Notes from Conversation with MMMB CEO Carl Wolf
Brief notes on conversation with Carl Wolf. CEO of MamaMancini's Holdings, Inc. (MMMB @$2.72 per share).
CEO has been making the rounds and doing lots of conferences. MicroCap Club and GeoInvesting have been active in discussing the company.
I am not going into detail on the company. Their latest presentation can be seen here.
The two things I spent my time on with Carl were acquisitions and business opportunities. The company is growing organically and is generating $3-$4M in FCF on a $95M enterprise value so it is now priced as a growth company. I need to follow up on what they learned after the strategic review of the company (announced Oct. 5th with stock at $1.95). Obviously so far it has been a good decision, but I am surprised no-one wanted to buy this growing niche company (maybe price was the problem). Since insiders own 51% (plus director Connor Haley of Alta Fox who wrote it up a over a year ago owns almost 5%) it seems like a sale of the company is the only way they will be able to monetize their holdings. Maybe no transaction could be viewed as the same as insider buying…
Here are some of my notes:
Acquisition Criteria
Size $10m-$20M in sales
10% EBITDA margins so $1M -$2M in EBITDA
Acquisition multiple was higher than I expected 5-9X with 6X being where they would like it to be. Have looked at companies asking 10-20X, but not accretive to hard pass generally.
Acquisition price would be $6-$15M or so.
Company has $3M cash and $3.5M LOC it could use. Probably get more debt if needed.
Real earnings and cash flow. He said several potential candidates would try to increase EBITDA by excluding things that he considered recurring expenses or too high assumptions on savings.
Could improve margins through application of their Best Practices (packaging, vendor relationships)
Potential to run products through their existing factory to leverage overhead. Hired operations person to increase utilization (adding shifts, better logistics and storage space (which can limit growth at this point).
Acquisition could bring additional warehouse space.
One acquisition seems imminent.
His background is in M&A so I think there is less integration risk for an acquisition that is that big as a % of current revenue. But a risk of distraction. I think Connor Haley the new board member would help guard against this.
Ethnic foods best fit. Fresh foods.
Looking to find a brand that they can run through their system ( I think of it like UTZ or POST). Easier to grow sales from $10M to $20M by leveraging your distribution system than using acquisition to get into new doors (although that might be a possibility).
Hired a person to oversee M&A and his background means sourcing deals isn't a problem.
Acquisition size would be $6M-$20M.
Cash on hand + LOC + potential new LOC for acquisitions
$1M CFO a Q could help pay off debt sooner.
Sellers could be family business where next generation just wants the money, so they want cash instead of notes.
Do not think they would use any stock. Seems like he doesn't want dilution.
New business potential
He spoke fast and has said these numbers before, but I kind of missed them and the reasons why. Maybe he will cover this again at LD. This is obviously the biggest driver of new business.
Interesting when I asked if their "same store sales" were growing at the 8-10% they show in the slide for the outside of the store, he said it was very dependent on operator. He has the Publix account (1100 stores) and he says it doesn't grow at all. But Kroger does.
Expansion comes from both new hooks so to speak and expansion of category.
Costco $20-$25M
Think this is going from trialing and rotation to permanent placement. Not sure
WalMart $6-10M
more stores?
Albertsons -$6M-$10M
more stores
Wholefoods $4M-$5M
new products
Meatball in a Cup
$6M potential.
10K convenience stores
$30M-$40M.
I need to get more clarification on this. I will ask him again.
College food service could be a "sleeper business". 50-60 colleges looking at them. $100K-$300K per business at maybe 20% incremental margins?
Boston College and Michigan were examples given.
Between sales growth and acquisitions he would like to be at $100M revenue and $10M EBITDA in 2-3 years. Current valuation seems to be already discounting a lot of that at 10X that number. But in this world who knows.
Two new Board members are big plus in my opinion.
Connor of Alta Fox is obviously a great micro cap investor
Carl says he is VERY engaged and active. Almost too much.. LOL
The Marriott guy already introduced them to Marriott system. Didn't get a chance to dig deeper into this other than maybe opens of MAR for big food service business.
Summary
Classic sleepy microcap that is now growing and getting attention.
Was a cheap stock and all it needed was a bit of business success to be a big winner.
Now seems like it will be dependent on execution to maintain momentum and could be bumpy ride.
Didn't ask him why the strategic review didn't result in a sale and what fundamental changes took place as a result.
Carl seems like a competent manager, also loves telling the story. He did ask what my typical investment size was, which was the first time someone asked me that. Good question.
Since insiders own 47%+ of the company, I think in 3-5 years the idea is to get it big enough to sell.