Mohawk Group – Failed IPO

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Summary

Mohawk Group has seen a very disappointing public offering.
Rapid growth slowdown, huge cash burn, and lack of financial resources following the IPO, mean that I am not surprised to see this action.

I have no plans to buy the shares despite the ”discount”.

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Mohawk Group Holdings (NASDAQ:MWK) has gone public in an offering which has been anything but a success. While the idea of having technology-enabled consumer goods sounds nice, the market is way too diversified and dominated by much more resourceful competitors. While the company has been able to grow sales nicely in recent years, losses are very steep, and the cash burn is a very real risk with net cash holdings being almost non-existing. This makes it almost impossible to invest, as I am not inclined to buy any dip at this point.

Consumer Products Business
Mohawk describes itself as a technology-enabled consumer products company. The company believes that integration of artificial intelligence and machine learning will be applied to consumer goods. A brand which is leading in this could become a real winner in the marketplace.

The company was founded in 2014 on the back of this idea. To date, some $73 million in equity has been raised to develop smart products which include home ice makers, kitchen sets, hair straighteners and dehumidifiers.

Mohawk has developed a proprietary technology platform called AIMEE, which, among others, allows real-time visibility to automate and manage products in an effort to create a recurring and profitable revenue stream on top of upfront sales of such goods.

The Offering
Initially, Mohawk aimed to sell 3.33 million shares at a price between $14 and $16 per share. Demand for the shares was quite low, however, as final pricing was set at just $10 per share as underwriters apparently have stabilised the shares at that level on the opening day. This means that gross proceeds come in at just $33 million versus the planned $50 million at the midpoint of the preliminary offering range.

With 17.2 million shares outstanding, investors award just a $172 million valuation to the firm. Given the gross proceeds and existing net debt position of $20 million ahead of the IPO, this valuation approximates the enterprise valuation of the firm as well.

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