Acquisition of Instilend Transforms Investview
On October 24, 2012, Investview (OTCPK:INVU) announced that it had acquired Instilend. It is now a wholly owned operating subsidiary. Based on my research, I believe that the acquisition transforms Investview from an online investor education company to an electronic stock lending company. My prediction is that the Instilend acquisition will account for a majority of Investview's revenue and profits over the next three years. I also believe that the acquisition of Instilend has the potential to generate sequential and exponential revenue and profit growth in the future for Investview due to the following:
- Instilend's Matador is the world's only Securities Lending Exchange [SLE]. Via its fully automated Matador securities lending platform, Instilend has the only Securities Lending Exchange in the world. Matador is an electronic platform which provides transparency, liquidity and price discovery to its broker dealer members who are looking to borrow shares from other members. Those broker dealer members who lend the shares to Matador's other members are able to increase their income since they receive share lending fees. Similar to a stock exchange, Instilend's SLE receives a fee from each transaction.
- Instilend is a sole source provider to the High Frequency Trading Community. Since Instilend has the only SLE, it's the sole source provider of access to lendable "hard to borrow" securities to the fast growing high frequency trading [HFT] community.
- The Securities Lending Industry is dependent on Instilend's SLE. In order to grow and prosper, the Securities Lending Industry is completely dependent on shares being available to borrowers. Before Instilend's automated Matador platform or SLE became available, the client of a brokerage firm who wished to sell a security short was dependent on his or her brokerage firm being able to lend the shares to them to effectuate the short sale. Now those broker dealers who become a member of Instilend's automated Securities Lending Exchange [SLE] can accommodate their clients even if the firm itself does not have the shares available to lend. As a member, the broker dealer can access Instilend's Matador platform to automatically borrow shares from another broker dealer who is also a member. By becoming a member of Instilend's SLE, a broker dealer increases their commissions and securities lending fees and keeps their clients. The broker dealer also reduces their risk and eliminates their fines. Thus, every traditional and online broker dealer in the world is a prospect to become a member of Instilend's SLE.
- Intilend's technology has been validated. In January of 2012, Instilend's technology was validated when the developer licensed the Matador platform to the capital markets' division of the Bank of Montreal (NYSE:BMO) which is the one of the world's largest 20 financial institutions. The territories that the non exclusive license covers are Canada, United States, United Kingdom and Australia.
According to Mr. John Tabacco, the CEO of the company, which developed the technology and entered into license with the division of the Bank of Montreal, the licensee's plan was to first launch in the US, its smallest market. After getting established, its plan is to roll out in its three larger markets. Instilend benefits three ways from the licensing agreement:
- Receives a fixed monthly amount plus a fee on each and every transaction which is effectuated by the capital markets division.
- Significantly increases the amount of lendable securities that are available to all of the members of Instilend's SLE.
- Increases the credibility and visibility of Matador and Instilend within the Securities Lending Industry. It makes it much easier for Instilend to enter into deals with additional large financial institutions.
Investview's visibility, market capitalization and share price are likely to start to increase steadily due to the following:
- Wall street will soon perceive Instilend as a highly profitable and fast growing transaction processing business. Presently and for the last five years, Investview has been perceived as an unprofitable online investor education company. Due to the acquisition, analysts and institutional investors will soon compare Instilend with the other publicly traded "risk free" transaction processing companies. Since Instilend will likely account for a majority of Investview's revenue and profits, it will be valued accordingly. Companies which process risk-free transactions are afforded some of the highest stock market multiples. The table below displays the price earnings multiples and share prices of the four well known publicly traded transaction processing companies:
P/E Multiples For Transaction Processing Companies as of 10/19/12:
|Company Name||Symbol||P/E Multiple|
- Investview is now a takeover candidate. Since Investview's current market capitalization is less than $20 million, the probability of it being acquired is high. There are only a handful of companies which provide technology to the Securities Lending Industry. None of them compete with its recently acquired Instilend subsidiary.
All of the companies I identified as being technology providers to the Securities Lending Industry, with the exception of one. are either large companies or are subsidiaries of large companies which generate revenue in excess of one billion dollars. One of the smaller companies that I found, Data Explorers, was recently acquired by the Markit Group, a billion dollar global financial information company for as much as $469 million. A company that I found that competes with Data Explorers was Sungard Astec Analytics Group. It is a subsidiary of Sungard Capital, which is a member of the Fortune 500. The only other one that I could find besides Instilend that was not a billion dollar company or owned by a billion dollar company was Quadriserv. It has a group of highly credible investors, including Interactive Brokers [IBKR]. The group invested $34 million into Quadriserv in 2009. Since Instilend has (1) the only SLE, (2) has effectuated over 80 million transactions since inception and (3) has had its technology recently validated, it would be a very easy decision for one of the behemoths in its industry to acquire it for a premium above its current share price.
- Investview has the potential to generate exponential revenue and profit growth. My four page report "The Big Mystery Surrounding Instilend's Acquisition by Investview has been Solved" uncovered the rationale as to why the final terms and conditions of acquisition appeared to be at a 90% discount to the original letter of intent. My report provides a logical explanation. The final deal that Instilend's former shareholders closed on gave them a 10% share of the subsidiary's net profits for the 36 months ending October 2015. The net difference in the two deals was $21 million. For Instilend's former shareholders to make up the difference, Instilend would have to generate a minimum of $210 million in net profits over the next 36 months.
With its most recent market cap below $20 million, Investview's shares appear to be undervalued at their current price, which is below $4.00. However, there is a risk and it is potential dilution. Investview's existing investor education and financial information businesses have been generating losses and negative cash flow over the last several years.
Investview will need to cover its deficits until its new Instilend subsidiary can generate it a sufficient amount of cash flow. Until this happens, Investview may have to raise capital by selling shares or debt securities which are convertible into its shares. The following mitigates this risk:
- Joint Venture with online brokerage boutique, Choice Trades. Investview announced on October 16, 2012, that they had entered into a joint venture with Choice Trades. It's a boutique online broker which has received stellar ratings from Barrons for the past several years. Under the terms of the joint venture, Choice Trades, which has thousands of very active online traders, will pay Investview to provide its educational courseware to their clients. The monies generated from Choice Trades will subsidize and reduce the deficits that Investview's investor education business is currently generating.
- Insiders buying. Insiders including Dr. Louro, the company's CEO and David Kelley, its COO have been investing monies into Investview's shares and convertible debt securities at a share price of $4.00. This conversion price is just above the price at which its shares were most recently trading. Its not likely that the insiders would want to significantly dilute the company at prices that are much below $4.00 per share. Also, should the shares maintain their current price, the amount of shares that they would have to sell to cover the interim deficits would be minimal.
- Investview is a member of the Online Financial Sector. I have been covering the Online Financial Sector since 2002. I have found it to have the lowest risk of the more than 200 industries and sectors that I follow. This is because all of its members are participants in the online financial publishing niche. The sector's demographics and the online business models of its members are highly conducive for generating consistent and growing cash flow. Over the years, I have several companies in this sector whose share prices multiplied after I recommended them. Seven of the 14 companies that I have recommended in this sector have been acquired. Finally, I am not aware of even one publicly traded company in this sector that has gone out of business.
Investools, was one of the companies that I recommended in the sector in 2003 at $1.14 per share. Before it was acquired by Ameritrade in 2009 at $10.45, its business model was virtually identical to Investview's existing online investor education model. Another was Bankrate. I originally recommended the shares of the producer and provider of online information covering bank CD and mortgage rates in 2002 at $2.44. It was acquired in September of 2009 at $28.50.
- Investview's share price has not yet reflected its new developments. At their latest price of $3.50, Investview's shares have not yet discounted all, or any, of its recent developments. They include the two former senior executives of Ameritrade who recently joined it as its CFO and President. Additionally, there were two key developments which occurred in October of 2012. Neither has yet been reflected in its share price. They are its acquisition of Instilend and its entering into a joint venture with online brokerage boutique, Choice Trades.
Disclosure: I am long OTCPK:INVU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.