Eexperience management software company Medal (NYSE: MDLA) is taken privately by Thoma Bravo. Are you looking for a new place to put that money? In this Motley Fool Live from “The Five” recorded on September 16, Fool.com contributors Jason Hall, Clay Bruning, and Nicholas Rossolillo discuss two different alternatives you might want to invest in instead.
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Jason Hall: Let’s go ahead and talk about Medallia. Nick, this is a company that is being bought out, right?
Nicolas Rossolillo: Yes it’s sure. They are taken privately by private equity firm Thoma Bravo, which does a lot in the tech industry. Medallia competes with a company called Qualtrics (NASDAQ: XM). It is perhaps a more familiar name. They help with the customer. Basically, they measure when someone logs into an app or interacts with the business over the internet. They measure the quality of the interaction and help businesses find ways to improve that interaction in a variety of ways. So here is. They are taken in private, however. I don’t think the second quarter results are very helpful. But they are acquired for $ 34 per share in cash. If you own Medallia, the stock is basically trading for it right now. So not a lot of advantages there. I think the latest news to follow, they had a shopping spree that ended on September 4th. No one else came to the table with a higher bid until September 4th. So now this offer from Thoma Bravo is kind of what shareholders would need to vote on to approve or not this going forward.
Room: I’ll share a graphic here to show you. It’s pretty obvious when the deal was announced right here. The share price looked like a scary EKG, then it leveled off right there. So I’m thinking of some useful thoughts about this company, as I know it has been recommended in a few portfolios. And there are probably investors who are trying to decide what to do. And I just want to throw in some ideas here that I think can be helpful.
Clay, Nick, I’ll put you on the spot. I’m going to ask you to think about it, if you were an investor who owned Medallia and you were going to sell, what would you do with that capital? What would you buy? We’re just going to have a little fun and let you think, while I offer you some thoughts here?
It is therefore an action that was recommended for members every time, it was in 2019. Most members who bought it on the basis of a portfolio recommendation did so more than a year ago. one year. But if you’ve done a trade in the past 12 months, here are the implications of what you might want to think about when deciding what to do. It’s private. You’re just going to get the money. You can wait for the transaction to close with all of your money. Key, some brokerage accounts are going to charge you a fee because they can, so wait. If your brokerage is one of them and charges you lower trading fees or no trading fees, it may be a good idea to go ahead and sell. The other thing, too, is that there’s a little – what’s the buyback price, Nick?
Rossolillo: Thirty-four dollars a share.
Room: Thirty four? I think we’re actually on top of that right now. I think it’s trading for a premium. No, it’s just below, it’s $ 33.91. There is just a small discount, which is normal. The closer we get to the close, the closer and closer the price will be. If you’re looking to get the most out of it, the incentive is to wait as close to the deal as possible. But what you need to think about if you’ve done a transaction at any time during the past 12 months is what the tax implications are. If you have this in a taxable account and bought it and you’re going to profit from it – let’s say you’re going to profit from it – and you’ve held it for less than a year – that’s is for US investors – – and you sell it at a profit, your earnings are going to be taxed at your marginal income tax rate. For most of us, that’s over 15%, which is the rate of long-term capital gains. For anyone who is close to this point of being able to get over a year, it is beneficial to do so, because instead of paying your marginal income tax rate, you are paying 15%, for Most people. If you are in the highest tax bracket, you would pay, for example, a marginal rate of 39%. You pay a capital gain rate of 20%. There is some tax arbitrage to consider in terms of the timing of the transaction.
Some investors who bought this year could lose money. So you just think about grabbing that tax loss. At this point, I think that’s the most important thing to think about. Besides, do you have any idea what you are going to do with this capital? Do you have something in mind to do when you deploy it? Clay, you’re not dumb. Give us an idea.
Clay burnishing: Yes. Just to give you a bit of my personal modus operandi on this, when I see this is an all-cash deal, I personally have no reason to sit on it. In this case, if you had 10 stocks, it’s 9 cents off the trade price – you are missing 90 cents. At some point, there’s an opportunity cost to deploying that capital in a different situation, and I’ll use Slack and Selling power (NYSE: CRM) acquisition, for example – this is a situation where I know I’m going to get stock from Salesforce, and assuming at the time I didn’t believe in this acquisition, this is a transaction where I’m willing to wait so I can make sure I guess, those Salesforce stocks, rather than increasing my portfolio turnover or something – in terms of what I would do, like I said, I would definitely sell them. stocks rather than saving a few pennies or dollars. I think it depends if you want to stay in the same space.
But an interesting name to me that I recently caught up with is Lightning Genetics (NASDAQ: FLGT). It’s a very small cap company, I think less than $ 3 billion. They spent a million dollars to create a COVID test last March. It has since generated, probably at this point, nearly $ 1 billion in revenue for them.
Room: It’s amazing, yeah.
Browning: If you ever want to study ROI, take a look at Fulgent Genetics in terms of COVID testing. It is absolutely unbelievable. Then, their core business, which is more genetic testing, is making great strides. I think they upped their genetic testing by about 250% last trimester. They have just acquired complementary business in oncology to have more diagnoses, excuse me, on the cancer side.
It’s a very young company. Like I said, I think they’re around $ 3 billion or less at this point in terms of total market cap. It’s something that I’m really watching, especially when testing seems to come back pretty well with that, and you have more mandates on vaccines and testing and stuff like that. You have schools that have recently reopened and they have a bunch of school contracts. It’s one of my favorite names right now that I’m looking at and hope to add in the coming weeks.
Room: I think you can look beyond COVID testing as its business and think of it as a perfect model of their intellectual property’s ability to grow and act very quickly. You look at their main activity, and it grows, it doubles. Their main activity outside of this one COVID test has been so rich in cash, it’s wonderful. I love this business for the next 20 years. I like this. Nick, do you have a 60 second pitch for us on one?
Rossolillo: Sure. I already mentioned Qualtrics. If you want to stay in the experience management space, selling Medallia Qualtrics went public earlier this year. He has a fairly young experience in providing quarterly financial updates to shareholders. But so far it’s growing at a much faster rate than Medallia was. It’s also a bigger company, it’s the leader in this field – a standalone leader in software-based experience management. Yes, if you’re just looking for a similar type of replacement, this is where I’ll start.
Room: It’s also an easy-to-remember ticker. XM, experienced management. That’s great.
Clay Bruning owns shares of Fulgent Genetics and Salesforce.com. Jason Hall owns shares of Fulgent Genetics. Nicholas Rossolillo and his clients own shares of Salesforce.com. The Motley Fool owns stock and recommends Fulgent Genetics, Medallia, and Salesforce.com. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.