AMERI Offers to Merge with Edgewater Technology

PRINCETON, N.J., Oct. 26, 2015

By way of background, Ameri100 first contacted Edgewater a few months ago to initiate a dialogue to explore a potential business combination between the two companies.  Edgewater's representatives refused to meet.  Ameri100 then took the step of sending a formal written proposal to Shirley Singleton, CEO and Chairman, and the Edgewater Board, expressing Ameri100's interest in a strategic business combination with Edgewater at a valuation of $8.50 per EDGW share.  Ameri100's offer was based solely upon public information and we again emphasized our desire to meet with the Edgewater Board and management to explore the benefits of a strategic combination.  The Edgewater Board responded with a cursory and "unanimous" rejection less than a week later, again without any dialogue with us, any explanation, or any evidence of serious consideration.  In light of the substantial benefits to Edgewater shareholders that we believe would result from a combination between Ameri100 and Edgewater and the Edgewater Board's nonchalant refusal to engage with us and properly consider this opportunity for creating value for EDGW shareholders, we believe the incumbent Edgewater Board is not appropriately serving the best interests of EDGW shareholders in a manner consistent with its fiduciary duties.  We have reluctantly come to the conclusion that the Edgewater Board must be reconstituted for EDGW shareholder value to be maximized and the Company's full potential to be realized.

We believe Edgewater's clients, employees, and shareholders would benefit from a merger with Ameri100.  The Shareholder Group nominees, if elected by Edgewater shareholders, will take their fiduciary duties very seriously and commit to form an independent special committee, hire a reputable financial adviser, and explore all strategic alternatives, including the sale of the Company to the highest qualified bidder with no special preference to Ameri100.

Edgewater's US-Only Business Model is Outdated

The IT services industry, in which Ameri100 and Edgewater compete, can be bifurcated into two distinct business models: US-based and India-based.  The India-based business model involves US-based employees working with clients at the client site and India-based employees working on project execution in conjunction with the US-based employees.  The India-based model allows for faster completion times and better client service, representing a better value proposition for clients.  Edgewater has all of its employees based in the US with no presence in India while Ameri100 has about one-third of its employees based in the US and two-thirds based in India.  Edgewater has clearly stuck with a US-only business model, while Ameri100 has successfully executed on an India-based business model.

The companies reported by Edgewater as its peer group in its proxy statement (all US-based IT service companies) have failed to meaningfully grow revenues or generate acceptable profit margins, and have vastly underperformed their India-based peers over the last six years as shown in the table below.

	Revenue Growth(3) ARIVA.DE Börsen-Geflüster Kurse Edgewater Technology -   0,00%
	2009	2010	2011	2012	2013	2014
US-based IT services(1)	-5.3%	11.6%	9.7%	4.9%	1.2%	-2.6%
India-based IT services(2)	1.0%	26.4%	24.0%	12.9%	12.1%	11.2%
Growth Difference	6.3%	14.8%	14.3%	8.0%	10.9%	13.8%

These US-based IT services companies also have higher operating costs than India-based ones, which translates into significant margin underperformance as shown in the table below.

In addition to superior revenue growth and profit margins, India-based IT services stocks trade at much higher multiples than US-based ones and have generated far superior stock price performance.  During CEO Singleton's tenure⁽⁴⁾ at Edgewater, for example, the India-based IT services companies generated stock price appreciation of over 650% vs. only 54% for EDGW, a whopping performance gap of approximately 600%.

Edgewater appears to be trying to offset its outdated, structurally-flawed business model by making acquisitions, but its revenue growth remains low and its operating costs high, which has led to margin degradation.  For example, comparing the 12-months ended 6/30/2015 to the 12-months ended 6/30/2014, the Company's revenues grew only 4% (despite making acquisitions), its gross margins declined to 34% from 38%, and its operating margin declined to 3% from 8%.  We believe that Edgewater's Board and management are either unable or unwilling to adjust the Company's business model and cost structure.  In our view, retaining Edgewater's current flawed business model within the quickly shifting IT servicing industry will lead to continued operating and financial underperformance, which is why we believe Edgewater's incumbent Board needs to be reconstituted.

Over Compensated for Underperformance

We believe the Edgewater Board and management team are overcompensated, especially in light of their poor performance.  In 2014, for example, the Edgewater Board and management team paid themselves more than $4.6 million while the stock price declined that year.  Over the past six years, Edgewater's Board and management team have been paid approximately 46% of the Company's total EBITDA (pre Board and NEO compensation) as shown in the table below.

	Total Board & Named Executive Officer ("NEO") Compensation % EBITDA(5)
	2009	2010	2011	2012	2013	2014	Total	% of Total
Board Comp	$444,175	$424,600	$445,800	$486,000	$482,500	$455,770	$2,738,845	6%
NEO Comp	$2,431,106	$2,070,909	$2,617,014	$3,031,551	$3,616,310	$4,163,093	$17,929,983	40%
EBITDA	$(2,314,000)	$1,812,000	$6,429,000 Werbung Mehr Nachrichten zur Edgewater Technology Aktie kostenlos abonnieren E-Mail-Adresse Bitte überprüfe deine die E-Mail-Adresse. Benachrichtigungen von ARIVA.DE (Mit der Bestellung akzeptierst du die Datenschutzhinweise) -1 Vielen Dank, dass du dich für unseren Newsletter angemeldet hast. Du erhältst in Kürze eine E-Mail mit einem Aktivierungslink. Hinweis: ARIVA.DE veröffentlicht in dieser Rubrik Analysen, Kolumnen und Nachrichten aus verschiedenen Quellen. Die ARIVA.DE AG ist nicht verantwortlich für Inhalte, die erkennbar von Dritten in den „News“-Bereich dieser Webseite eingestellt worden sind, und macht sich diese nicht zu Eigen. Diese Inhalte sind insbesondere durch eine entsprechende „von“-Kennzeichnung unterhalb der Artikelüberschrift und/oder durch den Link „Um den vollständigen Artikel zu lesen, klicken Sie bitte hier.“ erkennbar; verantwortlich für diese Inhalte ist allein der genannte Dritte. Andere Nutzer interessierten sich auch für folgende News 24.04.24 - PR Newswire Fidelity Japan Trust Plc - Transaction in Own Shares 24.04.24 - PR Newswire Oxford Instruments Plc - Holding(s) in Company Solarboom 2024:    5 Gründe die für diese Aktie sprechen… weiterlesen» Anzeige wo-site-teaser-box-16746_site-teaser-box_2024-04-24_08%253A00%253A00_2024-04-25_09%253A00%253A59