due diligence on the company. We ended up agreeing with Dave, and took position in the stock.
In order to be fair with our coverage of Identiv, we want to present Callan's current thoughts on Identiv, many of which we agree on.
While Identiv seems intent on improving investor relations as noted by company CEO Jason Hart, activist investor Dave Callan is nonetheless pushing for it to hire an investment banker to pursue a sale of the company.
On June 24 of this year, we reported that Callan had taken a position in the company and was supporting management and the officers. This was the opposite of his usual active and aggressive approach to dealing with undervalued investments and its management. He cited Identiv as great turnaround story in a developing technology space.
Additionally, we noted in the article that,
With Dave Callan on board, we have to believe if management ever engages in activity that is not beneficial to the shareholders, he and his attorneys will be there to demand the exploration of strategic alternatives.
So, what has changed his view leading to the belief that it should be sold? Callan continues to believe that Identiv has top notch management in place. His belief that Jason Hart is a top notch Chief Executive Officer (CEO) has not changed, and he applauds the impressive turnaround that Jason and his team have accomplished – we agree.
Callan sees the company now as streamlined with an expanded customer base with unnecessary costs eliminated. This is combined with a significantly strengthened balance sheet and positive EBITDA results documented in the most recent quarter that has the company well positioned for the future in a growing market space.
However, the company remains grossly undervalued in his opinion in which we also agree. Because the company's need for confidentiality regarding a majority of its business (security), Callan believes it will not be able to reach fair market value. Callan also feels that the traditional methods to build shareholder value are ones the company does not have access to as a result of these restraints. As Jason Hart himself has said many times, “our hands are tied as such that we cannot tell the world who our business partners are and what Identiv has to do with them.”
We think Callan has a good point here, but we also note that the company has been interviewing Investment Relations firms (IR) and is hoping to have one in place shortly after the 1st of the year.
However, Callan believes that the lack of transparency will hinder Identiv from achieving the valuation it deserves. He told us:
I believe that the only way we will maximize shareholder value is through the exploration of strategic alternatives. While under the leadership of Hart, shareholders have yet to see one material piece of official news related to any of our partnership wins. We only know of big name partners like Disney, Cisco, Verizon, Nintendo, and NXP Semiconductors through discussions coming from Management. Shareholders are placed in the precarious situation to play ‘detective' to try to determine what this company is actually doing. It should not be the responsibility of shareholders to conduct patent searches, or listen to each and every word of lightly monitored presentations or earnings calls for subtle hints of what has specifically transpired over the course of the calendar year with the company.
We think Callan makes a good point here, as we've remarked before in one of our previous articles, shareholder frustration has grown, especially in the recent case of Verizon (VZ). Hart cleared up some of the confusion in the third quarter conference call by admitting that the Verizon product in its recent public video is in fact Identiv's technology.
