Voss backs strategic review at Griffon. An opportunity to build value may emerge

Enterprise: Griffon operates by means of two segments. Client and Skilled Merchandise (“CPP”) conducts its operations by means of AMES. Based in 1774, AMES is the main North American producer and a world supplier of branded shopper {and professional} instruments and merchandise for house storage and group, landscaping and enhancing outside existence. CPP sells merchandise globally by means of a portfolio of main manufacturers together with True Mood, AMES, and ClosetMaid. House and Constructing Merchandise (“HBP”) conducts its operations by means of Clopay. Based in 1964, Clopay is the biggest producer and marketer of storage doorways and rolling metal doorways in North America. Residential and industrial sectional storage doorways are bought by means of skilled sellers and main house middle retail chains all through North America beneath the manufacturers Clopay, Ultimate and Holmes. Rolling metal door and grille merchandise designed for industrial, 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 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 software previously.

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

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

All through their proxy battle, 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 begin a strategic assessment. In a January 2022 presentation, it acknowledged that Griffon’s inventory might be value $50/share (it is presently within the low $30’s) by means of the implementation of a plan that features (i) promoting the Protection Electronics enterprise, (ii) exploring alternate options for House and Constructing Merchandise, (iii) utilizing money to scale back debt and pay a particular dividend, (iv) right-sizing company overhead, and (v) enhancing margins on the Client section. Voss additionally criticized Griffon’s M&A technique, particularly highlighting its disapproval of the corporate’s acquisition of Hunter Fan for $845 million from MidOcean Companions. Finally, on the 2022 Annual Assembly, shareholders elected one among 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 this moment. In its 13D submitting, the agency states that it’s “happy by the Issuer’s announcement in Could 2022 that the Board had initiated a course of to assessment 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 based mostly on its hope that the strategic assessment will lead to a transaction that may unlock worth.

So, the onerous half is finished. Voss launched a proxy battle, received a board seat and now it’s endorsing the corporate’s strategic assessment. Since Griffon bought its Protection Electronics enterprise earlier this yr for $330 million, the strategic focus possible is focused on a possible sale of the House 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 atmosphere 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 anticipate that some strategic transaction is more likely to happen right here: (a) Voss’s presence within the boardroom, (b) the corporate already bought the Protection Electronics enterprise after Voss had advocated for that, and (c) the corporate’s announcement that they’re now pursuing a further strategic assessment. 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 lately began the method of declassifying the board. So, if the corporate is just not conscious of Voss’s strategies, the agency may launch one other proxy battle 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 be the creator of the AESG™ funding class, an activist funding model centered on enhancing ESG practices of portfolio firms.