SUBSPAC

The Rundown (8/7/21)

Hillman Solutions Corp is Unlike Any Other SPAC

Founded in 1964, Hillman is a leading distributor of home improvement products, personal protective equipment and robotic kiosk technologies to a broad array of retailers in the U.S, Canada and Mexico. Hillman recently closed its SPAC merger with Landcadia III, at a deal valuing the company at $2.6 Billion. 

Diverse Operating Profile 

Hillman is unlike any other post-SPAC company. The company continues to deliver long term sustainable growth, with a track record which spans 55-years of revenue growth in the company’s 56-year history. The company ships 112,000 SKUs to over 42,000 locations, with a majority of sales coming from Hillman owned brands. Hillman has long standing strategic partnerships with large retailers including Home Depot, Lowes, Walmart, Tractor Supply and ACE with products having over a 95%+ fill rate on store shelves.  Hillman fulfils distribution through a team of 1,100 employees, who look after the company’s logistics, inventory, category management and differentiated in-store merchandising services. 

The company’s products are categorised into three segments, including Hardware solutions, Protective Solutions and Robotics and Digital Solutions. Hardware Solutions spans a diversified portfolio with over 61,000 SKUs and is a market leader across the fastening and hardware industry. Hillman sells over 20 Billion Fasteners per year which makes up over 50% of the company’s revenue. The company is also leader in personal protection equipment, which comes under the Protective Solutions segment. Hillman sells over 575 million pairs of gloves and offers over 2,900 SKUs, primarily targeting the pro and Do it yourself market. Finally, the company’s Robotics solution includes products and services such as key duplication, pet tags and knife sharpening. This segment has a highly attractive margin profile and has a payback period of less than two years. 


Strong Base for Growth

Hillman currently operates in a $6 Billion market through existing product categories and distribution channels. The company estimates that it significantly expand this to over $45 Billion through product and channel expansion and introducing products in adjacent categories. This includes products like Plumbing Components, Electric Components and Paint Sundries. Hillman has currently seen a boost as consumers continue to increasingly spend more money on home improvement, as homes have shifted to multi purpose use case scenarios including Work, Schooling, Recreation, Fitness and Entertainment. Other rising trends include Millennials buying homes and the rise of suburban migration with remote work becoming mainstream. The company expects these factors to result in market growth of 4% CAGR between 2020-2024.

Additionally, the company plans to grow sales within its existing customer base by prioritising under-penetrated categories and eCommerce expansion. Hillman has also seen core organic growth amplified by new business wins, innovation in product development and expansion of PPE. The company is also looking to expand through various acquisition. Hillman has a proven track record with M&A by identifying , executing and integrating various acquisitions. Hillman leverages its relationships with retailers to help scale the acquired companies. Since 2017, Hillman has spent over $550 million on strategic acquisitions like Fastening Systems, BTP, ReSharp, West Coast Washers, Minute Okey and InstaFab. A perfect example of Hillman’s successful acquisition strategy is the acquisition of BTP and Minute Okey in 2018. BTP’s EBITDA nearly doubled from $36 Million in 2018 to $67 Million in 2020, while Minute Okey’s EBITDA grew 2.5x in the same period. 


Strong Boost from the Pandemic

Hillman has a strong Financial profile with a 56-year track record. The company has seen positive sales growth in 55 of the company’s 56-year history. Hillman has also fast tracked growth over the last few years with a CAGR of 17.7% between 2017 and 2020. The company’s EBITDA surged at breakneck pace during the same period, growing from $121 Million in 2017 to $221 Million in 2020. The company’s margin profile has also expanded significantly, with operating margins increasing from 14.5% in 2017 to 16.2% in 2020. 

Even in 2020, as most companies struggled with sales due to the pandemic, Hillman turned adversity into opportunity and delivered revenue growth of 12% and EBITDA growth of 24%. The company has seen a strong finish to 2020, with free cash flow increasing by 46% to $176 Million in 2020. Hillman used this increased cashflow to pay down debt, with Net Debt now standing at $1,525 million in 2020. This roughly equates to a Debt/EBITDA ratio which is 6.9x, which is slightly higher compared to other companies in the industry. The company has invested over $300 million over the last 5 years through a combination of capacity enhancing growth Capex and low maintenance Capex. 


Future Outlook and Valuation 

Hillman has a clear growth trajectory for future growth, with 5-year revenue and EBITDA targets set at 10% and 15% respectively. The company expects organic growth of 6% through product innovation, market penetration within the existing customer segment and the rollout of new robotics and digital programs. The company also expects organic EBITDA growth to be around 10% through operating leverage and the shift to high margin programs. 

At the close of its SPAC merger with Landcadia III, Hillman reached an enterprise value of $2.64 Billion. The transaction values the company at an EV/EBITDA multiple of 11.95. Hillman is expected to reach revenues of $1.37 Billion in 2020, implying a P/S ratio of 1.93, which is very reasonable, considering the diverse set of products under the company and the strong growth target expected through organic growth and various acquisitions. 


Conclusion 

Hillman is unlike any other SPAC company, as it has seen strong growth over its 56-year history. The company has a diverse set of operations, with a large addressable market and strong tailwinds from the pandemic to help boost growth in the future. Hillman is also valued reasonably, although its leverage should be concerning to investors. If the company can leverage its brands and acquisitions to generate cash flows, it can substantially bring down debt, thereby improving profitability and making it significantly more attractive from an investment standpoint. 


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