Published Mon, 29 Jun 2020 13:46:34 -0400 on Seeking Alpha
Seeking AlphaLong Ideas | Services Dividend Growth Investing StarJun. 29, 2020 1:46 PM ET|| About: Franchise Group, Inc. (FRG)by: Chris DeMuth Jr.Chris DeMuth Jr. Sifting the WorldMisplaced bets and other opportunities for long term value investorsSummaryFRG was just added to the Russell 2000.
It will get sell side coverage soon.
It raised capital to buy distressed assets.
The Franchise Group (FRG) is a new member of the Russell 2000, but the company and its management have a much longer history worth expanding on in light of the recent equity raise. Brian Kahn is the CEO of the Franchise Group. Brian is also the Managing Partner of the private firm, Vintage Capital. Brian has a long history pre-dating his tenure at the Franchise Group as a deal maker and expert in improving operating efficiency in the businesses he owns. Vintage acquired a controlling stake of Liberty Tax (TAXA) in 2019. They merged it with Buddy’s Home Furnishings and then renamed the company “The Franchise Group”. The plan is to turn the publicly traded tax preparer into a diverse conglomerate of franchised businesses through a series of accretive acquisitions. Management moved quickly to build on the Franchise Group by acquiring the Vitamin Shoppe, Sears Outlet and American Freight. The model for the acquisitions is to improve operational efficiency within these franchise businesses, take advantage of a number of synergies within the franchise model, and sell the company owned stores to franchisees where it makes sense. Investors get the benefit of the improved efficiencies as well as a consistent stream of cash flows that will be paid out in dividends.
Covid hit just as FRG had used debt to fund their American Freight acquisition. A business that looked fantastic quickly had several questions raised about their ability to survive with a number of their businesses forced to close (including nearly all the American Freight stores). The equity traded down over 75% in 2 weeks. Many... Read more