Having unsuccessfully gone to the market to fund a buyer, or recapitalisation, its shares on Monday plunged to near its February all-time low of 19c in February, before retracing some ground to trade at around 22c yesterday. Increasing competition, pared-back profit margins and debt have all compounded for Pumpkin Patch, which said late last year it was at risk of breaching its banking covenants.
More store closures are in the pipeline, following earlier company restructuring and the closure of multiple outlets in the US and UK over 2011-12.
Craigs Investment Partners broker Peter McIntyre said Pumpkin Patch was ''vulnerable'' to a takeover offer, given its market capitalisation was slashed more than 90% from eight years ago, to about $37million yesterday; at 22c per share.
However, as no ''white knight'' buyer was found by the company in recent months, Mr McIntyre said it was more likely those parties would now wait out the restructuring period.
''Any takeover play would be more likely after the hard work of restructuring was done ... which could be at least 12 months away,'' he said.
What could make Pumpkin Patch attractive was its strong revenues, of about $120million each half-year, its established brand awareness and the availability of cheap finance to fund a takeover, Mr McIntyre said.
He noted the market was in a ''cycle of mergers and acquisitions'' given cheap financing and share buy-backs by some companies, to increase shareholder value.
While its bank debt, of about $28 million, is a pressing issue for the company, it ''would likely not be considered too onerous'', by a buyer, Mr McIntyre said.
What was crucial for Pumpkin Patch, and any likely suitor, was for it to regain its hard-hit profit margins and deal with its expenses on its balance sheet.
''You also have to ask, does Pumpkin Patch have enough diversity in its product lines?'' Mr McIntyre posed.
