BSET - Bassett Furniture (BSET) - The Start of Industry Consolidation?

Herman Miller + Knoll. Yesterday, Herman Miller announced an agreement to acquire competitor Knoll Inc. in a $1.8 billion transaction. The deal brings together two leading office furniture manufacturers, although both also sell into the consumer space. Interestingly, management spoke at length detailing how the merger will enable the combined entity to benefit from the transformation of home and office work and such ongoing trends as industry transformation into direct-to-consumer, e-commerce, and advanced manufacturing.A Harbinger? Could yesterday's announcement be a harbinger of additional industry consolidation? Given their focus on the office space, we believe the flow over to the retail space where Bassett competes will be muted, but we would acknowledge there remains significant opportunity for consolidation on the consumer side given the low percentage of the market held by the top 10 retailers and the vast number of stores. With increasing importance being placed on digital capabilities, quick turnaround, and e-commerce flexibility, it may become more difficult for the independent shop to compete in the future.Deal Valuation. Based on the data released to date, we calculate Herman Miller is acquiring Knoll for roughly 1.3x 2021 estimated sales and 12.7x 2021 estimated EBITDA. We would note the consensus estimates do not take into account the significant synergies both companies are expecting from the deal.Maintaining Outperform. Although we do not believe yesterday's announcement will have a spill over effect on Bassett, further industry consolidation bears watching. We are maintaining our Outperform rating and our 12-month price target of $28.00. At our $28 price target, the shares would trade at 15.7x our fiscal 2021 EPS estimate, 0.5x sales on an EV/estimated 2021 revenues basis, and 5.5x on an EV/estimated 2021 EBITDA basis.Read More >>