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FriendFinder Networks (FFN) debuted its IPO in May 2011 with a $10 per share offering, which gave a market capitalization of about $315 million. As of yesterday's close, the company was valued at $22 million, while the company is still generating about $90 million in adjusted EBITDA, so I think it's a serious buying opportunity.

Yes, their IPO was a total disaster, taking them into risky, micro-cap status but what has changed since that time? Some slight revenue decline, but not enough to take away from the serious cashflow and underlying value. So why is the stock punished so bad? I believe it's oversold mainly due to the significant debt burden, which is around $500 million. It's funny, because the debt is not new since the IPO and these bonds are majority owned by insiders, 3 of the same majority shareholders who control the common stock (Staton, Bell and Conru), so they have the power to do a refinancing deal anytime.

Along with the refinancing upside, I anticipate a management buyout or third party takeover offer might be orchestrated while the shares are so cheap. Management would be smart to take control themselves before an outside party attempts a hostile takeover and forces more senior leadership changes. The company is generating about $90 million of adjusted EBITDA with some big internal compensation numbers, so an activist shareholder or private equity firm would love to get their hands on the cashflow and mandate more restructuring opportunities.

If management or a new shareholder activist/private equity firm will not make a move soon to take the company private, I am keeping an eye on two other notable companies. Larry Flynt's Hustler group recently bought Colorado based New Frontier Media (previously on Nasdaq with NOOF symbol), after a bidding war with Luxembourg based Manwin, so both of the firms are strong candidates given the synergies with their existing businesses.

Aside from the market cap valuation, if you look at the technical trading perspective and pull the maximum stock chart for FFN (since the IPO in May) and you will see that when the volume kicks in and price breakouts out above $1.20 and $2.00 ranges, the stock has a clear path with limited resistance to the $4.00-$6.00 range, so it will rise fast when the volume confirms. It will get very wild and interesting if a low buyout offer is announced and then sparks a bidding war (CNBC also speculated on this, so I cannot take credit but sounds logical to me)

Source: FriendFinder Networks, Undervalued And A Private Equity Dream With $90 Million Of Adjusted EBITDA