When a company in a commodity market with no pricing power and questionable brand loyalty spends 1/3rd its market cap (using stock and a loan from notorious Cerberus) to buy another company in a commodity market with similarly questionable brand loyalty, investors have to consider that an orange (if not red) flag.
When the only mention of the acquired business and its products/condition the CEO makes at a conference is that “the acquisition went smoothly,” investors should be even more concerned.
An acquaintance of mine was at the LD Micro Micro conference last week and said this was the only mention ZAGG CEO Robert G. Pedersen II made about their recently-acquired iFrogz division. Recall, when the much-heralded deal was announced, the rationale for the purchase:
“iFrogz is one of the fastest growing companies in the Company’s market sector, with a line of fun, youth-oriented products at affordable prices that can be found on shelves in leading retailers. iFrogz products are highly complementary to ZAGG, and management anticipates that the acquisition will put the Company meaningfully into two fast growing, attractive categories where previously the Company has had limited presence – cases and headphones. Most of iFrogz’s revenues have come from sales of mobile phone cases, but recently, iFrogz has seen rapid growth in its line of audio accessories, and now anticipates audio accessories to account for approximately 60% of total revenue during 2011.”
If the acquisition was such a great idea, why isn’t the CEO shouting about the no-doubt (sarcasm) results to anyone within earshot????
Perhaps its because iFrogz actually is a crappy brand and perhaps just as crappy of a company as ZAGG, itself. Almost 6 months post-acquisition, ZAGG has been unable to get iFrogz products into retailers who sell ZAGG products, for instance, Target. I’ve done channel checks at Target locations in northern NJ recently and the only products in-stock are invisibleSHIELD’s for iPad and iPod and 2-3 others, at most. There were, however, earbuds and headphones from 5+ companies including Skullcandy, Phillips, JVC, Bose, Sony and Panasonic, just off the top of my head.
Newsflash: The “incumbent” tech co’s have caught on to the “let’s sell earbuds/headphones in flashy color combinations/patterns/designs” game, so Skullcandy & iFrogz aren’t really making especially unique products anymore. And don’t even get me started about how cheap you can get them for, well below list price, especially on Amazon.com, in some cases for 70%+ off!
Clearly, iFrogz is doing great. Just like Zagg.