I have received many questions regarding my meeting with Mastech’s CEO, so I have chosen to write a separate post to share what I learned.
First, Mastech (NYSEMKT:MHH) has a significant amount of cash on its balance sheet, and the new CEO, Thomas Moran, plans to employ this cash by making acquisitions. He is currently researching possible deals. From my observations, it seems that his goal is not to create an empire, but to strengthen Mastech. As many of you know, the company has a highly concentrated client base, which makes it a riskier investment. Last year, Wachovia was one of Mastech’s top three clients. However, after Wells Fargo (NYSE:WFC) acquired Wachovia, they chose to discontinue their use of Mastech’s services. This loss obviously had a negative effect on Mastech’s revenues, and if the company had a more diversified client base, the loss of a single client would have a smaller impact on the top line.
Last week, while I was on The American Entrepreneur radio show, I mentioned that Mastech’s CEO reviews about two deals per week, which, as Jae Jun of Old School Value blog has said, is very aggressive. The main reason why he analyzes so many deals is because he is trying to find a proper fit. During our meeting, he told me that he would be happy if he can complete one or two acquisitions by the end of the year. While he is seeing valuations that are very attractive, he is seeking acquisitions that will diversify the client base, and insists that they must be compatible with Mastech’s business model.
Second, something else interesting that I learned was that when Mastech went public, the management did not expose it effectively to the investment community. To address this, the CEO plans to tour the nation this summer in order to showcase Mastech to various investment firms, which I think is an excellent plan that should greatly benefit us as shareholders by stimulating interest in Mastech’s stock.
Third, the CEO seems to have a thorough understanding of sales and marketing. When I asked him how he views Mastech in relation to its competitors, he said that before he accepted the position of CEO, Mastech’s sales force was inferior to its competitors. Mastech was not as aggressive with cold calling and seeking clients as some of its peers were. When he became CEO, the company’s sales force was one of the first things he addressed. He hired many new salespeople and designed a program that required them to meet certain targets, such as a certain number of cold calls, conversations, and meetings with potential clients.
When I asked him about Mastech’s strengths in comparison to its competitors, he said that Mastech’s ability to source top talent from India is the company’s competitive advantage. Developing a network of recruiters who know where to find quality IT specialists is difficult to accomplish. In other words, improving Mastech’s main weakness, which has been its inferior sales force, is curable with the right strategy, whereas Mastech’s strength, which is its superior sourcing abilities, is difficult to for its competitors to imitate.
Even though Mastech has a lot of cash on the balance sheet, I asked if the CEO would use the company’s stock to make acquisitions. He said that he would do it if the deal is unbelievable, but would prefer not to because he believes that Mastech’s stock is undervalued.
The CEO agreed for me to interview him on my website so I will be compiling a list of questions. If you have questions for the CEO, e-mail me and I will include them with my list.