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Monday Morning Quarterback and just like that, HNI becomes #2 |
At least one office furniture manufacturer sensed the opportunity to expand after reading the recent financials of Kimball Office. A quick read of the Jasper, Indiana-based balance sheet set off alarms—specifically the cash-in-bank category. While Kimball's available cash increased during the year, it still tallied just $14 million at the end of 2022, while the amount of money held in product deposits hit $32 million. Fourteen million dollars of cash is not a lot when you employ 2,400 workers. Making payroll with $14 million in the bank is challenging, though HNI had just $19.4 million in cash and short-term investments for nearly 7,000 workers at the end of 2022. Meanwhile, Kimball's accounts payable hit $57 million. Throw in another $60 million in long-term debt, and you've got the makings of a company that needed to seek a safe harbor or at least lots and lots of cash. And making matters worse still was the $36.7 million after-tax non-cash goodwill impairment charge associated with the ill-advised Poppin ($110 million) acquisition. Kimball ended 2023 posting a loss for 2022 ($36,063) on improving results (sales up 21% year-over-year). Before HNI stepped in, Kimball's market cap had already hit a low of $230 million in 2022. HNI is now valuing Kimball at approximately $485 million. Under the terms of the agreement, Kimball International shareholders will receive (a generous) $9.00 in cash and 0.1301 shares of HNI common stock for each share of Kimball International common stock they own. As a result of the transaction, Kimball International shareholders will own approximately 10% of the combined company, HNI says. Wall Street was happy. March 8th saw 645 million shares trade hands as the stock doubled in value after the announcement by HNI. Earlier in the month (March 2nd), as few as 943 shares traded hands. The bottom line is that HNI offered Kimball a lifeline, which they took. And none too soon, as furniture markets are under attack on many fronts. In the world of contract furnishings, this is a BIG DEAL and perhaps the last big deal we will ever see in our lifetime. The acquisition rearranges the pecking order, boosting HNI to the number 2 position and dumping (ever) declining Steelcase solidly into third place, barely ahead of 4th place Haworth with its grab bag of mix-and-match smaller European designer companies. Of course, the recently combined MillerKnoll rules all, and it's hard to imagine how HNI overtakes MillerKnoll without a few more rather large purchases. Who's left? Sure, plenty of investment banker money is invested in several smaller makers, but when investment bankers take over a manufacturer in our industry, it usually signals (guarantees) failure. Try to point to one investment banker takeover that has succeeded in the long run. You can't. HNI's very (very) savvy purchase of Kimball was perfectly timed to aid them in entering and expanding into several different markets. HNI will now be a force in healthcare furniture, hospitality, and medium to high-end office furniture. And while HNI has undoubtedly had its share of failed M&A's in the past, the Kimball purchase should work as planned. Owning Kimball, HBF, National, Allsteel, HON, and various other assorted entities makes for a product powerhouse at all price levels and categories. Add Kimball's (now properly valued) Poppin e-commerce business with HNI's Design Public e-commerce operation, and you've got the internet covered far beyond what Haworth or Steelcase's e-commerce businesses can possibly offer. Today the office furniture industry comprises the Powerhouse brands (MillerKnoll, HNI, Steelcase, and Haworth) and strong innovation brands like Teknion, Davis, and Humanscale. Dozens of other "boutique" brands are still fighting for shelf space at dealerships, while others like Global and KI are (still) relying on different marketing approaches. This will become increasingly challenging as the Powerhouse brands have sewn up most of the distribution for contract furniture (with dealers) while flooding the pipeline with thousands (and thousands) of products. With an expected run rate north of $3.1 billion, HNI will sit firmly in second place. The acquisition will give HNI 23 factories, warehouses, and offices in the United States, China, Mexico, and Vietnam, including 15 in Indiana. Kimball employed about 2,400 workers in 2022 ― about 2,300 in the United States. HNI's headquarters is in Muscatine, IA, while Kimball, 400 miles to the east, is in Jasper, IN - just an hour's flight time by private jet. MW |