(MENAFN- ValueWalk) >Buckley Capital's commentary for the third quarter ended September 30, 2025.

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• Exited Position: Dentalcorp (DNTL CN)
• New Position: Priority Technology Holdings (PRTH)
• New Position: ROOT Inc.
  • Business Overview:
  • Understanding the language of insurance:
  • The autocatalytic sequence:
  • Omni-channel distribution:
  • Valuation:
  • Conclusion:

The third quarter of 2025 was another strong period for Buckley Capital. We continued to build on gains achieved in the first half of the year, with the fund up 18.4% year-to-date, well ahead of our benchmarks. As we have written many times before, volatility and market dislocations remain our allies. Periods of uncertainty continue to offer opportunities to own high-quality businesses at compelling valuations, and our ability to stay disciplined through these moments has been a key driver of long-term returns.

While the broader market remains focused on macro narratives – interest rates, inflation, and geopolitical noise – we remain focused on fundamentals. Our process is designed to identify inflection points in businesses where perception and reality have diverged. During the quarter, we saw several examples of that dynamic playing out, including the announced sale of Dentalcorp, where our engagement and investment thesis culminated in a successful outcome for shareholders.

Overall, we are very pleased with how the portfolio is positioned. Many of our holdings are transitioning from misunderstood or underappreciated to recognized leaders within their industries, and we believe the next 12-18 months will bring further value realization across several of them.

Exited Position: Dentalcorp (DNTL CN)

Dentalcorp, one of our top five positions, announced on September 26th, 2025, that they have entered into an agreement to be acquired by funds affiliated with GTCR, in an all-cash transaction valuing the company's equity at approximately C$2.2 billion, or C$11 per share. The offer represents a ~33% premium to Dentalcorp's 20-day volume-weighted average price and has strong shareholder support, with voting agreements representing roughly 61% of outstanding interests, including over 56% in irrevocable commitments. Closing is expected in the first quar ter of 2026, subject to customary approvals.

This transaction follows the path we advocated for in our May 2024 letter to the Board, in which we encouraged the company to undertake a strategic review to unlock shareholder value. The announced sale validates our view that Dentalcorp's intrinsic value was not being fully recognized in the public markets. While we were somewhat disappointed that the C$11 per share price came in below historical private-market transaction multiples, which would have implied a valuation closer to C$14 to C$18 per share, we are pleased with the premium outcome and believe the sale represents a strong realization for shareholders. We also view GTCR's involvement as strategically constructive, given their deep experience in healthcare and multi-site services. With management rolling equity into the new entity, there is strong continuity for the business going forward.

We established our position at an average cost of roughly C$6.50 per share and exited at an average price of C$10.85, generating a 67% return over our holding period. Overall, this was a very positive outcome for shareholders and a clear example of how our private-equity approach to public markets can unlock meaningful value when intrinsic worth is not being reflected in trading prices.

New Position: Priority Technology Holdings (PRTH)

Priority Technology Holdings is a small-cap payments company that is made up of 3 segments:

SMB: a typical merchant acquirer that helps businesses accept and process credit and debit card payments; Priority is the 6th largest non-bank merchant acquirer under the Priority Commerce, MX Connect/Merchant brands.

B2B: a provider of automated accounts payable solutions to corporations and banks through its CPX brand, including the recent Plastiq acquisition.

Enterprise: a provider of“banking as a service” (BAAS) payments solutions, which allow enterprise clients to embed payments and financial services into their product offerings.

Priority is attractive today because over 60% of its EBITDA comes from the high-quality Enterprise segment, which is essentially a high margin (85% EBITDA margin) recurring revenue software business. We think that business is worth a high multiple given its consistent growth and high margins. The majority of the remaining business is their merchant-acquiring payments business. This can best be thought of as when you go to use your credit card at a hotel or restaurant, they are handling the payment transaction and sit between the hotel/restaurant and the major card networks. This is also a high quality business given the consistent reoccurring nature of these transactions.

Given that over 90% of their business is either recurring or reoccurring, PRTH has a very predictable business. This business is very attractive given the shares are trading at less than 5x next year's adjusted EPS, when we believe it should be trading at closer to 15x that number.

Given our expectation of continued consistent execution over the next 12 months, which should lead to 50% EPS growth from 2025 to 2026, we think the multiple should re-rate leading the stock to at least double over that time frame.

New Position: ROOT Inc. Business Overview:

Root Insurance, an auto insurtech headquartered in Columbus, Ohio, was founded by Alex Timm, an actuary by training, and Dan Manges, formerly CTO at Braintree. Together, they aimed to do what GEICO, Progressive, and a century of underwriting from traditional players had not: use telematics and mobile data to underprice good drivers – price the drivers, not the demographics.

Zero interest rates forgive many sins. Born into a world where capital was cheap, Root went public in October 2020 as part of the insurtech parade. The cohort priced disruption as a certainty, but they all had a lot more to prove. Since its IPO, Root lost as much as 99% of its market value and at one point traded at a negative enterprise value. The burning cash pile triggered a biological response: fight or flight. Root, to its credit, chose the former. Faced with deepening losses and loss-cost inflation from the Covid QEs, the company pivoted away from its youthful, growth-oriented imprudence and began the slow work of becoming an insurer, not by choice but by necessity. What emerged on the other side is not the exuberant disruptor of 2020, but something rarer in modern tech narrative: a humbled operator.

Understanding the language of insurance:

To understand auto insurance, one must first speak its dialect, composed of ratios. Combined ratio is the industry's report card. A combined ratio under 100 means an insurer underwrites profitably. When the combined ratio is over 100, the insurer loses money before any investment income enters consideration. The centerpiece of the scorecard consists of two parts: loss ratio, which measures how much each dollar of premium goes to pay claims, and the expense ratio, which captures the cost of operations – from marketing to overhead costs. In a commoditized product like auto insurance, mastering these ratios determines who survives.

Of the two components, the loss ratio matters more. It's the industry's best measure of pricing power - a direct reflection of an insurer's ability to price risk. A structurally higher loss ratio exposes a lack of underwriting proficiency. Yet a low figure alone also reveals little; the power lies in how and when it's achieved. An insurer's ability to drive down loss ratio on demand, applying its underwriting know-how and tech stack, sets it apart.

The autocatalytic sequence:

Root improved its loss ratio through an autocatalytic sequence – each decision yielded better pricing, underwriting, and retention.

The century-old incumbents rely on patchwork systems built on third-party software like Guidewire or acquisitions made over the course of decades. On the other hand, Root operates on a home-grown tech stack that handles billing, claims, and the actuarial process with minimal lag. With over 80% of the actuarial processes automated, Root conducts refreshes weekly if not daily under volatile macro conditions. These advantages allow Root to file and implement rate changes within one to two months - much faster than traditional players who refresh their actuarial process every 6 months. Root also has full control over its mobile sensor-based telematics solutions, while most in the industry rely on Cambridge Mobile Telematics. IR cited Root's telematics adoption rate stands at multiples of the 20% average among the competition. These infrastructures allowed Root to adjust reserves in 2022, almost a full year ahead of the industry during a very difficult time for the industry. Combined with an annually updated machine learning pricing model that replaces the traditional generalized models adjusted every half decade, Root not only acts earlier but also more precisely. These infrastructures laid the foundation for rate adequacy and the sharp improvement in loss ratios.

Omni-channel distribution:

Root came to the market as a congregant for mobile-first and direct-to-consumer. Faced with high churn, subscale branding, and brutal DTC unit economics, the company made the decision to go omnichannel. The DTC channel, driven by digital marketing, attracted younger, lower-credit, and more price-sensitive consumers. Its portfolio was a churn machine, which left Root with a thin renewal base, weak cohort maturity, and poor loss ratios.

Building everything in-house offered Root a lifeline to expand a new distribution channel - embedded partnerships. Root's API based solution facilitates seamless integration with its front-end partners. Launching its first partnership in July 2022 with Carvana, another disruptor of its own kind, Root enables the online car-buying platform's customers to buy auto insurance with just three extra clicks at the point of sale. In contrast, traditional embedded flows typically kick the users to the carrier's website, where they're greeted with 20 to 30 more questions. Root's conversion and take-up rate were the highest among the eight embedded offerings on Carvana before the partnership. These conversion rates resulted in Carvana taking a 5% stake in the company and a lucrative 5-year exclusive partnership.

In terms of unit economics, the embedded partnership channel is a home run. The car-buying platform has higher-quality and less price-sensitive customers that benefit Root's churn. The higher premium per policy through the channel also offers a tailwind to Root's loss ratio. More importantly, this pivot rewrites the CAC equation. Instead of spending on digital marketing upfront with unknown conversion rates, Root pays agent commissions and partnership fees on a per-policy and per-renewal basis. This CAC formula introduces predictable acquisition economics that favor improvement in the combined ratio.

The Carvana home run was a great proof of concept. Since then, Root has been broadening its partnership channel to 12 plus partners, taking a crawl, walk, run approach with each partner. New writings from the embedded partnership channel nearly tripled in Q2 2025 and now accounts for 44% of new underwritings in the quarter vs 17% a year ago. We can expect further tailwinds from improving channel mix, which benefits premium per policy and Root's control over its combined ratio.

Valuation:

Our investment thesis on Root, in short, is that compared with its major peers, we believe it is a better business, growing much faster, and trading at a significantly lower multiple. There are three key factors to our favorable thesis on Root. First, due to its use of advanced telematics, we believe Root is truly a technology-enabled disruptive force in the industry, giving it a sustainable competitive advantage relative to lower loss ratios, which are superior to those of its major peers, like Progressive (PRG) and Allstate (ALL). Second, Root's partnerships, especially with Carvana, should enable it to grow faster than its peers. We believe that the benefit of the Carvana relationship is not fully reflected in consensus forecasts. Our analysis suggests that a ~12% attach rate with Carvana unit sales should translate into revenue growth of ~15+% for Root in FY26, which is meaningfully above consensus growth of ~9%. Finally, the shares of Root are selling at a price to sales ratio, on what we believe is understated FY26 revenues, of 0.57x versus 1.54x and 0.84x for Progressive and Allstate, respectively. On a P/E basis, ROOT is trading at less than 10x our 2026 earnings estimate despite the rapid growth in the business.

We believe ROOT should earn a 10% net income margin over time, and therefore should trade in line with Progressive on a P/S basis (implying 15-16x earnings). Assuming sales continue to grow at a mid-high teens clip, we believe ROOT is worth around $160+/share next year, representing 100%+ upside, and as much as $300/share in the next 5 years. We believe ROOT is being overly penalized from multiple standpoints today as it is growing faster than PGR but trading at a substantially discounted multiple. The main thing we are watching closely is the auto insurance cycle itself, which we believe to be the main risk to the story.

Conclusion:

We remain excited about our opportunity set today – arguably more so than at any point in recent years. While the market as a whole appears fairly valued, we continue to uncover small and mid-cap companies with strong balance sheets, durable growth, and substantial upside potential that the market has yet to appreciate. Our holdings – Root, Priority, Basic-Fit, IWG, Gogo, and others – share the same DNA: improving fundamentals, aligned management teams, and catalysts that can drive meaningful compounding of earnings and free cash flow.

We continue to expect that the Russell 2000 and Russell 2000 Value will generate 7-10% annualized returns over the coming decade, while we believe Buckley Capital can exceed those returns by a double-digit margin on average. Our focus remains unchanged: applying a private-equity approach to public markets, concentrating capital in our best ideas, and allowing time and execution to drive returns.

We are proud of what we have achieved so far this year and confident in the prospects for the remainder of 2025 and beyond. We appreciate your continued support and look forward to discussing our outlook and portfolio positioning in more detail on our next conference call.

Zack Buckley

Founder and Portfolio Manager

Buckley Capital

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