Voss backs strategic evaluation at Griffon. A possibility to construct worth might emerge



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Firm: Griffon (GFF)

Enterprise: Griffon operates by two segments. Client and Skilled Merchandise (“CPP”) conducts its operations by AMES. Based in 1774, AMES is the main North American producer and a world supplier of branded client {and professional} instruments and merchandise for dwelling storage and group, landscaping and enhancing outside life. CPP sells merchandise globally by a portfolio of main manufacturers together with True Mood, AMES, and ClosetMaid. Residence and Constructing Merchandise (“HBP”) conducts its operations by Clopay. Based in 1964, Clopay is the most important producer and marketer of storage doorways and rolling metal doorways in North America. Residential and industrial sectional storage doorways are offered by skilled sellers and main dwelling heart retail chains all through North America beneath the manufacturers Clopay, Best and Holmes. Rolling metal door and grille merchandise designed for industrial, industrial, institutional, and retail use are offered beneath the CornellCookson model. The CPP enterprise has roughly $1.2 billion in annual income and $115 million in EBITDA, and the HBP enterprise has roughly $1 billion in annual income and $181 million in EBITDA.

Inventory Market Worth: $1.8B ($31.75 per share)

Activist: Voss Capital

Proportion Possession: 5.17%

Common Value: $25.91

Activist Commentary: Voss is a Houston-based hedge fund centered on underfollowed particular conditions. They don’t seem to be conventional activists however have efficiently used activism as a instrument prior to now.

What’s Taking place?

On Aug. 15, Voss expressed its assist for Griffon’s Might 2022 announcement that the board has initiated a evaluation of strategic alternate options, together with a potential sale, merger, divestiture, recapitalization or different strategic transaction. Beforehand, on the firm’s annual assembly, Voss commenced a proxy struggle and efficiently gained a board seat for H.C. Charles Diao, certainly one of Voss’s two director nominees.

Behind the Scenes

Voss first reported holding Griffon of their Q3 2021 13F filing. On Nov. 23, 2021, previous to exceeding 5% possession, it nominated three administrators for election to the board and later lowered it slate to 2 administrators.

All through their proxy struggle, the agency launched letters and displays detailing its perception that Griffon has poor company governance and extreme govt compensation, and that the corporate ought to start a strategic evaluation. In a January 2022 presentation, it acknowledged that Griffon’s inventory might be price $50/share (it is presently within the low $30’s) by the implementation of a plan that features (i) promoting the Protection Electronics enterprise, (ii) exploring alternate options for Residence and Constructing Merchandise, (iii) utilizing money to cut back debt and pay a particular dividend, (iv) right-sizing company overhead, and (v) enhancing margins on the Client phase. Voss additionally criticized Griffon’s M&A method, particularly highlighting its disapproval of the company’s acquisition of Hunter Fan for $845 million from MidOcean Companions. Finally, on the 2022 Annual Meeting, shareholders elected certainly one of Voss’s director candidates, H.C. Charles Diao, to the board the place he presently serves as a director.

Quick ahead six months: Voss has now elevated their possession from 2.3% to five.2% right now. In its 13D submitting, the agency states that it’s “happy by the Issuer’s announcement in Might 2022 that the Board had initiated a course of to evaluation a complete vary of strategic alternate options to maximise shareholder worth together with a sale, merger, divestiture, recapitalization or different strategic transaction.” Voss then famous that it elevated its funding primarily based on its hope that the strategic evaluation will lead to a transaction that may unlock worth.

So, the arduous half is completed. Voss launched a proxy struggle, received a board seat and now it’s endorsing the corporate’s strategic evaluation. Since Griffon sold its Defense Electronics business earlier this 12 months for $330 million, the strategic focus doubtless is focused on a possible sale of the Residence and Constructing Merchandise enterprise.

This isn’t the primary time Voss had a strategic thesis at a portfolio firm. Of their 13D on Benefytt Applied sciences filed in December 2019, they highlighted the strategic alternatives on the firm and the lively M&A surroundings in that house – Benefytt Applied sciences was acquired by Madison Dearborn Companions in August 2020. Additionally, in January 2020, Voss filed a 13D on Rosetta Stone with no Merchandise 4 language, however the firm was acquired by Cambium Studying on October 15, 2020.

There are a number of causes to count on that some strategic transaction is more likely to happen right here: (a) Voss’s presence within the boardroom, (b) the corporate already offered the Protection Electronics enterprise after Voss had advocated for that, and (c) the corporate’s announcement that they’re now pursuing a further strategic evaluation. Furthermore, the following annual assembly of shareholders might be in February of 2023 and for the primary time the Griffon can have a majority of administrators (9 of 14) up for election as a result of they just lately began the method of declassifying the board. So, if the corporate isn’t conscious of Voss’s solutions, the agency might launch one other proxy struggle for majority management this time.

Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and he’s the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. Griffon is a holding within the fund. Squire can also be the creator of the AESG™ funding class, an activist funding type centered on enhancing ESG practices of portfolio corporations.

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