Latest Transaction Underlies Phillip Frost's Acumen in the Small Cap Space
NEW YORK, NY / ACCESSWIRE / December 9, 2015 / It may be considered a lazy strategy, but copying the investment moves of the most successful investors does tend to work well. For decades, individual investors have taken positions based on the portfolios of institutional investors such as George Soros, Warren Buffet and Charles Koch. Oftentimes though the portfolios of these household name investors comprise primarily large cap companies. For an individual looking to get some exposure to the small cap space, mimicking Buffet is not an option. Finding a successful and proven household name that is active in small caps is more challenging.
There is one though whose strategy involves taking large positions in small cap companies, and building value in these companies over time through mergers and acquisitions. That is, former Teva Chairman and current Opko Health (NYSE:OPK) Chairman and CEO Philip Frost. Frost has made his fortune building small companies through buyouts, partnerships and strategy, and today he has closed a deal in what looks to be his next big play in the data space. First, and for those not familiar with his back story, let's take a look at the man himself.
While practicing as a physician back in the 1960s, Frost designed a biopsy tool and partnered with a colleague with the goal of commercialization. They formed Key Pharmaceuticals, and achieved their goal, eventually selling the company 20 years later to Schering-Plough (now a subsidiary of Merck & Co. Inc. (NYSE:MRK) for just short of $1 billion. He went on to found a generic drug company called Ivax, and in 2005, sold the company to what is now widely regarded as one of the biggest and most powerful generic drug makers in the world, Teva Pharmaceutical Industries Limited (NYSE:TEVA).
Since then, his focus has been small caps – an arena in which he has succeeded handily. Take his current main project Opko Health. Back in 2006, Opko could be picked up for less than 60 cents a share. Over the last decade, the company gained close to 3000%, reaching highs of $17.68 earlier this year. It now trades at a little over $10 after the biotech sector began to cool off a bit earlier this year. Frost owns approximately 40% of the company, and has gradually built this position as the company gained strength. It's now valued at $6 billion.
Another example is Ladenburg Thalmann Financial Services Inc. (AMEX:LTS). Frost has been on the board of directors of Ladenburg for over a decade, and holds a large position in the company. Across this period, Ladenburg's shares have risen in value nearly 700%, from 40 cents a share to more than $3 a share today, having hit highs of $4.2 in August last year. The list goes on - Cocrystal Pharma Inc. (OTCBB:COCP), VBI Vaccines Inc. (NASDAQ:VBIV), Castle Brands (NYSE:ROX) and Vector Group Ltd. (NYSE:VGR) to name just four of the dozens of growing companies in which Frost has a significant interest.
This brings us to IDI, Inc. (NYSE:IDI). IDI was the company Frost took a close to 40% position in back in 2012 (back then it was called Tiger Media) and has since overseen a number of buyouts that have seen the company go from a little over $3 a share at the end of 2011 to highs of $10.90 this year (current price - $8.55). Mid November, IDI announced its intentions to acquire Fluent, Inc., a digital marketing company, for $100 million cash and 15,000,000 shares of IDI. The deal closed today, and Frost, who is now on the board of directors at IDI and Vice Chairman of the company, put up $40 million in preferred stock to finance the transaction. Derek Dubner and Michael Brauser, who are both wealthy investors in their own rights, head up IDI together, and both are long time compatriots of Frost.
The acquisition of Fluent brings IDI, until now a struggling new company, cash flow positive overnight. Fluent has grown its revenues 100% year over year since 2014, with $126M in revenue and $20M in EBITDA through the most recent quarter. The move will transform IDI from a company struggling for recognition to one with already significant operations in data processing and digital marketing.
The acquisition looks to be a way of incorporating IDI's technology into Fluent's already developed customer base, basically giving IDI the client base it needs to prove the effectiveness of its data fusion and big data analytics resources. IDI's current quarterly revenues before the acquisition were about $1M. Now they will be more than 120x that.
Phillip Frost has built a career around a strategy rooted in small cap companies. Companies that, despite their strengths, most big investors wouldn't touch. The latest transaction is just one more example of this strategy, and paints both IDI and its now wholly owned subsidiary Fluent, Inc., as entities to watch going forward. As they say, the difference between being rich and being wealthy is knowing what to do with your capital - and Phillip Frost certainly knows what to do with his.
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SOURCE: Market Exclusive