By Thomas Kerr, CFA
NYSE:EFSH
OVERVIEW
1847 Holdings LLC (NYSE:EFSH), is a publicly traded diversified acquisition holding company focused on acquiring and managing a group of small businesses, typically those with an enterprise value of less than $50 million. To date, the company has completed seven acquisitions and subsequently sold one and spun off one of the acquired companies. The company is currently exploring the divestiture or spin-off of two current holdings.
1847 Holdings offers investors an opportunity to participate in the ownership and growth of a portfolio of businesses that traditionally have been owned and managed by private equity firms, private individuals or families, financial institutions or large conglomerates. The company provides its shareholders with non-correlated returns while allowing shareholders to liquidate their position in 1847 Holdings at any point during an investment timeline. This unique structure permits flow-through tax treatment for shareholders. As a result, 1847 seeks to generate returns for shareholders through consistent, annual distributions of operating subsidiary income and capital appreciation resulting from the timely sale of operating subsidiaries.
The company was founded by Ellery W. Roberts, a former partner of Parallel Investment Partners, Saunders Karp & Megrue, and former Principal of Lazard Freres Strategic Realty Investors. 1847 Holdings' general investment thesis is that capital market inefficiencies have left the founders or stakeholders of many small business enterprises or lower-middle market businesses with limited exit options despite the high intrinsic value of their business.
Because of this dynamic, 1847 Holdings can consistently acquire businesses it views as solid for reasonable multiples of cash flow and then deploy resources to strengthen the infrastructure and systems of those businesses in order to improve operations.
These improvements may lead to a sale or IPO of an operating subsidiary at higher valuations than the purchase price and/or alternatively, an operating subsidiary may be held in perpetuity and contribute to 1847 Holdings' ability to pay regular and special dividends to shareholders.
ACQUISITION CRITERIA
1847 Holdings typically looks for companies with at least $5 million in annual revenues that are based in North America, have historical average annual growth rates of at least 5.0%, and current year EBITDA (or pre-tax income) of at least $1.5 million. The acquisitions must have a clearly identifiable path for future growth and are well positioned in 1847’s preferred industries such as consumer, B2B, light manufacturing, and specialty finance.
The acquisitions can vary in terms of structure but typically fall under two categories. The first is a major recapitalization in which a liquidity event can happen for the owner/operators where they sell a majority of their ownership to 1847 but retain some level of operating control. The second is a full buyout of the target which the acquired company may benefit from a new, energized financial partner.
The size of these deals can range from $5 million to $50 million in enterprise value and only include majority control or 100% ownership transactions. 1847 does not make minority investments in the companies they acquire.
1847 plans to limit the use of third-party acquisition leverage so its debt will not exceed the market value of the assets acquired and that its debt to EBITDA ratio will not exceed 1.25x to 1.00 for its operating subsidiaries. By limiting the leverage this way, it will avoid the possible imposition on stringent lender controls on its operations that could hamper growth and harm the business even during times when there are positive cash flows.
CURRENT PORTFOLIO
Signature Home Craft (recently rebranded from 1847 Cabinets)
On February 24, 2024, the company announced that 1847 Cabinets had engaged Spartan Capital to help with a potential spin-off into a separate publicly traded company on a senior U.S. exchange, or other potential strategic transaction, to capitalize on 1847 Cabinet's internal growth and favorable outlook for the business.
On February 29, 2024, the company announced it will be rebranding 1847 Cabinets and will now be operating under the brand Signature Home Craft. CEO Ellery Roberts stated: “We believe that consolidating 1847 Cabinets' entities under one brand name, Signature Home Craft, will enable us to better serve our customers and partners. By leveraging the collective strengths and expertise of its various entities, Signature Home Craft aims to drive sustainable growth, expand market reach, and deliver unparalleled value to its customers."
1) High Mountain Door & Trim
In October 2021, 1847 Holdings acquired High Mountain Door & Trim, Inc. & Innovative Cabinets & Design for an aggregate purchase price of approximately $15.4 million with both companies based in Reno, Nevada. 1847 owns 92.5% of the combined companies.
High Mountain specializes in all aspects of finished carpentry products and services, including doors, door frames, base boards, crown molding, cabinetry, bathroom sinks, bookcases, built-in closets, and fireplace mantles. The company works primarily with large homebuilders of single-family homes and commercial and multi-family developers. Innovative Cabinets specializes in custom cabinetry and countertops for a client base consisting of single-family homeowners, builders of multi-family homes, as well as commercial clients.
The latest quarterly financial results reported were for the quarter ending 9/30/23 which showed revenues of $7.4 million and a gross profit of $3.2 million (gross margin of 43.1%).
2) Innovative Cabinet Designs
Sierra Homes d/b/a Innovative Cabinets & Design specializes in custom cabinetry and countertops for a client base consisting of single-family homeowners, builders of multi-family homes, as well as commercial clients.
The latest quarterly financial results reported were for the quarter ending 9/30/23 which showed revenues of $2.5 million and a gross profit of $1.98 million (gross margin of 79.5%).
3) Kyle’s Custom Wood Shop
In September 2020, 1847 Holdings acquired Boise, Idaho based Kyle’s Custom Wood Shop, Inc. for an aggregate purchase price of approximately $8.6 million. 1847 owns 100% of the company.
Kyle’s is a leading custom cabinetry maker servicing contractors and homeowners since 1976 in southwestern Idaho. Kyle’s focuses on designing, building, and installing custom cabinetry primarily for custom and semi-custom builders. Their professional cabinet design blends artistic design elements with maximum efficiency. The cabinetmakers are equipped with state-of-the-art installation and finishing tools and equipment.
The latest quarterly financial results reported were for the quarter ending 9/30/23 which showed revenues of $1.3 million and a gross profit of $568,705 (gross margin of 43.6%).
Wolo Manufacturing Corporation
In March 2021, 1847 Holdings acquired Deer Park, NY based Wolo for an aggregate purchase price of approximately $8.3 million. 1847 owns 92.5% of the company.
Wolo designs and sells horn and safety products for the electric, air, truck, marine, motorcycle and industrial equipment markets. The company also offers vehicle emergency and safety warning lights for cars, trucks, industrial equipment and emergency vehicles. The company is focused on the automotive and industrial after-market and sells to big-box national retail chains, through specialty and industrial distributors, as well as on line/mail order retailers.
The company has a solid reputation for innovative design and the current product line consists of over 455 products, including 46 patented products, as well as over 90 exclusive trademarks.
The latest quarterly financial results reported were for the quarter ending 9/30/23 which showed revenues of $883,080 and a gross profit of $257,219 (gross margin of 29.1%). In March 2024, 1847 announced that Wolo’s revenues increased approximately 40% in January and February of 2024.
ICU Eyewear
In February 2023, 1847 Holdings acquired ICU Eyewear for an aggregate purchase price of approximately $4.5 million. The company is headquartered in Hollister, California but products are sold across the country. 1847 owns 100% of the company.
Founded in 1956, ICU Eyewear specializes in the sale and distribution of reading eyewear, sunglasses, blue light blocking eyewear, sun readers, and other outdoor specialty sunglasses, as well as select health and personal care items, including face masks.
ICU is the only OTC eyewear supplier in the U.S. to have meaningful penetration in all significant retail channels including grocery, specialty, office supply, pharmacy, and outdoor sports stores. ICU's line of distinctive eyewear has earned itself the title of #1 provider of OTC eyewear at Target.
ICU has developed a highly profitable and sustainable business model, with solid financials, positive EBITDA and gross margin of approximately 40%. The company has 10 brands and a comprehensive and innovative product offering over 3,000 SKUs across the reading glass, sunglasses, and health & personal care segments. ICU's customer base consists of a broad range of national, regional and specialty retailers comprising over 7,500 retail locations.
The latest quarterly financial results reported were for the quarter ending 9/30/23 which showed revenues of $4.2 million and a gross profit of $1.58 million (gross margin of 37.2%).
PAST HOLDINGS
Asien’s Appliance
In May 2020, 1847 Holdings acquired Asien’s Appliance for an aggregate purchase price of approximately $2.1 million which serves the Sonomo County, California region. 1847 owns 95.0% of the company. Asien provides a wide variety of appliance services, including sales, delivery/installation, in-home service and repair, extended warranties, and financing.
On February 20, 2024, the company announced its decision to divest this holding. The decision to divest Asien comes after a comprehensive review of 1847 overall portfolio and strategic objectives. The divestiture aligns with 1847 Holdings' commitment to optimizing its resources and enhancing shareholder value. Asien lost a major distributor and the company felt recovery of current losses may be to difficult to achieve in a reasonable time frame. The divestiture should result in approximately $10.9 in expense savings and a reduction of liabilities of approximately $4.5 million.
Neese
On March 3, 2017, 1847 acquired all of the issued and outstanding capital stock of Neese, Inc. for an aggregate purchase price of $6,655,000, wherein 1847 Holdings LLC did not invest any equity and financed 100% of the purchase. On April 19, 2021, 1847 entered into a stock purchase agreement with the original owners of Neese, in which they purchased 1847’s 55% ownership interest in Neese for a purchase price of $325,000 in cash. As a result of this transaction, Neese is no longer a subsidiary of the company. The company believes this to be a successful transaction for 1847 Holdings shareholders.
Goedeker
On April 5, 2019, 1847 acquired substantially all of the assets of Goedeker Television Co. for an aggregate purchase price of $6,200,000, wherein 1847 Holdings LLC did not invest any equity and financed 100% of the purchase. On October 23, 2020, all of the shares of Goedeker, which were free trading, were distributed to 1847 shareholders. The value of the distributed shares was approximately $32.5 million. As a result of this distribution, Goedeker is no longer a subsidiary of the company. The company believes this to be a successful transaction for 1847 Holdings shareholders.
MARKET OPPORTUNITY
The merger and acquisition market for small businesses is highly fragmented and provides ample opportunities for 1847 to acquire business at attractive prices. According to the GF Data, platform acquisitions with enterprise values greater than $50.0 million had valuation premiums 30% higher than platform acquisitions with enterprise values less than $50.0 million (8.2x trailing 12-month EBITDA vs. 6.3x trailing 12-month EBITDA). Lower acquisition multiples for small businesses are the result of:
➢ Typically, fewer potential acquirers
➢ 3rd-party financing generally is less available
➢ Sellers of these businesses may consider non-economic features, such as continuing board membership or the effect a sale on their employees
➢ These businesses are generally less frequently sold pursuant to an auction process
In addition, the company believes that significant opportunities exist to improve the performance of the businesses that they acquire. In the past, 1847 acquired businesses that are often formerly owned by seasoned entrepreneurs or large corporate parents. In these cases, 1847 has frequently found that there have been opportunities to further build upon the management and have found that financial reporting and management information systems of acquired businesses may be improved. Both of these can lead to substantial improvements in earnings and cash flow. In addition, because these businesses tend to be too small to have their own corporate development efforts, opportunities may exist to assist these businesses in meaningful ways as they pursue organic or external growth strategies that were often not pursued by their previous owners.
FINANCIAL REVIEW
On November 14, 2023, 1847 released 3rd quarter and 9-month year-to-date results for the period ending September 30, 2023. 3rd quarter highlights include total revenues increasing to $18.8 million from $14.5 million in the prior year period.
Revenues from the retail and appliances segment decreased to $2.4 million from $2.9 million in the same period in 2022. The decline in revenues was primarily attributed to ongoing supply chain delays and decreased customer demand. Revenues for the retail and eyewear segment were $4.2 million in the 3rd quarter.
Revenues from the construction segment increased to $11.2 million in the 3rd quarter compared to $10.0 million in the prior year period. The increase in revenues was primarily attributed to an increase in new multi-family projects and an increase in the average customer contract value.
Revenues from the automotive supplies segment decreased to $883,080 for the three months ended September 30, 2023, from $1,489,710 in the prior year period. The decline in revenues was primarily attributed to ongoing supply chain delays with manufacturers and decreased customer demand.
On February 14, 2024, the company announced it had closed on a public offering of common shares and warrants in which it raised $5.0 million proceeds. In 2023, the company raised $4.4 million in proceeds from various equity related offerings. In 2021, as part of an uplisting transactions to the NYSE, the company raised $6.0 million in proceeds.
MANAGEMENT
Ellery Roberts
Chairman, CEO, and President
Mr. Roberts has been Chairman, Chief Executive Officer and President since inception in 2013. Mr. Roberts has over 20 years of private equity investing. Prior to forming 1847, Mr. Roberts was the co-founder and was co-managing principal of RW Capital Partners from 2009 to 2011. Mr. Roberts was a founding member of Parallel Investment Partners, a Dallas-based private equity fund focused on re-capitalizations, buyouts and growth capital investments in lower middle market companies throughout the U.S.. Previously, Mr. Roberts served as Principal with Lazard Group LLC), a Senior Financial Analyst at Colony Capital, Inc., and a Financial Analyst with the Corporate Finance Division of Smith Barney Inc.. Mr. Roberts has also served as the chairman of the board of 1847 Goedeker (GOED) since April 2019 and has also been a director of Western Capital Resources, Inc. (WCRS) since May 2010. Mr. Roberts received his B.A. degree in English from Stanford University.
Vernice Howard
Chief Financial Officer
Ms. Howard has served as Chief Financial Officer since September 2021. Ms. Howard has over 30 years of experience in the fields of finance and accounting. Prior to joining 1847, she worked for Independent Electrical Contractors, Inc. and its affiliates for over eleven years as Chief Financial Officer, where she was responsible for providing leadership to the organization in the areas of finance, human resources and general facilities administration, in addition to setting policies, procedures, strategies, practices and overseeing the organization’s assets. The foundation of Ms. Howard’s accounting and finance experience began with public accounting for several years gaining experience in tax and auditing in the entertainment and nonprofit sectors as Chief Financial Officer for The Cronkite Ward Company, a television production company, and Director of Finance for Community Action Group (CAG), a nonprofit organization. Ms. Howard holds a Master of Business Administration in Finance from Trinity Washington University Graduate School of Business Management and a Bachelor of Science in Accounting from Duquesne University.
SUMMARY
We believe 1847 Holdings is currently well positioned for profitable growth as the current management team can implement both operational improvements at current holdings as well as create opportunities to acquire new undervalued companies with a blueprint for growth. The addressable market for small businesses that meets 1847’s acquisition criteria is large and highly fragmented and provides significant opportunities to purchase business at attractive prices.
The company’s long-term goals include:
➢ Making and growing regular distributions to its common shareholders and to Increase common shareholder value as well
➢ Continue to identify, perform due diligence on, negotiate and consummate platform acquisitions of small businesses in attractive industries
➢ Plan to limit the use of third-party acquisition leverage so its debt will not exceed the market value of the assets acquired and that its debt to EBITDA ratio will not exceed 1.25x to 1 for its operating subsidiaries
➢ By limiting the leverage this way, it will avoid the imposition on stringent lender controls on its operations that would otherwise hamper growth and otherwise harm the business even during times when there are positive cash flows
There are two near-term catalysts that may make 1847 an attractive smallcap investment opportunity. The company is cleaning up its balance sheet by divesting non-core assets and the company recently repaid $1.95 million in convertible notes with proceeds from its recent equity offering. In addition, the potential spinoff or divestiture of the 1847 Cabinets business may result in a meaningful stock dividend to current shareholders.
The company is expected to be well capitalized with ample firepower for future acquisitions after completion of the recently announced divestitures. We do not believe the company’s current market capitalization of $8.0 million reflects the shareholder value that can be created with the profitable growth of current subsidiaries and the large pipeline of future acquisitions.
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