Good morning, and welcome to the NOBLE Capital Markets Virtual Equity Conference. I'm Joe Gomes, Managing Director and Senior Analyst at NOBLE Capital. Today, I have the pleasure of introducing Star Equity Holdings. Following the presentation, we will have some time for Q&A. With us today from Star is Jeff Eberwein, Chief Executive Officer. The floor is yours, Jeff.
Thank you so much. We really appreciate your interest in our company. We appreciate you attending, and we think our company is unlike anything you're going to see. We are inspired by Berkshire. Of course, there's only one Berkshire, only one Warren Buffett, but we are an amalgamator of other microcaps, and the benefits of that are eliminating the public company costs and spreading the corporate overhead over a much bigger base and really freeing up the local management teams to run their business. We're a little bit like a PE firm in some ways, and we think this strategy will create a lot of value over time. Let me get into that. The businesses we own today generate about $225 million of revenue on a trailing basis, about $6 million of EBITDA, and we'll talk for a minute about some of the businesses that we own.
These, like I said, these are businesses came from amalgamating three different microcaps and also some private companies that we have acquired. A lot of our businesses are at a trough, or we've been investing for growth, and by the end of the decade, we think we'll be generating $40 million of EBITDA, and that's with no further acquisitions. We also have a history of looking for acquisitions, whether it's a bolt-on for an existing business we're in, or a sister company to a business we're in, or a new vertical. We do think we have a lot of growth potential. One of the things highlighted on this slide is we have over $200 million of NOLs, so we do think we'll be able to shield a lot of income from taxes, which, said another way, helps our free cash flow look more like our EBITDA.
We have a history of buying back stock, both just daily in the market through 10b5-1 plans, but also in block purchases. Insiders own a tremendous amount of our stock, 35%, and have been buyers over time. Just a little bit on the financials. How are we going to get to $40 million of EBITDA? We show this later in the presentation by division. But we think we'll have good top-line growth where our revenue and gross profit, we see that doubling over the next four to five years, and that's really just from organic growth. If we hit these numbers, we'll be a company generating $40 million of EBITDA, and we think $10 in earnings. Even if we trade at a modest multiple, our stock has tremendous upside from current levels.
We're currently trading around $10 a share, and if we hit $10 in earnings, I got to think we're going to be a $100 stock or higher. How did we get here? This gets into the amalgamation of the different microcaps and private companies. We have a Building Solutions division, and the theme here is factory-built construction. We think building in a factory rather than on-site is definitely gaining share and gaining traction in the U.S., and we see that trend continuing. Even though these businesses are currently at a trough, just because of interest rates, we think our country is underbuilt in terms of housing, and we do multifamily, single- family, dorms, workforce housing, affordable housing, senior housing, and we see all those things growing over the next five years.
In Business Services, this is an outsourced HR and talent-related business that serves the Fortune 500. We've been investing for growth, and it has a lot of growth potential. A recent addition came through the acquisition of a private company last year, and this is in Energy Services. This is a razor blade type of business, and it's had good growth since we've acquired it. We acquired it from the founders. The founders retired, and the young generation has taken it over, and we've been having really good growth in non-traditional areas such as geothermal drilling. We also do some carbon capture drilling, hydrogen, helium, and these are all growth areas for us, mainly in the western part of the U.S. Our fourth division is an Investments division. We think this division has $20 million- $30 million of value.
There's some real estate that we own that we're going to be monetizing over time. We have a healthcare business that we used to own, and we merged it with another company. That new company is called Catalyst MedTech. The majority owner is a PE firm, so they will be selling at some point, and the book value of this investment is $15 million. We think when the PE firm sells, we'll convert that investment to cash, and that'll happen in the coming years. With a market cap of, call it $40 million, to have $20+ million of latent assets in our Investments division, we think is a powerful value unlock over time. I mentioned that we are somewhat like a PE firm. We're not raising capital and selling businesses. We're more acquiring, growing, and holding.
Like our healthcare business, we are open-minded to selling if it's more valuable to somebody else. We have done that, but we're not looking to buy businesses and sell them. For some private companies out there, we can be a better fit than for private equity. There's plenty of private companies that want to go the private equity route. That's fine. For the ones that want to have a partnership like what we offer, we can be a better exit strategy for them. Just a little bit further on that PE firm analogy, Star corporate has 12 people. Our corporate team handles It's really a finance and strategy group of people. We handle all the things that are needed for a public company, and we also have an internal M&A team. You can see the things that we handle. We don't operate the businesses.
We really partner with the operating teams that manage the business day-to-day. We provide some oversight, some finance, some strategy, but they're really freed up to grow their businesses, and incented to grow their businesses. Our wholly owned businesses have 1,500 people, and those are the businesses obviously generating revenue and EBITDA. This slide is a little bit busy. Just a snapshot on our capital structure. We do have publicly traded preferred stock. The ticker symbol of our common stock is STRR on Nasdaq. Our preferred stock is STRRP. It's also Nasdaq-listed. It's not convertible, so it's not dilutive to the equity. We have been able to use this preferred in acquisitions, and it's a very tax-efficient tool in the toolkit because sellers can sell their business to us.
We can acquire a private business, we can acquire a public company using this preferred stock, and it is tax efficient, just like any stock- for- stock deal is. It also doesn't harm our significant NOLs. We have common stock, we have preferred stock. We have debt on our subsidiaries. These are typically with local banks. That's about $14 million. Our cash, we try to keep as much of it as possible up at Star corporate. We have a very small amount of net debt. It's $5 million at the end of June. We're a very lightly levered company, depending on how you look at the preferred. Different ways to look at our enterprise value.
I think the standard way we show our enterprise value is $66 million, but a different way to look at it is to subtract the preferred stock, the book value of the investments, and real estate. If you're doing that for the cash flow numbers, you'd want to subtract out the preferred stock dividends to make it an apples to apples comparison. But looked at on that basis, we're very cheap on trailing numbers and will be even cheaper on the future numbers. The most recent merger that was completed in August of last year, and this merged Hudson Global, which delivered the NOLs, and also the Business Services business, and the subsidiary that we're now calling Star Operating Companies. We kept the Star name for the public company. But this is where the Building Solutions and Energy Services businesses come.
You may have seen that we have a signed merger agreement. We've publicly announced that we have an agreement with Harte Hanks, ticker symbol HHS. We signed that about six weeks ago, and we're currently working on the S-4 that we'll file with the SEC, and we hope to close that merger by the end of the year. That'll be the fourth microcap added to the structure. We have a separate presentation that we issued and is on our website, is also filed as an 8-K that you can look at when we announce the merger. Harte Hanks does about $150 million of revenue. Pro forma will be close to a $400 million revenue company.
What this slide is meant to highlight is we have an internal M&A team similar to what you would find at a small PE firm, and we have executed on a collection of transactions over the last three years. Like I mentioned, we had a healthcare business. We merged that with a very similar business that is owned by a PE firm. We have completed some acquisitions to bulk up our existing sectors. That is particularly true for Building Solutions and our Energy division. Star and Hudson merged together last year. Then from time to time, we will make investments in other microcaps that we think shouldn't be public. Maybe they are a fit for Star, maybe they are a fit for somebody else. The three that have been publicly announced, two of them have been acquired at significant premiums.
Before we approach another microcap about being part of Star, if we think the stock is undervalued and we think the business is attractive, we will typically acquire 5%-10% of it ahead of time and then approach them in a friendly way, see if they want to be part of Star. Ultimately, all three times that we have done that, they have ultimately hired an investment banking firm and sold themselves. The first two are completed deals. One was at a 35% premium, the other one was at a 340% premium, which was just a crazy bidding war. The third one is a company called GEE Group. The ticker symbol is JOB, and they have announced that they have hired an investment bank. They are running a sale process as we speak. All of that is public.
We have been public with our offer to buy them, so we could end up being the ultimate acquirer of GEE Group, or it could be that somebody else comes along and buys it. If so, we will make money on our investment. A lot of these ideas come to us from frustrated shareholders. So, would love to have you be a shareholder of Star, and would also love to have you just keep us in mind for ideas. You might run across microcaps that could be a good fit for Star and send them our way, and we will give it a look. Where we are going. We think our existing businesses will grow top line at 10%-15% from here, and that is organic growth. That is not from any acquisitions, and that will lead to EBITDA, we think, by the end of the decade, of $40 million.
We are looking for additional acquisitions. Predominantly, we are looking for bolt-ons for the existing businesses we are in. We are trying to get more critical mass, more size and scale, and I have already mentioned that we will, from time to time, invest in other microcaps that could be targets for Star. This is a very exciting slide to us. We think we are just getting started in this strategy, and we are starting to get some momentum, especially after we get the Harte Hanks merger closed. If we look at the playing field, the universe, if we look at public companies that have, say, $30 million or less of EBITDA, we think most of these companies shouldn't be public. They should have a path to exiting, selling to a strategic, or going private in some way.
Being a microcap for a long period of time is just not a good recipe for maximizing shareholder value. If we look at the companies, the publicly traded companies in the U.S. that have less than $30 million in EBITDA, that is 3,000 companies. A few of those could be consolidation candidates for Star. We look at private companies, there are literally millions of private companies out there, and what we have specialized in is acquiring companies where the founders either want a capital partner to grow or want to retire, or maybe one of the founders wants to retire, and we will partner with them, acquire some or all of their business, provide growth capital and a growth strategy, and just help them execute on their plan. We have a successful track record in doing this.
A survey showed that 45% of family-owned businesses don't have a succession plan or a retirement plan, and that is where Star could be a viable endgame for their company. Even though we have three different businesses and we are somewhat of a mini conglomerate, there are some characteristics that we look for, and the businesses we are in today share these characteristics, and these are characteristics that we also look for in acquisition targets. We like businesses that are asset light, have low maintenance capital. We think our maintenance CapEx for today's businesses is only $1 million or $2 million a year, so that is very low maintenance CapEx. We like businesses that are in growing sectors where there is some organic growth opportunities. We have a strategy in the businesses we are in to grow faster than the market, and we have a track record of doing that.
We absolutely have to have a local on-the-ground management team to partner with to run the business day to day. That is how we keep the corporate staff at 12 people. We like businesses with low obsolescence risk that are easy to understand. We have a preference for B2B businesses in general. Never say never on that, but the businesses we are in, that we would like to grow in, we are actively looking for bolt-on acquisition targets are Building Solutions, Business Services, and Energy Services. Things that we think are in our wheelhouse and that meet these criteria are logistics, transportation. Harte Hanks brings that. They have a division that does fulfillment logistics, for example. That is a sector we have been looking at for some time. Anything that is manufacturing industrial materials are things that could be a fit.
What you won't see us do is highly unlikely to ever invest in a startup or a pre-revenue type of business. We will leave that for other people. How are we going to get there? Our Building Solutions business, we think will have top-line growth of 10%. By the time we get to the end of the decade, we see $100 million of revenue, 25% gross profit margins, so that implies gross profits of $25 million. We think this division will generate EBITDA of around $15 million. Our Hudson business, which is inside our Business Services division, we see going to $100 million of gross profit, $20 million of EBITDA. We think that happens before the end of the decade. Our Energy business, we see that getting to $10 million of EBITDA.
If we roll all that up, you can see our forecast of how do we get to $40 million of EBITDA. We think we can have this growth without growing our corporate costs. In addition, when we buy other micro caps, we think we can do so without adding any corporate costs. When we merged Hudson and Star together last year, for example, we thought there'd be $2 million of cost synergies in merging those two companies together. It ended up being closer to $3 million. So we think we can grow our revenue and grow our EBITDA and not grow the corporate costs and get a lot of operating leverage from that. So with that, Joe, why don't I turn it back over to you and I left some time for some Q&A.
Thanks, Jeff. Appreciate that. Great presentation. Just wanted to dive in a little bit more on the Harte Hanks potential merger there. The go-shop period was finished, completed. They did receive some competing proposals, although they continue to say that the Star Equity one is the superior. If one of the other ones, the competing proposals came back with an improved offer, what valuation or return threshold would determine whether you increase your bid or walk away?
Yeah. We'll deal with that if it comes. That hasn't come yet. Our proposal is the superior proposal, so we're moving ahead. Both companies are moving ahead to get to a closed deal. If you think about the steps from here, the next step is to file our S-4 with the SEC. Once we get that document finalized by the SEC, we'll go definitive, and then that will allow us to schedule the shareholder meeting. We don't need Star shareholder approval. We need Harte Hanks shareholder approval, and we will be soliciting their shareholders for approval. Just a reminder, the transaction is part cash, part Star preferred stock, and the shareholders there can elect which one of those they want to receive. So that was a powerful thing that we offer to them. So the shareholders that want a tax-efficient transaction can elect preferred stock.
The ones that want cash can elect cash, and hopefully everyone gets exactly what they want. Then we think we'll get to a closed deal by the end of the year. Until we get to a closed deal, it's a free country. Anyone can come forward and put out a higher bid. That's true for any M&A situation. If it's a new party that comes, they would have to be flying a little bit blind. The company's not allowed to talk to them or give them access to the data room the way they were during the go-shop period. So the end of the go-shop period was a significant event, and we emerged from that with the highest and best proposal. So we think our proposal is going to be the one that gets to the finish line. So we're looking forward to that.
And just a little bit more on the potential for Harte Hanks there. They've got, as you mentioned, a number of disparate businesses. They've had some management turnover there. How do you see that, A, fitting into Star overall and especially, given your preference to have local operating management, how did that all fit in?
Sure. So good question. By the way, if a higher bid does come for Harte Hanks, we do have a breakup fee, which I think is $1.2 million, something like that. So, to us, if a higher bidder comes and we get paid the breakup fee, we'll think about what to do and there's a lot of other targets out there, so we can just move on down the road and continue to execute on our strategy. But we put a high probability on getting to a closed transaction with Harte Hanks. We have spent time, Rick and I, our COO, who's on the call with me, we've spent time with the operators of those businesses and gotten a deeper understanding of the businesses and the operating teams and kind of what they bring to the table.
And you look at Harte Hanks' businesses, it's a variety of different businesses, but it's all in the theme of outsourced solutions. It's a BPO, business process outsourcing. So they do fulfillment logistics, customer care, customer service, marketing services, marketing research, and the clients are all Fortune 500 companies. It really lines up pretty closely with our Hudson talent business. So our Hudson business is also an outsourced solution also for Fortune 500 companies. And what our Hudson business does, it'll handle everything a recruiting firm can do, a staffing firm can do, and what an HR department can do.
And so we do think the Fortune 500 is outsourcing more and more over time, so we believe in the outsourcing trend, and we believe that putting Harte Hanks inside of Star, we'll be able to eliminate, over time, it won't be on day one, but we'll be able to eliminate $10 million of costs. So that's some significant merger synergies, and we haven't quantified any revenue synergies, but we have to believe that with their client base, with our client base, there's going to be some pretty interesting cross-selling opportunities and they could be minor or it could be significant, but we think that's a real benefit that'll show itself maybe not in year one, but in year two and beyond.
Great. Let's switch gears here to the Building Solutions. We've seen higher interest rates there. Maybe you can talk a little bit more on how that may be or may not be impacting the business, whether you've seen some of these major contracts actually go into production and be coming into the income statement. Maybe talk a little bit more about that segment.
Yeah. This is our weakest segment, and it's an industry phenomenon more than something particular to our businesses or something wrong with our businesses. I would describe the market environment as weak for single- family. There's been a lot of press on that. It's even weaker for commercial multifamily. You think about your run-of-the-mill real estate developer that builds apartment complexes. That's weak right now. Where we do have traction is in the areas of affordable housing, workforce housing, and senior living, and that's where we're focusing our sales effort. That is where we're seeing some projects. For example, early this year, we announced a $4 million project, a senior living center in New Hampshire that we're building.
We have other projects like that in the pipeline, and we're pushing aggressively as we can to get those signed, to get those in backlog, and that will really get us through this weak environment. We think a more normal environment is something like, for our businesses, $80 million in revenue, 25% gross profit margin, and probably $8 million-$10 million of EBITDA, and we're running below those levels because it's a weak environment. The slight silver lining there is that we think it is a good time to do acquisitions in this space. This is probably the area where we have the most live acquisition targets that we're looking at. These are all private companies that would be a very complementary fit to our division. We're using the downturn to invest in our business. We are continuing sales and marketing efforts.
It is leading to wins, so stay tuned on that. If we get a big project, we tend to announce that. We do think there are some wins coming. Our backlog last quarter did stop going down and started to go up, which is a positive sign. We don't see things getting worse from here. We're dealing with the current environment, and we think it will get better over time, and we're doing a lot of self-help initiatives and really preparing for the future and looking for acquisition targets. We're making the most of the current environment.
Great. Let's finish up with this one. How do you rank debt repayment, operating investment, acquisitions, and common share repurchases when allocating cash? What conditions would cause you to pause stock buybacks?
Yeah. First and foremost, the number one rule of business is never run out of cash. We do manage conservatively. Our number one priority is always to invest in our current businesses. That's the lowest risk investment and the best way to have a growing business and to gain share over the long term. We are investing in our current businesses, that's priority number one. Priority number two is probably share repurchases just because our stock is really undervalued. We think it's dramatically undervalued. This is all public. You can see this in the filings we put in place. When we finished the last share repurchase authorization, we put a new authorization in place. Then we had been buying shares via a 10b5-1 plan. That allows us just to be in the market every day, buying what we're allowed to buy.
Just gradually over time, we're decreasing the share count. Acquisitions are tricky because it takes a willing seller and a willing buyer. There's several that we have on the radar screen, and Rick and I spend a lot of time on these, that it takes a willing seller. If you look at the Harte Hanks transaction, I think it's very telling that that is structured as a cash and preferred stock deal. We're not issuing any common shares at all, and that will almost double the size of our company. It's pretty hard to pull off that size of growth without issuing shares, but that's how strongly we feel about the value of our current common stock and why we're so reluctant to issue any common stock anywhere close to the current levels. Then, the lowest priority, frankly, is debt paydown.
We only have $5 million in net debt. None of it is expensive. It's all high single- digit cost to capital. We're a lightly levered company. If we have extra cash and all those other boxes have been checked, it never hurts to pay down debt. But that's the lowest priority of the four.
Okay. Well, Jeff, we have come to the end of our allotted time. We covered a lot of ground today. We got significant insight into what Star Equity does, its markets, and opportunities. We appreciate you taking the time to participate in our conference, and we wish you and the company the best in the future. Thanks again.
Thank you. Have a good day, everybody.