- This is a follow up to my Jan. 2016 piece on Hill
- With Claims sold and activists taking control of the board, Hill is likely undervalued as a standalone and and interesting target for a variety of acquirers
- I wrote this in mid-April before the Claims sale officially went through and Richter left in early May, but I think both of those are just confirmatory of the thesis below.
I originally wrote up Hill (HIL; disclosure: long) in January 2016. A lot has changed since then, but a pending sale of the Construction Claims group and the potential for activists to fully take control of the board this summer should position the company well as a strategic target in an industry that is seeing rapid consolidation at big premiums.
- The company’s approached 8% before: PF for the sale of claims, 2015 EBITDA was $26.2m on $468m in CFR, so margins were just under 6%. This EBITDA number was with the full burden of the Richter’s salary (before the activists were on the board) and despite elevated costs from the failed proxy contest in 2015, so it certainly suggests HIL could hit 8% going forward.
- Management has suggested they can hit 8%:. When management has bothered to guide to margins in the past, they’ve generally provided long term EBITDA margins of 8% plus or minus 2%.
- Peers are at 8%: As with many companies, there’s no perfect publicly traded comp for HIL, but there are some good ones. TRC Companies (TRR) is a decent one and their proxy lists Hill as a peer (see page 10). They do ~9% adjusted EBITDA margins. Michael Baker(the peer DC Capital bought in 2012; mentioned in my Jan. 2016 article) appears to be doing just under 10% EBITDA margins currently.
- HIL’s most recent proxy lists CRAI, EXPO, HURN, and NCI as their peers; I don’t think any are actually good peers, but all of them are way over 8% margins.
- Most of these guys are significantly bigger than HIl, but JEC (6-7%), ACM (5-6%), and ARCAD / ARCAY (6-7%) are the three publicly listed peers in their 10-k (see p. 9), and all of them have EBITDA margins roughly in line with what I’m forecasting here and trade for 9-10x EBITDA.