The Fairfield, Ohio–based jewelry manufacturer had planned to merge with Tastemaker Acquisition Corp., a special purpose acquisition company (SPAC). But the market for SPACs has cooled considerably, which hurt Quality Gold’s chances of a successful IPO, says Quality Gold CEO Michael Langhammer (pictured).
“We went through the lengthy process of going public because we believed that the equity markets would be an attractive source for financing continued acquisition of complementary businesses,” he tells JCK via email. “Unfortunately, the post-COVID market for new offerings via IPO or SPAC merger remained very depressed.”
The now-canceled IPO aimed to raise $279 million, which implied an enterprise value for Quality Gold of $989 million.
Andy Pforzheimer, Tastemaker’s co-CEO, said in a statement: “We are disappointed that we were not able to complete the transaction with Quality Gold. We were excited about the potential for the company.”
In January, Quality Gold bought Herco, a San Francisco–based jewelry manufacturer. It paid $18.2 million for the company, according to an April 23 filing with the Securities and Exchange Commission (SEC).
The April filing said that Quality Gold has been affected by the current issues with lab-grown diamonds, which comprise 16% of its business, and that it took a $6 million write-down on its lab-grown inventories as of Dec. 31, 2022.
In the SEC form, Quality also noted that it was “currently in a dispute with a vendor who had been our primary supplier of rough lab-grown diamonds.” The company had a long-term agreement with this supplier, set to expire in 2025, but Quality Gold alleged in the SEC document that the “supplier has breached the ‘most favored nation’ clause of our contract by selling products to other customers on pricing terms that are substantially more favorable than the pricing we have been paying without offering preferred pricing to us.” This has squeezed its margins further, it said.
According to the filing, Quality sees “a market opportunity for large-carat lab-grown diamonds” and believes “there is an opportunity to replace natural small diamonds with small lab-grown diamonds.”
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