July 27, 2019 - 4:17pm EST by
2019 2020
Price: 11.00 EPS 0 0
Shares Out. (in M): 26 P/E 0 0
Market Cap (in $M): 285 P/FCF 0 0
Net Debt (in $M): 182 EBIT 0 0
TEV (in $M): 467 TEV/EBIT 0 0

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Select Interior Concepts SIC ($11)
Select Interior Concepts is a B business, run by B/C management, selling at a C valuation. Where’s the
“A”? A is for Activist (or ADW, to be more specific). On 5/13/19 SIC announced a strategic review and
the formation of a “transaction committee” along with the hiring of RBC as financial advisor, largely in
response to ADWs push for sale (3/26/19) and highly effective “no vote” campaign around the May
2019 annual meeting.
We expect the strategic review to result in the sale of the company for a
substantial premium over the current price.
SIC was posted on VIC about a year ago (9/3/18) and received only 2 votes, not enough to warrant a
rating. The last conference call had exactly 1 listed participant (and questioner) the analyst from 12%
owner B.Riley. The Company did a 144A offering at $12 in 2017, a Jobs act IPO in 2018 and promptly
reset the bar (yes, lower). Excited yet?
Why Now. The business has stabilized (+ org growth, core margins up slightly), has a decent balance
sheet (2.5X, +FCF), a low valuation and is in the midst of a “Comprehensive review of strategic
operational and financial alternatives to enhance shareholder value”. While I think ADW’s $40 Strategic
Value (13X a higher EBITDA #, see 3/26 letter) is more than a tad rich, a value up 50% - 60% from here
seems very achievable and the board is “on the clock”. $18 = 8X 2019 EBITDA (ex-corp). $20 = 8X ’20
ex- acqs, ex-corp, including 2019 FCF.
Concentrated Ownership: Top 5 shareholders control 52% of shares, including Solace/Gateway 15.6% and also have a director
(Solace bought at $12 on 2017 FBR/BRiley 144A do these ever work?), BRiley 12%, ADW 9.8% and the
original PE sponsor Trive at 8%. ADW has been vocal, of course, but we do believe the other
shareholders would welcome, if not push for, a sale with a reasonable premium.
The Business. Select Interior Concepts is a relatively simple company with two distinct divisions, both with strong local
regional market share and reputations. Both divisions have been active consolidators of their respective
highly fragments markets. Trive Capital had acquired (and begun building) each before combining them
for critical mass for the 2017 144A deal.Generally concentrated in California, Texas, the southeast and
mid-Atlantic states, but expanding to serve larger homebuilder customers.
Residential Design Services (RDS):
Interior design installation services primarily flooring, countertops and cabinets for residential home
construction and renovation. Optional customer upgrades (85% upgrade) create larger orders and
higher margins. 150 homebuilder/construction customers and 230 suppliers. 35 locations, including 21
design centers. The Design centers are the competitive advantage as this is where the upsell happens
with the ultimate homeowner.
Architectural Surfaces Group (ASG):
Leading importer of natural and engineered stone for residential, commercial construction and
remodeling. Only scale consolidator (is that good?). Global supply chain (nominal direct China
exposure). Repair/Remodel 40-50% of revs. 22 design showrooms and warehouses. The Global
sourcing network and the design showrooms are the key to the margins in this business.
SIC has continued to make acquisitions in both segments to expand geographic foot print and add
product categories (cabinets, etc). Gaining share with national/regional home builders.
After the (obligatory?) post 144A expectations reset, SICs business seems to have stabilized, with low-
mid s.d. organic growth augmented by acquisitions and pre-corp margins starting to improve from
scale/operational benefits.
Overall, it’s a decent business with 10% and improving ebitda margins, a highly variable cost structure
and capex well under 2% of revs.
NOTE: for purposes of this writeup we are assuming that single family housing trends are broadly flattish and that SIC gains modest share given scale and operational advantages.  I recognize the longer term tie to housing/rates etc, however a near term continuation of the current flattish trend should support SIC's sale process.
We think a different owner/management team could better capitalize on the consolidation opportunity
and would likely get a better reception from investors. Hard to articulate exactly why but this
management team is NOT well regarded by shareholders or prospective investors who’ve met with
them. “it’s not the business, it’s them” was a recent quote.
$285M mkt cap + $182M debt = $467M TEV. $70M/$77M ‘19/’20 EBITDA so 6.6/6.0X EBITDA. Does not
assume additional acquisitions. The 2020 multiple does not explicitly account for about $1-2/share of
Pre-acq FCF. Importantly, given our expectation of a sale, excluding $10M of corporate and public
company costs EBITDA mults compress to 5.8X and 5.4X, respectively. FCF/EBITDA now improving and
should maintain above 50% if not at the recent 75% level.
$ 11
$ 18
Mkt Cap
Strategic Review Results in Sale of Company
Management/Board Changes
Valuation Gap to peers closes
Acquisitions add real value.
FCF for Buybacks/Accretive Acquisitions.


I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


Strategic Review Results in Sale of Company

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