Medical-Apparel Maker Figs Turns Down Private-Equity Acquisition Offer

Figs, Inc., the leading healthcare apparel brand, has recently turned down an acquisition offer from private-equity firm Story3 Capital Partners. The offer, valued at over $1 billion, was deemed undervalued by Figs' management, who believed the company's growth prospects were not fully reflected in the proposal. In this article, we will explore the strategic reasons behind Figs' decision, the company's current financial health, and the potential long-term benefits and drawbacks of turning down the offer.



Figs' strategic reasons for rejecting the acquisition offer:

1. Undervalued Offer: The offer of $6 per share was considered undervalued by Figs, as it did not reflect the company's true worth and growth potential. Figs' market capitalization at the time was around $1.02 billion, and the offer valued the company at just over $1 billion.
2. Potential for Future Growth: Figs believed that the offer did not account for its long-term growth prospects. The company had been expanding its product offerings, entering new markets, and building a strong brand. Figs' management likely believed that the company's growth trajectory would lead to a higher valuation in the future.
3. Loss of Independence and Control: As a public company, Figs had the advantage of being able to make strategic decisions independently. Accepting the offer would have meant losing this independence and control to a private equity firm. Figs' management may have preferred to maintain control over the company's direction and strategy.
4. Potential for Higher Offers: Figs may have believed that there were other potential acquirers or investors who would be willing to pay a higher price for the company. By rejecting the initial offer, Figs could potentially attract other suitors or increase the offer from Story3 Capital Partners.

Figs' current financial health supports its decision to remain independent:

1. Strong Cash Position: As of December 31, 2023, Figs had $281.71 million in cash and cash equivalents, providing a robust liquidity position to support operational growth and investments in new initiatives (Source: GuruFocus).
2. High Current Ratio: Figs has a current ratio of 4.58, indicating a strong ability to meet short-term debt obligations (Source: GuruFocus).
3. Low Debt Levels: Figs has a Debt/Equity ratio of 0.14, suggesting a low level of debt relative to its equity, which reduces the risk of financial distress (Source: GuruFocus).
4. Positive Free Cash Flow: Figs generated $84.6 million in free cash flow in 2023, demonstrating its ability to generate cash from operations after accounting for capital expenditures (Source: Figs' Fourth Quarter and Full Year 2023 Financial Results).
5. Growth in Active Customers: Figs' active customer base grew by 13.0% year over year to 2.6 million as of December 31, 2023, indicating a strong and growing customer base (Source: Figs' Fourth Quarter and Full Year 2023 Financial Results).

The potential long-term benefits and drawbacks of Figs' decision to turn down the offer:

Benefits:

1. Maintaining Public Market Liquidity: As a publicly traded company, Figs benefits from the liquidity and visibility that comes with being listed on the New York Stock Exchange (NYSE). This allows for easier access to capital and a broader investor base. By remaining public, Figs can continue to tap into these benefits.
2. Brand Visibility and Control: Figs has built a strong brand identity as a public company, and turning down the offer allows the company to maintain control over its brand narrative and image. This can be crucial for attracting and retaining customers, as well as for attracting and retaining talent.
3. Potential for Higher Valuation: Public markets can sometimes offer higher valuations than private equity firms, as they have access to a broader range of investors. By remaining public, Figs may be able to achieve a higher valuation in the long run.
4. Access to Growth Capital: As a public company, Figs has access to growth capital through equity and debt offerings. This can be crucial for funding expansion initiatives, such as international expansion, B2B sales, or retail stores.

Drawbacks:

1. Potential for Higher Valuation: While public markets can offer higher valuations, they can also be more volatile and subject to market fluctuations. This can make it more challenging for Figs to maintain a consistent valuation and attract long-term investors.
2. Regulatory Burdens: As a public company, Figs is subject to more stringent regulatory requirements and disclosure obligations. This can be time-consuming and costly, potentially diverting resources away from core business activities.
3. Dilution: Figs may face dilution if it issues new shares to raise capital, which can dilute the value of existing shares and potentially impact shareholder control.
4. Market Pressure: Public companies are subject to constant market pressure and scrutiny, which can be challenging to manage. This pressure can lead to short-term decision-making and a focus on quarterly results, which may not align with long-term growth strategies.

In conclusion, Figs' decision to turn down Story3 Capital Partners' offer has potential long-term benefits and drawbacks. By remaining public, Figs can maintain liquidity, brand control, and access to growth capital. However, it also faces potential challenges related to market volatility, regulatory burdens, dilution, and market pressure. Ultimately, the long-term success of this decision will depend on Figs' ability to execute on its growth strategies and navigate the challenges of the public markets.