ZAGG + iFrogz: The $100 million Acquisition Barely Worth Mentioning

When a company in a commodity market with no pricing power
and questionable brand loyalty spends 1/3^rd its market cap (using
stock and a loan from notorious Cerberus) to buy another company in a commodity
market with similarly questionable brand loyalty, investors have to consider
that an orange - if not red - flag.

When the only mention of the acquired business and its
products/condition the CEO makes at a conference is that (summarizing) “the acquisition went
smoothly,” investors should be even more concerned.

An acquaintance of mine was at the LD Micro Micro conference last
week and said this was the only mention ZAGG CEO Robert G.
Pedersen II made about their recently-acquired iFrogz division.  Recall, when the much-heralded deal was
announced, the rationale
for the purchase:

“iFrogz is one of the fastest
growing companies in the Company’s market sector, with a line of fun,
youth-oriented products at affordable prices that can be found on shelves in
leading retailers.  iFrogz products are highly complementary to ZAGG,
and management anticipates that the acquisition will put the Company
meaningfully into two fast growing, attractive categories where previously the
Company has had limited presence – cases and headphones. Most of iFrogz’s
revenues have come from sales of mobile phone cases, but recently, iFrogz has
seen rapid growth in its line of audio accessories, and now anticipates audio
accessories to account for approximately 60% of total revenue during 2011.”

If the acquisition was such a great idea, why isn’t the CEO
shouting about the no-doubt (sarcasm) results to anyone within earshot????

Perhaps its because iFrogz actually is a crappy brand and
perhaps just as crappy of a company as ZAGG, itself.  Almost 6 months post-acquisition, ZAGG has been unable to
get iFrogz products into retailers who sell ZAGG products, for instance,
Target.  I’ve done channel checks
at Target locations in northern NJ recently and the only products in-stock are
invisibleSHIELD’s for iPad and iPod and 2-3 others, at most.  There were, however, earbuds and
headphones from 5+ companies including Skullcandy, Phillips, JVC, Bose, Sony
and Panasonic, just off the top of my head. 

Newsflash: The “incumbent” tech co’s have caught on to the
“let’s sell earbuds/headphones in flashy
color combinations/patterns/designs” game, so Skullcandy & iFrogz
aren’t really making especially unique products anymore.  And don’t even get me started about how
cheap you can get them for, well below list price, especially
on Amazon.com, in some cases for 70%+ off!

Clearly, iFrogz is doing great, just like Zagg.

Jordan S. Terry

Founder & Managing Director

Stone Street Advisors LLC

Comments

[richard in norway]

zagg is a great company but i only need to buy their products once a year at most, but check out their website where  you can chose from thousands of designs to have on your cell phone

[covert]

wierd. can I sell a dummy company for millions?

http://expose2.wordpress.com

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I've always wondered how fairly smart people can do such stupid things like buying an obviously garbage company, people do weird/stupid things, even smart people.