Gardner Denver Could Sink On Lockup Expiration
November 8, 2017, concludes the 180-day lockup period on Gardner Denver Holdings Inc. (NYSE: GDI).
When the lockup period ends for GDI, its pre-IPO shareholders, directors, and executives will have the chance to sell their more than 148 million outstanding shares. The potential for a sudden increase in stock available in the open market may cause a significant decrease in the price of Gardner Denver Holdings shares.
GDI's group of restricted shareholders includes sixteen individuals and numerous corporate entities.
Currently, GDI trades in the $29 range, above its IPO price of $20 and significantly higher than its first-day closing price of $22.10 on May 12, 2017.
Business Overview: Provider of Mission-Critical Flow Control and Compression Equipment
Gardner Denver Holdings provides mission-critical flow control and compression equipment. It also operates within related aftermarket parts, consumables, and services in the United States, Middle East, Africa, Asia Pacific, and Europe. The company serves three segments: medical, energy, and industrials.
The medical segments designs, manufactures, and sells a varied array of specialized liquid, gas, and precision syringe pumps and compressors used in blood dialysis, oxygen therapy, laboratory sterilization, patient monitoring, and wound treatment. The energy segment designs, manufactures, sells, and services liquid ring vacuum pumps, displacement pumps, engineered fluid loading and transfer equipment, and compressors. This segment also operates in the aftermarket parts, consumables, and services under the Emco Wheaton, Nash, and Gardner Denver brand names, as well as serving clients within the downstream, midstream, and upstream energy markets. The energy segment serves the general industrial, transportation, and petrochemical sectors. The industrials segment provides and services an array of air compression, vacuum, and blower products in the primary and secondary markets. Its products are used in process-critical applications, such as aeration of wastewater, vacuum packaging of food products, and industrial air tools.
Gardner Denver Holdings serves its global clients via 37 key manufacturing facilities, over 30 service and repair centers and approximately 6,100 employees worldwide as of March 2017. The company is headquartered in Milwaukee, Wisconsin.
Financial Highlights
Gardner Denver Holdings reported the following financial highlights for the second quarter of fiscal 2017 ended June 30:
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Revenue of $579.1 million, an increase of 25% versus prior year
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Reported net loss of $146.3 million, which includes $226.7 million of pre-tax expenses for stock-based compensation (non-cash), loss on extinguishment of debt, and other fees related to the IPO
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Adjusted EBITDA of $132.1 million, an increase of 53% versus the prior year, with adjusted EBITDA margin of 22.8%, an increase of 410 basis points versus prior year
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Adjusted earnings per share of $0.24, an increase of 41% versus prior year
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In the second quarter, Gardner Denver generated $22.6 million of cash flow from operating activities and invested $10.4 million in capital expenditures, resulting in free cash flow of $12.2 million.
Management Team
CEO Vicente Reynal has served Gardner Denver since January 2016. He joined the company in May 2015 as President of their Industrials segment. He previously held positions at Danaher Corporation, KaVo Kerr Group, Thermo Fisher Scientific, and AlliedSignal Corporation. Mr. Reynal holds a Bachelor of Science degree in Mechanical Engineering from Georgia Institute of Technology and Master of Science degrees in both Mechanical Engineering and Technology & Policy from Massachusetts Institute of Technology.
CFO Philip Herndon has held his position since October 2016. He joined Gardner Denver in January 2016 as CFO of their Industrials segment. His previous experience comes from positions at Capital Safety, Sealed Air Corporation, and Diversey. Mr. Herndon graduated from the Indiana University of Bloomington with a Bachelor of Business Administration and holds a Master of Business from Marquette University.
Competitors: Flowserve, Ingersoll-Rand, Colfax, and Others
Gardner Denver lists its principal competitors in the industrial segment as IDEX Corp. (IEX), Flowserve Corp. (FLS), Colfax Corp. (CFX), Ingersoll-Rand (IR), Kaeser Compressors, Accudyne, and Atlas Copco. In the energy segment, competition comes from Dover Corporation (DOV), SVT GmbH and TechnipFMC (FTI), and in the medical segment, the competition comes from Flowserve Corporation (FLS) and Busch-Holding GmbH.IDEX Corporation, Watson-Marlow, Inc., KNF Neuberger, Inc. and Thermo Fisher Scientific (TMO). Morningstar lists the company’s top peers as Keyence, Fortive (FTV), and Hexagon.
Market Cap (mil) |
Net Income (mil) |
P/B |
P/E |
|
Gardner Denver |
$5,216.0 |
($176.0) |
4.3 |
n/a |
Keyence |
$65,371.0 |
$121,063.0 |
n/a |
n/a |
Fortive |
$25,154.0 |
$891.0 |
7.9 |
28.5 |
Hexagon |
$17,857.0 |
$552.0 |
3.5 |
27.6 |
Industry Average |
$2,866.0 |
$1,609.0 |
4.5 |
33.1 |
Early Market Performance
Gardner Denver Holdings’ IPO priced at $20 per share, well below its expected price range of $23 to $26. The stock closed on the first day of trading at $22.10. Since then, the stock dipped to $20.47 on June 23rd and reached a high of $27.63 on October 2. The stock had a significant run on October 16 by increasing more than 2 full points from its the day before on October 15. Currently, Gardner Denver trades above $30.
Conclusion: Short Shares of GDI Before November 8, 2017
We believe that with such a significant number of pre-IPO insiders and shareholders - sixteen individuals and numerous corporate entities - at least some of them will want to cash in and invest in other ventures. We believe that this is even more likely because GDI has an impressive return of 45.5% from IPO. These sales could flood the market with shares and cause a sharp, short-term downturn.
We recommend that risk-tolerant investors short shares of FPH ahead of the IPO lockup expiration on November 8, 2017. We recommend that investors cover short positions late in the trading session on November 8 and during the trading session November 9, 2017.
Disclosure: I am/we are short GDI.
Disclaimer: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any ...
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