Stripping and Selling Solo Brands for 10x

🧠 The Takeaways

Solo Brands is already bankrupt. Today, I’m lobbying Summit to take it private to make a killing on unwinding the portfolio.

1. Shutting down everything that isn’t a crown jewel.

2. Selling Chubbies for $200m.

3. Keeping or selling Solo at $46m in EBITDA.

+ Why you need to make the hard decision faster.

LBAB! Community - Make the hard decision early

A constant mistake I see—and a theme of today’s newsletter—is not always making the hard decisions early.

When you’re faced with a hard choice, don’t delay it. Too often, I see teams make the mistake of thinking they can wait it out or the answer will get easier down the road.

It never does. 

Playing the waiting game only reduces your time to adjust and makes the situation more stressful for you.

There is always a moment in your gut when you know something is off and you’re missing 2-3 key pieces of information to confirm it.

Get the info and move.

Hoping for the situation to change or for an act of God rarely works. It just delays the inevitable.

If you’re facing a tough decision: get the information for a “Go/No Go,” make the decision, and move on before it’s too late 

The more shots on goal you have, the easier the next decision will be.

Let’s Examine This Biz

Note: As always, none of what follows is legal, tax, investing, financial, or any other sort of advice. And I was never here.

Solo Brands, owner of Millennials’ favorite firepits (Solo Stove), short shorts (Chubbies), and outdoor brands (Oru Kayak, ISLE) won’t survive the year.

• Share price: $0.15

• Market Cap: $13m

• L5 Performance: -99%

• P/E Ratio: N/A

Solo Brands is already technically bankrupt. 

It will go into Chap 11 this year if they can’t refinance their debt in the next 3 months. But considering how horrifically it’s performed, I wouldn’t hold my breath.

Financial Summary

TLDR Analysis: This biz is toast.

• Rev continues to fall. COGS are increasing. 😰

• OPEX continues to be 2x Gross Profits. 🤮

• Losing $113m with $13m in Cash 🤮🤮🤮

I’m not sure what data could paint a clearer picture. This hasn’t worked.

At this point, the play is obvious. 

JPMorgan, the largest debt holder, will strip this biz down + sell anything that isn’t nailed to the floor to hopefully break even on the $152m it loaned them.

Debt for Acquisitions can be a powerful tool, but when things go bad, you lose control. And the bank needs to make their money back.

Let’s Strip This Biz

Here’s my 3-step plan to make a 10x killing for Summit and get JPMorgan their $152m back.

1) Immediately shut down everything that isn’t Chubbies or Solo

Sorry to the great brands that Solo acquired (Oru Kayak, Aisle, Icybreeze, TerraFlame), but they just weren’t important enough to prioritize when the s**t hit the fan.

When everything is up and to the right, it’s so easy to add another project/brand and round up, but when it turns south, you retreat back to what keeps you alive.

Unfortunately, for all these brands, they were the least important/smallest part of a brand portfolio that candidly lacked focus.

• A fire pit biz owning a short shorts company?

• A fire pit biz owning a Kayaking + Paddleboards biz? Eh… kinda see it.

• A struggling Outdoor portfolio acquiring a Yeti competitor when Yeti cooler sales are flat? C’mon.

• TerraFlame? I can kinda see it as an upmarket/artsy version of Solo. But too little too late.

This all boils down to focus, but more importantly, strategic long-term vision. 

This biz eventually became the DTC hammer looking for any Outdoor nail vs. what they should have been: a curated list of premium outdoor brands focusing on selling more products into the same audience.

Takeaway: Cutting off your arm is painful. But if the cancer is spreading, the alt is worse.

2) Sell Chubbies to the highest bidder

What frustrates me the most here is if Solo took Chubbies to market at any point in the last 2 years, they wouldn’t be in this situation. 

It’s a profitable, growing Fashion/Apparel brand that has a loyal audience.

• 2024 Sales: $112m (+10% YoY)

• 2024 EBITDA: $15m

Someone would have bought Chubbies for ~$200m, which would have offset their losses + let them pay down enough of their outstanding loans to stabilize the portfolio biz.

Chubbies is one of the best/most valuable DTC brands of the last decade, but it was never going to be the star of the Solo Stove show.

It’s a brutally painful action to sell off a crown jewel to pay off debt (similar to what Buzzfeed had to do with Hot Ones), but it’s less painful than shutting down the whole biz.

Solo Stove is the bigger brand and the anchor of the portfolio. Chubbies was only here because they were a successful DTC brand.

Takeaway: Sell off Chubbies to clear the debt.

3) Keep Solo Stove or sell it

Here is where we make all the return.

Solo Stove is a great, profitable biz that by itself is bigger and worth more than the whole portco. It’s scaled, profitable and has a loyal customer base. 

Sales and EBITDA are shrinking, but still meaningful.

• 2024 Sales: $297m (-15% YoY)

• 2024 EBITDA: $46m

There are many worlds where that’s a healthy cash flowing biz kicking off healthy returns to investors. 

Summit isn’t really in the game of Operating assets, but there are many other PE firms (or public bizs like Traeger or Yeti) who’d be happy to add ~$300m of profitable rev to their books. As we’ve previously covered in other newsletters.

Summit could sell Solo Stove for $400-600m depending on whether they could show growth forecasts again. Even if they can’t, a biz with $30-$45m/yr in EBITDA is a valuable asset after the debt has been cleaned up. 

Takeaway: 100% of the return will come from unleashing Solo out of this portfolio.

Final Thought

The biggest question I’d have as Summit Partners is: “Do we take this thing private and turn it around?”

Quick Context: In 2021, Summit Partners acquired Solo, Chubbies and Oru Kayak to form Solo Brands and took that new portfolio public. They owned 59% of the biz at IPO and are today still its largest shareholder, owning ~51%.

I’m sure they made a killing at the IPO that returned all their capital and then sum, but they also painfully rode this stock all the way down.

It’s probably too much work for them vs. the potential return. But someone can make a killing off this turnaround. 

JP Morgan isn’t exactly in a negotiating position of strength here either, but they will need to see someone with a strong cash position and access to capital if they are going to properly renegotiate these terms.

But, if they can… 

They’d be essentially paying $10m to take this biz private (they only need to buy out the other 49% of shareholders) and could make a killing unwinding this thing.