Description

Juniper Industrial Holdings, Inc. 

Amid the unprecedented tidal wave of SPACs, Juniper is another SPAC that is making its way into our quarterly letter. However, JIH is not just ‘another SPAC’.  JIH represents a classic, underfollowed multi-year investment opportunity with very attractive risk/reward. Led by what we believe is an all-star board and management team, JIH is “spinning in”/merging with a high-quality business with secular growth tailwinds at a discounted price with multiple levers to create significant shareholder value both in the near term and long term.  These levers include the potential for substantial EBITDA margin improvement of 500-1000 bps and a well-defined M&A strategy to supercharge growth. We believe the early innings of the execution of this value creation playbook could drive JIH’s stock into the $20’s over the next 18 months. On top of this $20 stock opportunity, JIH offers an additional layer of hidden value of over $10/share, embedded in a subsidiary with an exciting proprietary wireless technology solution that will be aggressively rolled out upon the close of the merger.

JIH Board – ‘Hall of Famers’

The JIH board is comprised of proven - what Corsair considers hall of fame - business operators and long-term value creators, led by Roger Fradin, the #2 guy at Honeywell alongside former ace Honeywell Chairman David Cote (Chairman of VRT - written up in our Q2 2020 quarterly letter).  Together with Cote and Fradin, JIH’s board is investing $22 million in the PIPE financing at $10 per share, signaling its confidence in its ability to implement the Honeywell ‘golden’ toolset for operating margin improvement/excellence and M&A value creation.  Interestingly, Fradin brings a wide range of business experience as he began his career as an entrepreneur, building a company from start-up to just under $2 billion in sales. In 2000, Fradin sold his business to Honeywell, and ended up running a big part of Honeywell for many years.  The ideal value creator, Fradin knows how to build, grow and operate, and, importantly, when to acquire and when to sell. 

The ‘Spin-in’ of Janus – a company with secular tailwinds in a “great industry” (as described by Chairman Roger Fradin)

JIH plans to combine with (also referred to as a ‘spin-in’ at Corsair) a Clearlake portfolio company, called Janus International Group, a best-in-class, leading self-storage and commercial warehousing solutions platform company, growing at double digits for many years, faster than its markets in an industry with solid macro drivers. Janus’s strong secular growth tailwind opportunity is being driven by an existing self-storage infrastructure that is old and needs to be retrofitted/renovated with over 60% of the installed capacity over 20 years old. In addition, the industry is running at almost 95% capacity utilization, above the historical 85%, representing pent-up demand for new facility projects for Janus.  Tailwinds are also being fanned by Janus’s growing share in its end market of commercial warehousing, where a large warehouse build-out is being caused by the accelerating growth of e-commerce. Lastly, with approximately 50% overall market share, Janus enjoys deep customer mission critical relationships, integrated at each point in a facility’s lifecycle, standing as the only industry player with a nationwide manufacturing and installation network.  Additionally, bundling products and services and growing content per square foot with its 10,000 customers are key near-term organic growth opportunities.

In another signal of confidence, both Clearlake and the Janus management team will retain an approximate 50% equity ownership upon close. “Brian and I both saw [this ownership] as a very strong statement underwriting the forward growth projections.” – Chairman Roger Fradin

Value Creation Through Large Margin Expansion Opportunity

Janus has delivered top-tier margins and exceptional free cash flow generation for many years.  Yet, JIH’s board believes it can drive significant margin expansion by implementing the Honeywell-type operating system, a proven game plan which identifies and executes cost reduction and price optimization strategies, supply chain/footprint opportunities, sourcing technologies and other key financial performance improvement actions.  We believe Janus can improve its EBITDA margins from its current 25%-26% range to as high as 35% in the next few years, as Roger Fradin and team coach and train Janus from their Honeywell playbook. 

M&A Opportunity

“The industry and the company have a number of attributes that are very similar to a number of the businesses we acquired and ran successfully at Honeywell.” – JIH CEO Brian Cooke

Fradin drafted longtime Head of Honeywell M&A Brian Cooke to the JIH board to lead Janus’s M&A efforts. Cooke executed 60 acquisitions with Fradin during their tenure together and have a track record of identifying and integrating highly accretive acquisitions. Management has identified a growing pipeline of potential targets in core and adjacent markets, both product and geography expansions, as well as international growth.  Management believes it can deliver significant shareholder value based on its Honeywell M&A playbook.

Nokē – A Valuable High Growth Technology ‘Hidden Asset’

There is virtually no wireless connectivity in self-storage today. Through its acquisition of Nokē, Janus became the first mover in self-storage connectivity.

“Nokē delivers the killer app that will transform the 22 million ‘dumb’ padlocks on self-storage doors today into wireless networked and connected smart locks.” – Roger Fradin

And what does Roger Fradin bring to the table with Nokē?

“I have a long and successful track record of transforming businesses and driving exceptional growth with wireless connectivity.  I did it in home security, commercial alarm communications, building automation…and I know I can help Janus drive similar growth in self-storage [at Nokē].”  - Roger Fradin

A highly attractive value proposition for Janus’s customers, Nokē’s proprietary wireless smart locking system fully integrates into the self-storage operator’s property management system and stands to significantly reduce the operator’s operating costs.

Assuming a roughly 20% market share, management believes:

“The smart lock application is by itself a $1 billion plus opportunity, and that does not include all the new revenue from other smart wireless sensors that can be deployed on the same network.” – Roger Fradin

Valuation

Assuming Janus achieves 29-30% EBITDA margins in the next 2 years, at a 16x EBITDA multiple (lower than its peers) and continued 95% FCF conversion, at those EBITDA run-rate margins, we believe Janus’s existing core business should be worth $20+ per share.  We view Nokē as pure upside to our Janus valuation of $20+, essentially getting this high growth proprietary wireless opportunity for free.  Assuming a valuation at a 2x revenue multiple on $1 billion, Nokē can be worth $2 billion alone, or over $14 per share, in addition to the $20+ for Janus’s existing core business, yielding a stock potentially worth $30 or more if we look out 2+ years.

Catalyst

Close of merger with Janus

Additional analyst coverage

Earnings reports - EBITDA margin expansion

Rollout of Nokē product

Accretive acqusitions