Spec Sit Update: Latch $LTCH Making A Deal
Why this recent M&A deal suggests that LTCH has a lot more room to run
Hi there, welcome to another post by Cedar Grove Capital Management and our first post sharing our thoughts on a special situation.
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🧵 TL;DR
Latch LTCH 0.00%↑ recently acquired Ring founder’s Honest Days Work (“HDW”) to be what seems a horizontal integration for the platform
Given the structure of the deal, it appears that there could be much more upside than we initially anticipated given our liquidation analysis
This deal hints that the company might not be in as bad of shape on a business level, let alone a financial position
Stock reacted positively on the news and continued higher into the end of the week
Foreword
On April 16th, we posted our thoughts on a special situation trade for Latch (LTCH) and why we thought it had massive upside even in the event of a liquidation. If you’re interested in reading about it, you can click the link below to get caught up.
Spec Sit: Latch $LTCH Trading Below Liquidation Value
Listen now (22 min) | Hi there, welcome to another post by Cedar Grove Capital Management and our first post sharing our thoughts on a special situation. If you enjoyed today’s post, please hit the heart button and consider our premium subscription.
At the time of posting, the stock was trading at $0.68/share and recently closed at $1.00 for a 47% gain so far.
We originally argued that things might not be as bad as they seem and we went down line by line on the balance sheet to bridge 2021 filings to the recent cash position update to run the math on that.
This recent acquisition is quite interesting but to recognize its full value to HDW it needs to accomplish two things.
The company stays public and,
The stock rallies hard in order to recognize the full value of the acquisition for Jamie
Why do these two need to happen? Because of the deal structure.
The deal says that LTCH will acquire HDW for approximately 29.0 million shares of Latch’s common stock, and $22.0 million aggregate principal amount of unsecured promissory notes.
The shares are based on certain time-based and stock performance from $2 - $5 and over five years which are outlined below.