What happened
Actions of The container store (NYSE: TCS)a home goods retailer tied largely to storage, rose sharply on the first trading day of 2021 and rose as much as 16% at some point in the week, according to data from S&P Global Market Intelligence . That said, he returned some of the lead to start on Friday, January 7, with a still impressive rise of around 13.5%. The big news was an acquisition.
So what
Normally, when a company announces that it is buying another company, the buyer’s shares fall because it has to find the necessary funds to close the deal. That was obviously not the case here, as shares of The Container Store rose after the pre-market announcement on January 3, the first trading day of the new year, that it was spending $ 21.5 million. to purchase Closet Works. This company manufactures wood-based closet organization systems.
Image source: Getty Images.
This is a complementary product line to the Elfa line of metal cabinet organization systems from The Container Store. This is a very big business for the retailer, noting that closet systems accounted for 16.9 percentage points of the company’s 30.3% sales growth in the first six months of the year. fiscal year 2021, ended October 2, 2021. In other words, Elfa has essentially driven over more than half of the company’s growth in the first six months of fiscal 2021. Investors clearly believe that increasing this activity with wood-based products is a good idea. Notably, the purchase of Closet Works will include production assets, allowing The Container Store to fully control the sales process from production to installation. And, having these strengths can also offer the possibility of more easily integrating wooden components into the Elfa range. So there are multiple benefits here that could help the company meet its goal of doubling sales over time. No wonder investors were so bullish about the news.
Now what
It certainly appears that The Container Store made a strategic decision in agreeing to purchase Closet Works. If you are a shareholder or are planning to invest in The Container Store, you should probably be happy. And while it’s quite unusual for a company’s shares to rise after an acquisition announcement, investors seem to be taking a long-term view here and have rewarded The Container Store for its strategic investment in this global deal. Indeed, it looks like The Container Store has found a really good way to ring in the calendar year 2022.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.
