September 29, 2022

Business: Griffon operates by two segments. Shopper and Skilled Merchandise (“CPP”) conducts its operations by AMES. Based in 1774, AMES is the main North American producer and a worldwide supplier of branded client {and professional} instruments and merchandise for residence 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 business sectional storage doorways are bought by skilled sellers and main residence middle retail chains all through North America beneath the manufacturers Clopay, Ultimate and Holmes. Rolling metal door and grille merchandise designed for business, industrial, institutional, and retail use are bought 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)

Proportion Possession: 5.17%

Common Price: $25.91

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

On Aug. 15, Voss expressed its improve for Griffon’s May 2022 announcement that the board has initiated a evaluation of strategic decisions, along with a possible sale, merger, divestiture, recapitalization or totally different strategic transaction. Prior to now, on the company’s annual meeting, Voss commenced a proxy battle and successfully gained a board seat for H.C. Charles Diao, one amongst Voss’s two director nominees.

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Voss first reported defending Griffon of their Q3 2021 13F submitting. On Nov. 23, 2021, earlier to exceeding 5% possession, it nominated 3 directors for election to the board and later decreased it slate to 2 directors.

All over their proxy battle, the corporate launched letters and reveals detailing its belief that Griffon has poor firm governance and excessive govt reimbursement, and that the company should start a strategic evaluation. In a January 2022 presentation, it talked about that Griffon’s stock might be worth $50/share (it’s lately throughout the low $30’s) in the middle of the implementation of a plan that comes with (i) selling the Safety Electronics trade, (ii) exploring decisions for Home and Building Merchandise, (iii) the utilization of cash to cut back debt and pay a definite dividend, (iv) right-sizing firm overhead, and (v) bettering margins on the Shopper part. Voss moreover criticized Griffon’s M&A way, particularly highlighting its disapproval of the corporate’s acquisition of Hunter Fan for $845 million from MidOcean Companions. In the long term, on the 2022 Annual Assembly, shareholders elected one amongst Voss’s director candidates, H.C. Charles Diao, to the board the place he lately serves as a director.

Fast forward six months: Voss has now bigger their possession from 2.3% to 5.2% these days. In its 13D submitting, the corporate states that it’s “completely happy via the Issuer’s announcement in May 2022 that the Board had initiated a process to review an entire fluctuate of strategic decisions to maximise shareholder worth along with a sale, merger, divestiture, recapitalization or totally different strategic transaction.” Voss then well-known that it bigger its funding in accordance with its hope that the strategic evaluation will result in a transaction that may launch worth.

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So, the laborious part is accomplished. Voss launched a proxy battle, acquired a board seat and now it’s endorsing the company’s strategic evaluation. Since Griffon bought its Protection Electronics enterprise earlier this 12 months for $330 million, the strategic focus likely is focused on a attainable sale of the Home and Building Merchandise trade.

This isn’t the first time Voss had a strategic thesis at a portfolio company. Of their 13D on Benefytt Utilized sciences filed in December 2019, they highlighted the strategic alternate options on the company and the energetic M&A environment in that home – Benefytt Utilized sciences was acquired via Madison Dearborn Companions in August 2020. Moreover, in January 2020, Voss filed a 13D on Rosetta Stone and never utilizing a Merchandise 4 language, nevertheless the company was acquired via Cambium Discovering out on October 15, 2020.

There are a variety of causes to expect that some strategic transaction is extra more likely to occur proper right here: (a) Voss’s presence throughout the boardroom, (b) the company already supplied the Safety Electronics trade after Voss had advocated for that, and (c) the company’s announcement that they’re now pursuing an additional strategic evaluation. Moreover, the next annual meeting of shareholders will most likely be in February of 2023 and for the first time the Griffon could have a majority of directors (9 of 14) up for election on account of they only currently started the tactic of declassifying the board. So, if the company isn’t conscious of Voss’s suggestions, the corporate could launch some other proxy battle for majority preserve watch over this time.

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Ken Squire is the founder and president of 13D Observe, an institutional evaluation supplier 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 defending throughout the fund. Squire often is the author of the AESG™ funding class, an activist funding style involved about bettering ESG practices of portfolio firms.