A Microcap Turnaround with Multiple Catalysts

4x Earnings, Sale Likely

Jul 21, 2025

This will be a brief writeup, as the company recently released Q1 results and the market appears to be waking up to the opportunity.

Unfortunately I didn’t get this out before management filed its delayed financials, which was one of the catalysts I was watching. However I still think there is still upside from the current price of $1.19

Disclaimer: The information provided in this article is for informational purposes only and should not be considered investment advice. Investing involves risk, including the potential loss of principal. The author may own, or plan to purchase, shares in the security discussed. The author is not a registered investment advisor and does not provide personalized investment advice. Always conduct your own research and consider your investment objectives and risk tolerance before making any investment decisions. The author and publisher shall not be liable for any actions taken based on the information provided in this article.

Overview:

Spar Group, Inc. (SGRP) is a retail services company operating in the U.S. and Canada. It helps retailers optimize in-store execution to increase sales across three service lines:

Merchandising Services: The largest and highest margin segment, which includes improving presentation and promotions of products, refilling shelves, setting up new product displays, and auditing inventory.
Retail Store setup: Building out or remodeling retail space
Retail Distribution support: Provides outsourced fulfillment and back office operations, primarily for e-commerce channels.

Despite its $27 million market cap, Spar Group has established relationships with some of the largest retail chains in North America.

Retailers increasingly rely on third-party partners like Spar to handle merchandising, driven by the need to cut costs and labor shortages.

Spar’s value to customers is reflected in its sticky, high-quality client base. Over 90% of U.S. revenue comes from Fortune 500 companies, and the vast majority of clients have worked with Spar for more than 2 years.

Service agreements typically span 1-3 years and include rate increases, providing recurring revenue and margin stability.

Spar operates in the $8.4 billion merchandising services industry, which is dominated by three large players (Advantage Solutions, CrossMark, Acosta), who control ~50% of the market. Spar is a much smaller player, with 1-2% market share in the U.S.

A risk for SPAR is its small size and limited differentiation. It competes for both labor and clients against larger rivals with stronger infrastructure, more advanced technology, and greater pricing power. These bigger players can also offer broader national coverage and more favorable terms to customers.

In my view this is an average business that is highly dependent on management execution to be successful.

Management Turnaround:

Appointed in 2021, CEO Mike Matacunas has implemented a series of strategic initiatives to enhance the company’s value:

Bought out founders’ preferred shares

Authorized buyback program and repurchased ~4% of outstanding shares from the founder

Divested joint ventures in Australia, China, Brazil, and South Africa

Announced sale of business to Highwire Capital for $2.50 per share, a 100% increase from start of strategic review

The financial statements were messy, with the ownership of many joint ventures obscuring the true earnings power of the business. The sale of the joint ventures would bring in cash and also clarify the true earnings power of the U.S./Canada operations.

And this strategic review ended with the announcement of a sale to Highwire capital for $2.50 per share, a 100% increase from the start of the strategic review in 2022.

For more background on the business and turnaround see write-ups from last year here and here.

The Failed Buyout:

On September 3rd 2024, Spar Group entered into a definitive agreement to be acquired by Highwire Capital for $2.50 per share.

However, the deal unraveled as Highwire failed to secure financing. The stock traded at a steep discount throughout the process, and a popular trade idea was shorting Spar on the break of the buyout.

On May 22, 2025, Spar Group terminated the agreement after the deal failed to close by the deadline.

Following the announcement, the stock declined to $1.03 per share, down from $2.39 when the buyout was announced.

This sharp decline has created the current opportunity. The market, focused on the failed deal, is ignoring the operational turnaround which has already taken place.

Valuation:

2024 financials are noisy and show a loss due to one-time costs (transaction expenses and investment in new ERP system), asset divestitures, and restatements related to how those sales were recorded.

However the story is now simpler, with the company exiting low-margin geographies and focusing on U.S. merchandising services, its highest margin operation.

Historically, Spar operated at ~4% EBITDA margins. I think Spar can return to those levels as the company sold off lower margin operations and has now made investments that should improve efficiency.

Recent Q1 2025 results show strong progress:

Net revenue: $34M
Gross Margin: 21.4% (up from 19.7%)
Positive Net Income
Adj. EBITDA: $1.5M (4.4% margin)

Here is a quote from the CEO on the Spar’s performance:

“We are now positioned to make some really exciting announcements over the next six months, and our second quarter performance looks good”

It appears this turnaround has taken place, with the company already returning to profitability and >4% EBITDA margins.

Annualizing Q1 gives us $136M in revenue and $6M EBITDA for 2025.

With no net debt, Spar trades at just 4.5x EV/EBITDA, well below its historical average of 6x. This also doesn’t factor in further operational and margin improvement over the remainder of the year.

Catalysts:

There are several catalysts that could lead to a rerating.

Updated filings: The annual 2024 financials were delayed due to restating and assumptions the company would go private. The recent 10K and Q1 filings served as a trigger for the recent 26% stock price recovery. The removal of uncertainty should support further rerating.

Spar is pursuing the $1.75M break fee from Highwire Capital. I am skeptical of this occurring, as it seems this firm was a group of guys with no experience buying or operating a company. Do they have $1.75 million of assets Spar can get from them? I assume not. But if they are able to recover this amount it would be a nice chunk of cash, around 6% of the market cap.
Continued operational improvement and margin increases

Future strategic sale: While the Highwire buyout ultimately fell through, I believe management is still likely to pursue a sale. During the 2022 strategic review, the company disclosed that it had received multiple bids. Although the Highwire offer was accepted due to its higher price, the process revealed clear interest from private buyers. Given management’s prior willingness to sell and the cleaned-up financials post-divestiture, another sales process seems likely. In a successful transaction, I believe the business could command a price of at least $1.75 per share, representing ~50% upside from current levels.

Disc: Long shares of SGRP

Elias’ Investing Journal

Discussion about this post