Key Summary: On September 7, 2023, Marc Chalfin of Windward Management (9%) sent a letter to Groupon's CEO praising turnaround efforts, highlighting significant growth potential, positive changes, and expected financial improvements. Chalfin anticipates increased EBITDA, improved balance sheet, and positive cash flow, estimating the stock could be worth $55+. Windward's investment includes both stock and options. Previously, MIG Capital and Jan Barta entered agreements with the company, leading to windward-management-cio-expresses-confidence-in-groupon-s-grpn-turnaround-efforts-and-valuation-powindward-management-cio-expresses-confidence-in-groupon-s-grpn-turnaround-efforts-and-valuation-poboard appointments and strategic changes.Market Cap: $359 million | Groupon, Inc. operates online local commerce marketplaces that connect merchants to consumers by offering goods and services at a discount in North America and internationally.
On September 7, 2023, Marc Chalfin , CIO of Windward Management (9%), stated that he has sent a letter (refer, "Exhibit C") to the CEO of the company expressing appreciation for the efforts of Dusan, the CEO of Groupon, in turning the company around. Windward Management highlights the following key points:
Groupon's core business, though previously struggling, is viewed as having significant growth potential.
New management, controlled by activist investors aligned with Windward, is making positive changes, including addressing misalignment of sales incentives and leveraging AI to improve inventory.
Chalfin believes that Groupon will return to growth by Q4, with an impending inflection across all three financial statements (revenues, EBITDA, and the balance sheet).
The company is expected to benefit from cost restructuring, which will lead to a material increase in EBITDA.
Chalfin anticipates an improvement in the balance sheet due to the sale of assets and a reduction in debt.
Cash flow is expected to become positive, with significant improvement in the second half of the year.
Windward's investment is structured with both stock and options, providing leverage for potential upside.
Chalfin concludes the letter by stating that Windward looks forward to working constructively with Groupon's management to help the company realize its embedded value.
Valuation insight
"It is our contention that the stock is worth $55+ or 5x where it currently trades. We believe that as we skate forward to The Fall of ’24 it will be apparent that the company will do $200M+ of EBITDA in ’258x $200M of EBITDA assuming only 10% share buyback/4M shares at $22 (100% up from current levels) over the next 12 months results in $55, even after accounting for dilution from Dusan’s options grantTo put in perspective, when GRPN hit $60 in June of ‘21, the stock was discounting 10x 175M of EBITDA, but this was on an OPEX base $250M higher. Top line recovery needs to be far less to achieve same EBITDAIf we are correct in our assumptions across all the financial statements, GRPN will have $100M+ of net cash pro forma after buyback exiting ’24 and could likely buy back significantly more stock than we modelGiven stock hasn’t had any real revenue growth during the last 8 years, we wouldn’t be surprised to see the multiple expand to 10x EBITDA, if they could see multiple consecutive quarters of top line growth. If Groupon could return to 60% of 2019 levels, a number that wouldn’t be shocking to us, the company would generate upwards of $300M of EBITDA and the stock could flirt with triple digits in our Bull case"
Past
MIG Capital
On January 31, 2020, MIG Capital (5%) entered into an agreement with the company and pursuant to it, Richard P. Merage will serve as an advisor to the Board of Directors. As an advisor, so long as MIG beneficially owns at least 3.5% of the outstanding shares of Common Stock, Mr. Merage shall be permitted to attend and reasonably participate at portions of all regularly scheduled and special meetings of the Board from February 1, 2020 to April 30, 2020. Source
On April 27, 2020, MIG Capital (5.7%) stated that it is encouraged by recent developments at the company, including the leadership and strategy changes and the cost optimization efforts that are underway. Given these positive developments, MIG Capital has determined not to extend Richard P. Merage’s status as an advisor to the Board beyond April 30, 2020 in accordance with the terms of the Agreement. Source
Jan Barta
On June 13, 2022, Jan Barta entered into a cooperation agreement with the company and pursuant to it, immediately following the company’s 2022 AGM scheduled to be held on June 15, 2022, the company will (i) increase the size of its Board to nine directors and (ii) appoint Dusan Senkypl to the Board to serve as a new director and appoint Jan Barta to initially serve as a Board observer and then as a new director by November 30, 2022.
On March 30, 2023, Jan Barta entered into an agreement with the company in connection with the company’s appointment of Mr. Senkypl as Interim CEO and irrevocable nomination of Messrs. Senkypl and Barta for re-election as directors at the company’s 2023 AGM. Source
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