Rincon, Puerto Rico– The biggest shareholder in Vera Bradley Inc. , an equity firm, is urging the board of directors to withdraw from the public market through a strategic alliance.
According to Fund 1 Investments LLC, the wisest course of action for the business and its investors is to start a strategic alternative process that would put Vera Bradley in the private markets or under the control of a bigger corporation.
With a primary concentration on the consumer, telecom, media, and technology industries, Fund 1 is a worldwide long/short equity fund that makes both public and private investments. Fund 1 now holds 10.0% of Vera Bradley’s outstanding shares after increasing its stake in the company in October. It claims to have an economic exposure of 20.0% of the existing shares. Additionally, it holds a large portion of the deep discount clothing and home décor company Citi Trends.
Fund 1 outlined three justifications for Vera Bradley’s decision to leave the public market in an open letter to the board this morning:
- Being able to concentrate on brand revitalization without having to worry about quarterly profits
- Opportunities for cost savings that are “unavailable in the public markets”
- Instead than holding frequent meetings with shareholders, management should have more time to concentrate on the business.
Fund 1 stated, “As your largest shareholder, we just want Vera Bradley to get back to its winning ways.” Vera Bradley made $366 million in revenue and about $50 million in free cash flow in its first year of going public, making it an enterprise value firm worth $1.5 billion. Analysts predict $380 million in revenue today, which is nearly the same amount as when the company went public. However, that $1.5 billion enterprise value suggests negative value today, adjusted for the acquisition of Pura Vida, and that same $360+ million in revenue is anticipated to burn cash.
Vera Bradley posted a Q3 loss of $0.27 per share earlier this month, down from $0.19 per share in the same quarter last year. For the quarter that concluded in October 2024, revenues dropped 30% to $80.58 million. According to Zack’s Consensus Estimate, which was mentioned in its analysis of the quarterly results, Vera Bradley shares have lost roughly 30.1% since the start of the year.
In today’s letter, Fund 1 stated that it had “the utmost respect” for the Vera Bradley brand and has already discussed ways to enhance the company’s financial performance with its directors.
It said, “We think that a financial or strategic buyer could close a deal at a competitive premium for shareholders.” “The company should think about transaction structures that would allow current stakeholders to participate in a transaction and maintain or increase their interests in the company, which we would be willing to do if a financial buyer offers the best opportunity.”
