In the stock market game, there are some things that are routine and then there are some things that you just don't see every day. A microcap penny stock company making a $1.38 billion acquisition is one of them.
But, that's exactly what has catalyzed shares of Differential Brands Group Inc. (NASDAQ:DFBG) on Wednesday. Shares of DFBG closed Tuesday at a 90 cents each. Based on 13.97 million shares outstanding, according to Yahoo Finance data, the company had a market capitalization of just $12.57 million before today's news hit the wire ahead of the opening bell.
Differential Brands, a global consumer brands company comprised of Hudson, Robert Graham and SWIMS brands, disclosed that it has entered into a definitive agreement with Hong Kong-listed Global Brands Group Limited (GBG) to acquire a large part of GBG's North American licensing business.
Per the deal, Differential Brands will pay $1.38 billion in cash for rights to a portfolio that includes iconic brands such as Disney, Star Wars, Calvin Klein, Under Armour, Tommy Hilfiger, BCBG, bebe, Joe’s, Buffalo David Bitton, Frye, Michael Kors, Cole Haan and Kenneth Cole.
The acquisition is a company maker for Differential Brands. The Los Angeles-based firm reported net sales of $164.05 million and a net loss of $2.46 million for all of 2017. With the acquisition, pro forma annual revenue is forecast in excess of $2.3 billion.
Given the magnitude of difference in size of GBG and DFBG, this is akin to a reverse merger to bring the North American assets of GBG to the U.S. public markets only DFBG is the surviving entity.
A slew of participants are providing the cash for the acquisition, including Ares Capital Management LLC, HPS Investment Partners, LLC and GSO Capital Partners LP. Further, certain members of GBG’s existing management team, co-investors and lenders will be making an equity investment in the common stock of DFBG.
“We are thrilled to join Differential Brands Group and lead our combined platform by leveraging our expansive infrastructure, distribution and sourcing networks to drive growth, and we look forward to working with the Differential management team and Tengram to help support the company's growth as it capitalizes on promising market opportunities," said Jason Rabin, current President of GBG North America, in today's news release.
Before today, shares of DFBG hadn't been over $5 since October 2016. Following the news, shares rocketed ahead to as high as $5.50 before slipping back to as low as $3.41. With about 2-1/2 hours left in the trading session, shares were holding in the area of $4.86, equating to a gain of 446.1% from Tuesday's close and what still could arguably be considered a low market cap of only $67.13 million.
