A technology investment company proposes acquiring the Dubuque-headquartered Flexsteel Industries with intentions to take the company’s furniture sales “digital first.”
The Indiana-based private equity firm CSC Generation Holdings Inc. on Wednesday released a letter to Flexsteel’s board of directors outlining CSC’s proposal for the acquisition. In the letter, CSC Founder, Chairman and CEO Justin Yoshimura wrote that his company is a “meaningful shareholder” of Flexsteel.
“We are disappointed that the Board of Directors of (Flexsteel) has failed to respond to our recent acquisition proposal,” Yoshimura wrote. “We continue to firmly believe that the company’s performance would be optimized under private ownership and are accordingly pleased to present a new proposal to acquire 100% of the outstanding shares of common stock of Flexsteel not already owned by CSC at a price equal to $20.80 per share in cash.”
The letter indicates that CSC could fully fund the acquisition with cash on hand and through the company’s existing lenders.
In a press release following CSC’s announcement, Flexsteel officials confirmed that they had received “an unsolicited preliminary non-binding proposal” from CSC and that they hadn’t had any interaction with CSC or knowledge of its proposal before Wednesday.
“Consistent with its fiduciary duties and in consultation with its financial and legal advisors, the Flexsteel board of directors will carefully review and evaluate the proposal to determine the course of action that it believes is in the best interest of the Company and all of its shareholders,” the release states.
In CSC’s letter, Yoshimura characterizes CSC as a company that acquires “overlooked store and catalogue-based companies” and “transforms” them into “digital first” brands. Since 2016, the company has acquired brands such as upscale kitchen and home décor chains Sur La Table and One Kings Lane.
“Based on our experience and today’s post-pandemic environment, we believe transformation is needed at Flexsteel and that a successful outcome can only be executed as a private business with the additional resources of a digitally native owner like CSC,” the letter states.
Neither Flexsteel’s corporate media contact nor President and CEO Jerry Dittmer responded to multiple requests for comment Wednesday. The press release from Flexsteel states that company officials do not plan to comment on the proposal until the board has reviewed it.
CSC’s media contacts were not able to respond Wednesday with answers to multiple questions — including the likelihood of its acquisition of Flexsteel and what an acquisition would mean for the employees still working at the Dubuque headquarters following the 2020 closure of Flexsteel’s Dubuque manufacturing plant.
Greater Dubuque Development Corp. President and CEO Rick Dickinson said Wednesday he would not comment on the proposed acquisition, having not yet spoken to Flexsteel officials.
During their fourth-quarter earnings call earlier this week, Flexsteel officials reported net sales of $124.5 million for the quarter ending June 30, an 8.6% decrease from $136.2 million in sales during the same period last year. For the entirety of fiscal year 2022, net sales increased by 13.6% to $544 million, up from $478.9 million during the prior fiscal year.
Officials made no mention of a potential acquisition during the earnings call, instead touting new initiatives aimed at combating challenges faced by the furniture industry, such as reduced consumer demands and supply chain disruptions.
“Business conditions for the furniture industry are challenging at the moment, and market conditions will remain rough in the near term,” Flexsteel Chief Operating Officer Derek Schmidt said on the Tuesday conference call with investors. “In times of disruption, there is opportunity to gain (market) share from competitors, and we have a set of ambitious initiatives for fiscal year 2023.”
Schmidt said on the call that the company plans to introduce a lower-priced brand that should start shipping to retailers in the second quarter of fiscal year 2023. The business also plans to develop new product categories, such as including sleep-oriented living room furniture and modular furniture.