NEW YORK, Oct. 11, 2018 /PRNewswire/ --
Dear Board and Management of PAR Technology Corporation
(NYSE:PAR),
As you are aware, ADW Capital Management LLC ("ADW Capital") is
the advisor to entities that beneficially own 1,623,000 shares of
PAR Technology (NYSE:PAR) or (the "Company") representing
approximately 10.3% of the Company's outstanding shares. We made
these purchases after completing an exhaustive due diligence
process in which we concluded that the Company trades at a deep
discount to the sum-of-its-parts excluding Brink, its burgeoning
cloud-based SaaS business that we believe could be worth billions
of dollars over time. While we recognize that the Company has
generated negative shareholder returns since going public 36 years
ago and has a track record of serial strategic blunders, we
expected the current members of the Board of Directors (many of
whom were recently appointed) to take steps to insure a solid
future for the Company. Several months after we acquired our
position in the Company it became apparent to us that the Company
was making little progress towards funding Brink and pursuing other
avenues to narrow the disconnect in valuation. Accordingly,
we approached the current Board of Directors with a detailed plan
to maximize the potential of the Company's assets. It was our
sincere hope that the Company would be open to act in a way that
might help dispel its poor history of value destruction. While
external discussions helped reinforce our view that Brink and the
legacy assets within PAR are worth multiples of the current market
cap, our conversations with representatives of the Company have
highlighted our impression of internal dysfunction endemic in the
Company. We also strongly believe that the Company
lacks the resources to maximize shareholder value by executing on a
strategy to both finance Brink and restructure/divest its other
businesses profitably. As a result, we believe the Company's only
path to maximize shareholder value is to pursue an outright sale of
the entire Company immediately.
Strategic Blunders, Mismanagement and Irresponsible Decision
Making
We ask this Board of Directors to closely review its history of
s strategic errors and poor decisions to truly recognize its
abysmal track record. A look at the corporate governance issues in
the past 5 years speak to the significant dysfunction in this
Company:
- Three separate CEO resignations
- Two separate resignations of Independent Board members – one
that resulted in the Company receiving a delisting notice from the
NYSE and the other that prompted one of these Independent Directors
to write a letter expressing his disagreement with the Company's
direction
- The firing of a CFO over an "unauthorized investment"
- A period of over 8 months with no CFO in office
- A continuing SEC investigation that has lasted since 2017 with
no clear indication as to when it will end while legal costs keep
mounting
- No acting Chairman of the Board of Directors since 2015
- Failure to provide investors with financial information about
the growth and performance of Brink, the SaaS business, and the
Company's lack of investment in the SaaS business
- Failing to report monthly support revenue in MRR / not breaking
out PAR hardware vs. Brink Hardware
- Combining Brink with its legacy Hardware /Restaurant
Division
- Failure to disclose total corporate overhead and allocation
towards segments
- Keeping the founder's son employed given his lack of
discernible qualifications
- Renting a corporate facility to the founder's son and daughter
so they can operate a fitness center on site
The list goes on…
Before our involvement, since taking this Company public 36
years ago, John Sammon's
leadership had produced a total shareholder return of roughly -55%
while the S&P returned over 5,500%. Clearly, Mr. Sammon's
failure is not limited to his ineptitude in leading a Board of
Directors, his shortcomings as CEO also speak to the poor quality
of his decision making. Our due diligence suggests that while Mr.
Sammon is no longer CEO of PAR, he has been micro-managing the
Company and has remained very active in strategic decision making.
A Board of Directors that allows such behavior is utterly
irresponsible.
The current management team continues John Sammon's legacy of poor performance. Since
taking the CEO role in 2017, Don
Foley has demonstrated a severe lack of qualifications to be
running this Company. During our discussions, we were surprised to
find out that Mr. Foley spent his time running the Company from his
home in Potomac, Maryland. How can
the CEO of a public company that is in the midst of transitioning
from "old tech" to "new tech" be effective 400 miles away? What is
even more worrying considering this Board understands the
importance of growing Brink, is that Don
Foley has no experience running a software company. This
Board's irresponsible decision making needs to stop now.
Insular Board of Directors and Self-Inflicted Damage
In mid August 2018, we provided
this Board of Directors with a detailed plan of raising capital at
the Brink subsidiary level in order to capitalize on Brink's growth
opportunity and allow it to effectively compete given that Brink
has been strained for resources relative to its peers. Simply put,
we believed that a subsidiary financing created a new paradigm
where only Brink could use/spend the capital that was invested and
establish separate governance from the Company. We explicitly
stated our opposition against a capital raise other than that at
the Brink level because we believe that the Company's Board of
Directors can NOT BE TRUSTED to invest capital given its abysmal
track record.
Moreover, financing at the Brink level provided a number of
benefits to the Company's other subsidiaries. Firstly, those
subsidiaries would have no longer been responsible for funding
Brink's growth – or to our later surprise we found that those other
subsidiaries were in fact not funding Brink's growth but rather the
Company's loss leading hardware and corporate infrastructure
business. With a substantial amount of capital devoted solely to
Brink, management could have focused on operationally improving the
performance of the Company's other subsidiaries while also
exploring ways to right-size its corporate G&A, automate
processes, and explore strategic alternatives to maximize the value
of these other subsidiaries. We believed a subsidiary
financing would have brought new rules, new management, and
accountability to an organization that today has little.
The Company's shocking failure to best position Brink for the
years ahead was made abundantly clear throughout our discussions. A
look at the latest earnings report shows the Company has been
drawing on its revolver to fund a bloated corporate overhead
instead of right-sizing itself and making legacy operations
profitable to feed Brink's growth – a scathing indictment of how
fiscally irresponsible and reckless we believe that this Board's
conduct has been. It is clear to us that this management team is
unable to take the bold actions necessary to restructure the
Company – in fact, due to the bloated overhead costs, we believe
the Government and Hardware segments are generating negative
EBITDA. Clearly, this Board of Directors is on a path to
self-destruction, which we believe dilutes the value of Brink with
or without a subsidiary financing.
It is now too late for this Board to do a "180", the damage has
already been done. Simply, every day that passes, as Brink
continues to gain value with new bookings and installed units, the
delta between the Company's share price and its intrinsic value
becomes larger. We believe it would be irresponsible to let this
Board of Directors make any further strategic decisions absent a
sale of the entire business. It is evident that there is a clear
path for Brink to become a multi-billion dollar business but we do
not believe that this Board of Directors and management have what
it takes to ensure Brink reaches its full potential.
Brink and The Value of PAR's Assets
For all of the reasons stated in this letter, we urge the Board
of Directors to initiate a sale process immediately. We set
forth below why the Company could be of significant interest to a
strategic and why we believe that the assets within the Company are
worth multiples of today's market cap:
Firstly, the empirical evidence of how undervalued Brink is
within the Company is about as damning as it gets. While remaining
neglected within the corporate umbrella, Brink's impressive growth
with de minimis capital investment relative to its peers
speaks for the quality of this asset – from the time it was
acquired in 2014, installed units grew from 400 to over 7,000 today
and 10,000 expected at year end. What's even more compelling is
that Brink is the only proven enterprise solution that has
successfully supported large scale multi-unit chains. Brink's
customer base, which includes: Five Guys, Dairy Queen, Arby's and
more – have all praised the system. While we believe management's
target of 34,000 installed units by 2020 may end up looking
conservative, it still highlights the value of this asset. We
assume monthly ARPU will be roughly $250 including mandatory $50 monthly support – on 34,000 booked/installed
units in 2020, that is over $100mm in SaaS revenue exiting 2020.
Based on current "growthy" publicly traded SaaS companies, we
believe this business could be worth in excess of $1 Billion today.
While the SaaS component of Brink is extremely compelling in
itself, we believe an even larger opportunity lays in payments.
According to our research, Toast, one of Brink's peers – has a 100%
penetration rate on merchant processing for its POS customers and
captures over 50bps of net revenue on the transaction volume that
flows through their system. If we assume that Brink scales to a
conservative 50% penetration rate on its customers – 50 percent of
34,000 in 2020, we believe that it can also capture ~50bps on the
$1.5 million/per restaurant of
transaction volume – which could yield as much as $130 million in EBITDA. This business could be
worth as much as $1.8 Billion to
$2.6 Billion at scale.
If Brink accomplishes its near-term growth objectives and
capitalizes on the payments opportunity, we estimate this business
could be worth $3bn by 2020 and
ascribes zero value to the Company's legacy assets. Therefore, any
capital raise at the holding company level today would be massively
dilutive at an ~300 MM market capitalization and if the Board of
Directors approves a value destructive transaction such as this, we
would view it as a clear breach of the Board of Directors'
fiduciary duties and would hold each director personally
responsible for the value destroyed. Although a transaction such as
this would be a continuation of John
Sammon's 36 years of adventures in corporate value
destruction!
The most attractive part of owning shares in the Company today,
is that at these levels, investors are getting Brink for free – we
believe that the legacy assets within the Company are worth the
current market cap.
The Company's current share price is a clear indicator the
market is factoring in a "John
Sammon / Don Foley"
discount.
PAR ($ in
MM)
|
|
|
SOTP Value ($ in
MM)
|
|
|
|
|
|
|
|
|
Stock
Price
|
$19.7
|
|
Government
|
|
125
|
|
|
|
Hardware/Service
|
|
100
|
Basic
Shares
|
16.20
|
|
Working
Capital
|
|
25
|
Stock Options
+Warrants
|
0
|
|
Surecheck
|
|
20
|
Dil Shares
Outstanding
|
16.20
|
|
Real
Estate
|
|
25
|
|
|
|
PixelPoint
|
|
15
|
Market Cap
|
$319.1
|
|
Total
|
|
310
|
Cash
|
8.7
|
|
Per Share (w/o
BRINK)
|
|
$19.14
|
Debt
|
6.1
|
|
|
|
|
Enterprise
Value
|
316.5
|
|
Implied Value of
Brink
|
|
6.5
|
|
|
|
Per
Share
|
|
$0.40
|
Path Forward: What is Right for the Company
The Board of Directors' choices regarding capital allocation
reflects a decision-making process that is based on a sentimental
agenda and its continuing to finance a massive and bloated
corporate overhead makes no sense from a strategic and financial
perspective. Even more disheartening is that the Board of Directors
has stymied growth in Brink by funding these losses and focusing on
other things like family run fitness clubs. This Board of Directors
and management team have denied the opportunity to "turn the ship"
too many times – giving this Board of Directors another chance
reminds us of the old adage: "the definition of insanity is
doing the same thing over and over again and expecting different
results."
Bluntly speaking, by denying its failures and remaining
complacent, we think the Company is offering competitors the
opportunity to "catch up" given they are raising capital at
unprecedented valuations and investing heavily in both their
product and sales & marketing. While it is clear that Brink has
a significant head start, in order to maintain growth and market
share, we urge this Board of Directors to FINALLY do what is right
for all its stakeholders and proceed with a sale of the Company
immediately.
ADW Capital Partners, L.P. and its affiliates are the largest
outside shareholders in the Company's common shares and urge the
board to take our recommendations seriously. We look forward to
hearing your response.
Adam D. Wyden
Managing Member of the General Partner,
ADW Capital Partners, L.P.
Cautionary Statement Regarding Forward-Looking
Statements:
The information herein contains "forward-looking
statements." Specific forward-looking statements can be identified
by the fact that they do not relate strictly to historical or
current facts and include, without limitation, words such as "may,"
"will," "expects," "believes," "anticipates," "plans," "estimates,"
"projects," "targets," "forecasts," "seeks," "could" or the
negative of such terms or other variations on such terms or
comparable terminology. Similarly, statements that describe our
objectives, plans or goals are forward-looking. Our forward-looking
statements are based on our current intent, belief, expectations,
estimates and projections regarding the Company and projections
regarding the industry in which it operates. These statements are
not guarantees of future performance and involve risks,
uncertainties, assumptions and other factors that are difficult to
predict and that could cause actual results to differ materially.
Accordingly, you should not rely upon forward-looking statements as
a prediction of actual results and actual results may vary
materially from what is expressed in or indicated by the
forward-looking statements.
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SOURCE ADW Capital Partners, L.P.