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Schmitt Industries Background
Schmitt Industries (OTC:SMIT) is a manufacturing company now controlled by activist hedge fund manager Michael Zapata. I first covered Schmitt in “Schmitt Industries: Special Situation With 25% Upside” in October of 2019, and have followed (and owned shares of) Schmitt since then.
Zapata is a former Navy Seal who attended Columbia Business School’s value investing program, and has developed a strong track record at his fund, Sententia Capital. He compares value investing to Special Operations missions, which are often viewed as extremely risky. Zapata contradicts this idea, since taking precautions for known risk effectively makes the mission less risky than one that is viewed as low-risk, and therefore does not require precautions.
Since Zapata taking the helm of Schmitt, costs have been slashed and assets divested. Schmitt recently announced a modified Dutch tender offer between $3-3.25 per share. I don’t plan to participate, since that’s far too cheap relative to Schmitt’s liquidation value alone. Zapata has stated that he likes to look for distressed opportunities: “We look for... smoke or fire.” Despite its apparent lack of synergy with Schmitt’s industrial manufacturing businesses, Ample Hills looks like a bet with major future potential.
Assorted Ample Hills ice cream flavors.
Ample Hills Acquisition
Schmitt surprised investors with an 8-K filing stating that they will acquire the assets of Ample Hills Creamery, a fast-growing ice cream brand that has been hit hard by coronavirus shutdowns. They are quite leveraged, with only about $190k in assets and over $10mm in liabilities. They laid off all employees and filed for bankruptcy in March, citing insolvency due to opening a massive manufacturing facility in Brooklyn.
Ample Hills
