If you happened to read our research on the DKS/FL arb trade from May 19th, you’d see just how much we labeled this deal as asymmetric and how even entering this trade from a neutral position would still yield you favorable returns.

To recap that trade, we’ve reposted the math that we showed below for your quick reference.

As you can see, though we leaned on the FTC at the very least sending for a second request, the “deal goes through” scenario would have yielded a 3.5% return, or ~10.5% annualized (May → September 8).

While we also didn’t think anyone would elect the shares for DKS, which has a conversion of 1 to .1168, Dicks share price rise since the trade announcement even astonished us to say the least.

FL shareholders were designated to make their decision on whether to accept the $24/share in cash or to convert. Our math above didn’t model out a share conversion because at the time, the math just wouldn’t make sense (i.e., share price conversion was lower than the $24/share cash price).

To even get the cash value of the shares in the event of a conversion, you’d at least need DKS’s price to rise to ~$206, which was already a lot to ask in such a short amount of time.

However, the day after DKS announced its Q2’25 earnings on August 28th, FL closed at $24.70 while DKS closed at $212.72, and it seems that, given DKS's commentary, many FL shareholders elected to switch the shares and capture the upside in DKS with the new combined company.

The deal is expected to close today, but as of September 5th, market close, DKS was at $221.24 and FL was at $24.01.

If we held the same neutral position in the company like we outlined in our original report, for visual representation, the return on this arb trade would be 9.2% for holding for 112 days, or 29.9% annualized (math below).

While we’re no longer in this trade, this was quite a win for us. For those who took the long side of the trade (L - DKS), the commentary they provided was also optimistic.

If we invested in large-cap names on the long side, DKS is one we’d get excited about to hold, but alas, that’s not our mandate.

Congrats to all those who participated.

Now, onto LENSAR.

When we originally pitched LENSAR (LNSR) on February 24th of this year ($9.29), we highlighted the strong momentum the stock was having and that its ALLY machine in the cataracts space was top tier and growing rapidly.

The stock shot up the same week after it reported earnings and topped out at $17.31 (+~81% in a less than a month) before management decided to take a buyout offer from Alcon (ALC) for $14/share with a $2.75 CVR to be paid out if LNSR were to hit 614,000 procedures in the two years ending 2026 and 2027.

We thought this offer was embarrassingly low, which is why we sent out an open letter to vote no (a Hail Mary doomed to fail), and two updates since (March 11th and June 5th).

We are revisiting this trade again because, since LNSR received a second request from the FTC on May 21, 2025, the stock has gradually declined, with the spread now at nearly its highest level since the original announcement in March.

We see this opportunity as a win/win, similar to our DKS/FL call, via two scenarios that could play out, which would yield attractive returns for investors playing either one.

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In a previous note, we highlighted that Alcon (ALC) and Johnson and Johnson (JNJ), in aggregate, control ~50% of the cataract machine market, which makes sense why the FTC would send a second request.

However, in this scenario, let’s say the FTC finds no issue with this deal and the transaction is clear to close. If we assume that ALC closes the deal by December 31, 2025 (odds are much sooner if approved, so this is conservative), then as of Friday’s close, the upside on the common shares is ~15%.

If we also assume that the CVR is met and paid out at the end of Q1’28, our overall IRR on the trade will be ~26.3%. But how likely is LNSR to hit that 614k procedure target?

In our minds, with the recent data that just came out for Q2, the risk is 70/30 in our opinion FOR the CVR to be activated. Why?

LNSR has been doing a great job when it comes to expanding its procedural volume ever since it got the ALLY system approved and launched. In 2024, procedural volume increased by 23.7% Y/Y, and Q1’15 and Q2’25 saw their Y/Y growth at 32.6% and 23.5%, respectively.

The reason we chalk it up to a 70% likelihood is that if growth continues at the clip that it has as of late, the chances of LNSR achieving this seem likely, but it’s not a sure thing. Take a look at our math below.

The road will not be a straight line and to the right, which we can easily see with the 23.5% increase Y/Y in Q2’25, but also the decline of -0.5% sequentially as well.

It doesn’t seem like much is stopping LNSR from expanding its machine install base (below), and with a few ‘not as over-the-top’ quarters as we just saw, the L4Q procedure Y/Y growth rate was 26.8%.

For argument’s sake, if we just kept that rate the same all the way until the end of FY’27 (don’t think it’s that far-fetched given it’s a LT average), then yes, we do surpass the 614k in procedural volumes.

However, if we just use the average of the last two quarters (23.5%), then you can see we fall short of the 614k.

Again, we see the likelihood of LNSR being able to achieve this goal with the continued push internationally and further adoption and conversion here in the U.S.

But what if it doesn’t go through? That’s honestly what we’d rather have. Here’s why.

While we acknowledged in our original report that we don’t like using EV/Sales for valuation, LNSR has just recently inflected adj. EBITDA positive, so it would be taboo in our opinion to value the company this way. Hence, why we need to resort to a sales valuation.

Prior to their Q4’24 earnings, LNSR was trading at just 1.7x NTM sales, and after the report, the market bid it up to 2.8x sales. Admittedly, we did factor in multiple expansions into our valuation due to the fact of superior growth and additional eyes on the company once it came to light that this train wasn’t slowing down.

However, fast forward to now, and the stock is still trading at just 1.8x NTM sales. We do have to acknowledge that if this deal breaks, naturally, it will go down upon the announcement. This isn’t a function of the company not doing well independently, but rather all the arb traders most likely looking to exit their positions and move on.

This is where the opportunity for real gains will be made, which aligns with our original thesis and why we’ve kept cash on the side to potentially capture this mispricing if/should it occur.

Here’s what we mean → it’s hard to justify the stock trading below its pre-announcement multiple, but the odds are never much in favor of microcap companies like this.

We think that the shares could trade between 1.0x - 1.2x sales, which would mean off a FY’26E Sales estimate of ~$68 million, that’s between $8 and $10.25. Again, it’s just the nature of the beast when you’re playing in these arb trades.

Despite this fact, we need to look at the potential, which is why we entered this trade in the first place. Big picture, nothing has changed. ALLY machines are still being installed, revenue is still growing albeit a slower Q2 than Q1, but that seems to be on-brand with seasonality changes, procedure volumes are still going up, and market share is hovering above 21% in the U.S.

If we look at the math to value this company on FY’27E sales with a $10M break-fee going to LNSR should the deal terminate, we’re left with some impressive return projections.

Based on the current price, we think we can get >70% return on the future growth potential of LNSR, and at the same time, should the deal break and it falls between the prices we highlighted above, that return could easily expand north of 100%.

Again, this valuation post-deal-break does factor in multiple expansion, but at the original multiple we highlighted back in February (2.4x), which is not crazy given the market went above and beyond that with its Q4 earnings release.

We’re very excited for how this trade will play out and whether it’s one where we win on the arb trade or one where we have the opportunity to buy it much lower and get to hold onto it for a little longer to realize the upside; we’re happy with that too.

One to keep on your radar if you’re not an arb trader.

Disclaimer: We are long LENSAR (LNSR).

The next two trades are super quick ones that are not based on fact, but rather, speculation. Treat them as such. These involve the potential takeover of Purple Innovation (PRPL) and Lands’ End (LE).

Let’s quickly address them.

Purple Innovation (PRPL) is a mattress and bedding company that has been using its technology (GelFlex Grid) in various products, most notably in mattresses as of late.

They went public in 2018, rode the COVID boom in all things consumer, and have had a crazy fall since then, which honestly shouldn’t be surprising.

After years of lackluster growth and enthusiasm in the stock, it’s now interesting to us because of recent developments that hint that a buyer could be out there looking to take this company private.

For starters, on August 12th, PRPL filed an amendment to the RSU vesting schedules for both management, when it relates to being terminated without cause and during a change of control event.

In this amendment, if management is terminated without cause, then their RSU schedule immediately vests, and also in the event that they get bought out. This is VERY interesting because it effectively removes the poison pill from play and just makes it so that whatever shares are in the hopper are immediately transferred to those individuals.

A positive sign in our book that something might be in play, whether it’s a full take-private or some sort of strategic partnership.

In May of this year, they announced an expansion of their commerical relationship with Somnigroup International (SGI) to get a massive increase in its presence within Mattress Firm stores nationwide (from 5,000 slots to at least 12,000), and entered into a strategic supply agreement with Tempur Sherwood (subsidiary of Tempur Sealy) to exclusively assemble certain product lines that Purple sells to Mattress Firm.

Something is definitely cooking, and given the recent commercial news, expansion of relationships, and what seems to be a large consolidation in the mattress industry, the market has reacted positively to these changes as of late.

Not to mention, since the expansion of these relationships, it looks like quarterly revenue is expected to grow (instead of decline) starting in Q3 of this year, with both FY’26 and FY’27 pointing to high single-digit or low double-digit growth.

Again, there isn’t much to really work on here, and that’s why it’s a rumor, but something we thought should be worth flagging for anyone who would like to dive deeper on their own.

For what it’s worth, upon the expansion of that relationship back in May, SGI was granted 8 million warrants with a strike of $1.50, so some significant upside had to have been priced in for them to take that deal.

Food for thought.

Disclaimer: We are long Purple Innovation (PRPL).

If you didn’t hear, GUESS? (GES) was taken private by Authentic Brands Group (ABG) in August, taking over 51% of the company but valuing the take private at $1.4 billion, including debt. Co-founders and other rolling stockholders will own 49% of the company’s IP and own 100% of the operating company.

Like GES, Lands’ End (LE) is also in play after Eddie Lampert (majority stockholder) pushed the board in February to start a strategic review to unlock unrecognized value. In his mind, he thinks it’s worth $90 at fair value → lol.

Not really sure how he arrives at that without a massive multiple re-rating, but he’s entitled to his opinion. But like we said, we think LE has a lot of similarities to GES, and given how a) GES was just bought out at a hefty premium from its March strategic review, and b) LE already got a bid from WHP and ABG back in July.

So, like GES, LE’s stock has been in the tubes for most of this year, only starting to rally at the beginning of June. Unlike GES, LE has had declining sales growth but seems to be at a turning point with sales reversing this decline in FY’26 and moving towards low single-digit growth in FY’27.

This decline in sales was not by accident. Over the past few years, LE has prioritized profitable growth, which meant lower promotional activity. This strategy led to a -7.4% decline in sales in FY’24 but drove gross margin expansion 550 bps to 47.9%.

To expand on this profitable growth, the company has moved into an asset-light strategy by entering into third-party partnerships with retailers like Macy’s (M), Target (TGT), Costco (COST), Kohl’s (KSS), Nordstrom, and online with Amazon (AMZN).

Along with these 3P partnerships, they’ve also entered into licensing (similar to GES), which includes categories such as shoes, kids, and home, which grew more than 50% in fiscal 2024 (60% growth in 1Q25). Combined with third-party, these markets account for approximately 15% of total revenues.

Additionally, the company has $275 million in debt (not including leases), $18 million in cash, with net leverage being just 2.6x.

Frankly, we understand why Eddie thinks it’s undervalued, despite us not understanding why he thinks it’s worth $90.

Regardless, the interesting points here are

One thing we will note is that WHP was also in the running for GES before ABG came onto the scene. At that point, WHP offered GES $13/share, and ABG came in to bid higher at $16.75.

Given that ABG just bought an asset (GES) last month, we think the likelihood of them buying another asset immediately after is unlikely, which means that WHP, most likely salty from getting bid out on GES, might look to make the same play they were trying to make with GES on LE instead.

That doesn’t negate the fact that there isn’t juice left in the tank for LE at these levels. In fact, we think the upside is still attractive, and given that many retail names have now rebounded sharply off the lows from Trump’s trade war (FYI, LE supply chains are mostly in Mexico and Turkey, with China representing less than 10%) and with no actual price being sent out, the downside seems limited.

While we don’t know the actual bid price WHP gave, and considering that shares are up sharply off the lows, it looks like someone knows something, and this asset is in play.

We’ve visualized possible valuation scenarios below using similar comps that peg anywhere from a 7x - 11x EBITDA multiple as a realistic range. This sensitivity accounts for a modest step up in EBITDA in FY’26 as well as some share dilution and no change to the balance sheet.

Again, this is just for illustrative purposes, and anything can change. The company is also announcing Q2’25 earnings on Tuesday, September 9th, after the bell, so please keep that in mind.

The second of two rumored take-privates that we thought we’d flag for you all.

Disclaimer: We are long Lands’ End (LE).

As always, we appreciate your support of our work. If you have any questions, please make sure to message or comment below. If you think others would benefit from the research/commentary we release, we would greatly appreciate your sharing.

Until next time,

Paul Cerro | Cedar Grove Capital

Personal Twitter: @paulcerro

Fund Twitter: @cedargrovecm