Greystone Capital Management, an investment management firm, published its first-quarter 2022 investor letter – a copy of which can be downloaded here. During the first quarter of 2022, returns for separate accounts managed by Greystone Capital ranged from -6.4% to -17.9%. The median account return was -12.7%, net of fees. Try to spend some time taking a look at the fund’s top 5 holdings to be informed about their best picks for 2022.
In its Q1 2022 investor letter, Greystone Capital mentioned Houghton Mifflin Harcourt Company (NASDAQ:HMHC) and explained its insights for the company. Founded in 1880, Houghton Mifflin Harcourt Company (NASDAQ:HMHC) is a Boston, Massachusetts-based publishing company. Just last month, Houghton Mifflin Harcourt was acquired by Veritas Capital as the tendering of 57% of outstanding shares was enough to meet the threshold of the sale terms of HMHC tendered at $21 per share, putting the transaction value at $2.8 billion.
Here is what Greystone Capital has to say about Houghton Mifflin Harcourt Company (NASDAQ:HMHC) in its Q1 2022 investor letter:
“In my Q4 2021 letter, I outlined a news story about Houghton Mifflin potentially exploring a sale following a leaked rumor indicating that private equity groups were circling. The story turned out to be more than a rumor as a few weeks later Veritas Capital submitted a tender offer to acquire HMHC for $21/share or $2.8 billion. The final offer grossly undervalues the business, and a flawed, poorly timed sale process led to Veritas being able to acquire the business for less than 7x free cash flow looking a few years out. As a reminder, HMHC was at a major inflection point set to see their billings growth and digital recurring revenue explode consistent with a large industry shift to digital education tools alongside massive tailwinds provided by COVID and the federal government.
This is the second time since inception that we’ve been subject to a top five position being taken out via tender offer prematurely (At Home Group was acquired during 2021) as growth is set to inflect, and in a manner not conducive to having shareholders best interests in mind. Enough ink has been spilled on the merits of the tender, including here, here and here, so I won’t rehash the details, but my expectation is that this will keep happening from time to time as there is a significant amount of private equity dry powder on the sidelines, it’s very hard to be a public company management team, and the cost of capital for public companies remains low, allowing PE firms to lever up a transaction with minimal equity issued. I applaud the funds who took action against such a lowball offer. As for us, I’ve begun allocating the capital from HMHC to one new position outlined below as well as a smaller, housing-related position that I look forward to disclosing in future letters.”
Pixabay/Public Domain
Our calculations show that Houghton Mifflin Harcourt Company (NASDAQ:HMHC) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. Houghton Mifflin Harcourt Company (NASDAQ:HMHC) was in 32 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 27 funds in the previous quarter. Houghton Mifflin Harcourt Company (NASDAQ:HMHC) delivered a (3-Month)% return in the past 3 months.
In April 2022, we also shared another hedge fund’s views on Houghton Mifflin Harcourt Company (NASDAQ:HMHC) in another article. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q1 page.
Disclosure: None. This article is originally published at Insider Monkey.
