Why GigaCloud Technology Stock Plummeted by 25% Today

What happened

A looming acquisition by their company wasn’t making GigaCloud Technology‘s (GCT -25.27%) shareholders very happy on Tuesday. Following the Asian B2B company’s news that it is on the hook for an acquisition, those investors traded out of the stock aggressively. It ended the day more than 25% lower, while the S&P 500 index only slumped by 0.6%. 

So what

Well before market open, GigaCloud divulged that it has entered into an agreement to acquire the bulk of privately held Noble House Home Furnishings and several affiliates. For this, the specialty tech company is to pay $85 million.

Noble House is undergoing Chapter 11 bankruptcy proceedings, and GigaCloud was the stalking horse in that process. This evocative term simply refers to the initial bidder of an asset or collection of assets in a bankruptcy proceeding. 

As its name implies, Noble House is a maker, distributor, and seller of home furnishings. Its wares are sold through a variety of third-party businesses; according to GigaCloud, Noble House goods are available at top retailers.

In its press release trumpeting the buy, GigaCloud quoted its founder and CEO Larry Wu as saying that owning Noble House will complement “our already diverse range of product offerings.”

Another benefit is that GigaCloud “will enhance Noble House’s operational efficiency and expand Noble House’s sales channels.”

Now what

Investors clearly weren’t buying that line of reasoning. It seems they don’t feel Noble House’s business is as compatible as touted by GigaCloud. Additionally, they might consider the acquisition price to be relatively costly, as GigaCloud held less than $182 million in cash at the end of its most recently reported quarter.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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