CLOSED: Lakeland Fire + Safety (NASDAQ: LAKE)

Makings of a successful turnaround: great industry, great operator, great runway, cheap valuation

This was not a great one, lost 10%, got out before Q3 results, limited much of the damage. Turn-around proving to be a lot more painful than initially expected and disappointed in management performance.

Welcome back.

For those who follow me on Twitter, I pitched a quick TLDR last week:

https://x.com/everyonehatesp1/status/1921942330635940043

The idea is this: LAKE has had a new CEO for less than 2 years, he’s a stud, he ran M&A at Transcat (TRNS US) and saw the stock go up 350% during his tenure greatly driven by his M&A push, he’s now running the same playbook at LAKE. Numbers have plenty of room to go up, and so does the multiple, which means the stock could be up 160%+.

This is a large position for me (#1 at the moment), and that’s because it’s got the recipe to be a great investment both short, medium and long-term, and not just a quick flip (tho I do love those). Let’s get straight to it.

Company overview

I’ll try not to go too in the weeds, that doesn’t add much value, the investor presentation does a nice job, and the level of disclosure for a $180M microcap is extremely solid. Find it here: https://ir.lakeland.com/events-presentations

Lakeland Fire + Safety (formerly Lakeland Industries) is a global manufacturer of fire safety gear and industrial personal protective equipment “PPE”.

The revenue split is as follows:

This is a good business to be in

• It carries gross margins in the 40-50% range and EBITDA margins in the teens

  • Note that with more scale, MSA Safety which has similar gross margins (mid 40s) runs at 25% EBITDA margins

• Demand is non-cyclical in Fire and mandatory in Industrial PPE

• Asset light: capex has averaged around 1% of revenue

• Secular tailwinds: safety rules and regulations get more and more complex every year, leading to an industry growing mid single digits a year. A good example of that is NFPA 1851 which is a standard up for adoption at the Federal level that is already a requirement in California and Texas, which has consistently increased the required frequency of decontamination of fire suits which benefits LAKE’s growing service business and the sale of new equipment (since the more you clean them, the faster they get used)

The leadership team consists of Jim Jenkins as CEO (plenty more on him later), Roger Shannon as CFO and Helena Hui as COO.

1 - New rockstar CEO is turning a sleepy PPE company into a fast growing fire protection roll-up; and he has the track record to make you believe in the story, having tenured a 350% stock run in 4 years at his prior company

First a bit of history. Lakeland has been a boring, poorly run industrial PPE company that only made noteworthy amounts of money during big catastrophes like in March of 2020 when COVID sent profits skyrocketing, followed by a large hangover effect.

Since 2016, a man by the name of Jim Jenkins joined the board, a corporate lawyer running a large NY firm with hundreds of employees. Not much to think of it, most boards have a lawyer.

Since that time he’s seen the prior management’s shitty job and lack of growth ambitions.

But who is Jim Jenkins?

Jim Jenkins is a corporate lawyer, he was a managing partner at the NY firm Harter Secrest & Emery for 30+ years. More of the deal making kind, focused on growing his firm towards the latter part of his career more than drafting up contracts.

As a lawyer, he had as a client a company called Transcat (NASDAQ: TRNS). He was their outside counsel and papered every M&A deal they’ve ever done. He knew the business very well.

In early 2020, the CEO of Transcat had decided driven by a push from a couple of large investors to go after acquisitions a lot more aggressively than in the past, and so decided to hire Jim as their Head of Business Development & General Counsel (meaning their M&A guy).

His job there was simple, source acquisitions, pay the right multiple, buy the right company, run it for a year, integrate it, and then pass it on to the operators to take over after that.

In its history, TRNS did 32 acquisitions, 11 of those he did as Head of Business Dev, in the span of 4 years. The 21 other acquisitions took 20+ years to do and were much smaller in size.

That strategy at Transcat worked, really, really well. It’s been one of the best small cap stocks, rewarded with a very large multiple (40x EPS and 20x EBITDA today), and was essentially built by Jim.

Transcat’s playbook was to use the cashflows from a sleepy distribution business to roll-up the fragmented instrumentation calibration market, a business where demand is driven by regulatory requirements.

But concretely, why is he a stud? Well because the results speak for themselves, this is the chart from when he joined TRNS to when he left:

A 334% return or 48% annualized. Now obviously I am not stupid, he’s not the only one driving these returns, but it’s worth emphasizing that he was instrumental in the aggressive push of TRNS’ M&A strategy, which has led to both the growth in EPS and the multiple expansion. It’s also worth highlighting that he has been the outside counsel for decades, which likely was a less involved role, but a time during which TRNS compounded too (tho less fast).

At the very least if you don’t agree that he contributed significantly to all this value being created, at the very least he learned a very good playbook from one of the best small cap companies.

He left Transcat in May 2024, for a simple reason I’ll explain below.

Jim joining LAKE

After joining the board in a pretty passive way in 2016, Jim became Vice Chairman of the Board in 2022, and Chairman in 2023.

He shared with the management team his idea of using the cash pile generated during COVID, and the cashflow from the industrial PPE business to go roll-up the fragmented fire safety equipment market.

The former CEO had no interest in doing that, he did not care and left/got fired. Jim Jenkins then stepped in as Interim CEO (since he now had 2 jobs at both Transcat and Lakeland).

He saw the opportunity at Lakeland, a smaller, early-stage version of Transcat in its journey, and decided to quit Transcat in May 2024 to become full time CEO of LAKE.

The new vision

Like in all turn-arounds, it started with some change of the guard, the CFO is new (tho he started before Jim officially but was hired when Jim was Chairman), replaced a ton of the sales leaders, and some of the operation people.

But here’s the vision, take the industrial PPE business as the cash cow, and use the cashflows to acquire businesses in the Fire Safety business. And he’s already started in a very aggressive way:

The logic behind it is the quality of these businesses, asset light, high margins, regulatory driven demand with minimal cyclicality, and little competition when it comes to small M&A in the space, with large players like Idex and MSA not caring about deals too small for them, and no meaningful PE competition.

Management has disclosed that so far $70M has been spent on acquisitions in fire safety at an average multiple of 6x EBITDA.

With these deals, all sourced internally, without any bankers involved, they’ve already joined the top 5 in the world for fire safety gear, and one of the very few companies that can provide head-to-toe equipment.

Management has said that they’re now happy with the product portfolio they now have, and that new acquisitions and organic investments going forward will be more on the service side.

The idea is acquiring businesses in fire decontamination, essentially washing the microparticles off the fire equipment to reduce the cancer risks for firefighters.
We’re talking companies with 60-70% gross margins, recurring revenue, asset light, and clear synergies as you can help feed volume into these facilities as the manufacturer of these suits.

Demand is also secularly growing driven by rising cleaning requirements to limit cancer risks, which both helps services and leads to more recurring equipment purchases as well.

Reminds you of anything? The story is becoming very very close to Transcat.

To really hammer that point home, and to show you I am not the only one who believes this guy is a stud, LAKE did an equity deal at the beginning of 2025, this was anchored by two large institutional investors, Royce and Wasatch, who were both significant shareholders of TRNS and knew him from there.

2 - Lakeland’s future growth and margin potential is very attractive, and management is incentivized to get there

In their Q1 24 (quarter ended April 30th, 2023) earnings call, management released their view of the long-term algo of the company for the next 3-5 years:

• Mid to high single digit organic revenue growth

  • Growth above market 200-300bps

  • Layer M&A onto that (didn’t guide to a growth number)

• Gross margin in the low 40s

• Adj. EBITDA margin in the high teens

Since this was set in Q1 24, assuming 4 years to get there (midpoint), it’d be FY28-29 to get to their goal (calendar year 2027/28).

Management guided 2025 to $215M of revenue at the midpoint for FY26, and $26.5M of EBITDA. Off of that grow top line organically only (conservative since M&A is part of the plan and has been a significant driver) at 7%, we get to around $250M of revenue.

With EBITDA margins in the high teens, say 17%, that’d be $42M of EBITDA, nearly double the guide for FY26, and 2.4x FY25’s EBITDA.

Management gets paid if they hit these goals

What reinforces my belief in their goal is the compensation structure management has. On May 5th, couple weeks ago, they put out an 8-K detailing PSUs issued to the management team as a function of their performance. It lays out very specific targets:

“On May 1, 2025, the Compensation Committee of the Board of Directors of Lakeland Industries, Inc. (the “Company”) granted to each of the Company’s executive officers the target number of performance-based restricted stock units (“PSUs”) listed below, which PSUs will vest, if at all, based on achievement of the following performance targets: growing (i) the Company’s total revenue to $258.7 million, (ii) the Company’s revenue from its Fire Services product line to $161.8 million, and (iii) the Company’s Adjusted EBITDA to $47.1 million, in each case over the next four to six years, with the first measurement date occurring on January 31, 2029 and the final measurement date occurring on January 31, 2031. The PSUs will be forfeited to the extent that the performance measures are not met at least at the threshold level (80% of target performance for each respective independent performance measure) by January 31, 2031. Vesting of the PSUs is also subject to the executive officers’ respective continued employment on the date of certification of achievement of performance”

What this means is that, they only get their PSUs (220K shares worth or $4.2M at current prices) in full if they hit the following targets between January 31st, 2029 and January 31st, 2031 (FY29-31):

• Revenue $258.7M

  • Fire services revenue $161.8M

• Adj. EBITDA $47.1M

These PSUs also don’t vest if they don’t achieve at least 80% of target performance.

They’re highly incentivized to hit those numbers, and wouldn’t have agreed to this compensation structure if they didn’t think they could get there, which gives me confidence in $47M of EBITDA being achievable by FY29 (essentially 3 years out).

Now obviously the negative that comes to mind is that this incentivizes growth at any cost on the cap structure, but this is just a part of their compensation, they are also paid based on TSR, insiders own 7% of the company, and insiders have been buyers:

3 - How much money could we make here?

I’ll keep the numbers simple, I have a yearly model but truth is that it’s hard to forecast given the timing of M&A, but big picture here’s my 3 year target. I use the $47M of EBITDA by FY29 (3 years out) that they have essentially guided to and get paid on, and then apply a multiple.

To me there’s two ways to look at the multiple:

• The closest actual “comp” is MSA Safety which trades at 14x EBITDA which is in line with its historical multiple. Obviously MSA is a proven larger cap operator, tho I’d argue the LAKE story is sexier given the opportunity for more value creation.

• What it’s becoming: Transcat (TRNS US). Obviously that’s the big precedent and where our new CEO comes from. TRNS trades at 20x EBITDA. Now I don’t think it’s a reasonable multiple to underwrite, but it’s aspirational.

Ask yourself, if the story pans out, how much would you pay for this kind of business, with growth runway, a solid CEO, high single digit organic growth, expanding margins, asset light, in solid end markets?

My base case is $47M x 10x EBITDA = $470M of EV. The company is currently net 0 (cash = debt), I don’t give them credit for the FCF generated because I assume they’ll invest it in M&A and it’s just easier to be conservative. That’d be $50 a share, or 160% upside.

Below is a sensitivity so you can make your own assumptions:

Risks

So what could go wrong?

• Tariffs: this seems to have weighed on the stock, with the stock declining from $25 to $18-19 today, the rest of the market has mostly recovered from the tariff related sell-off. Their exposure to me does not seem like a big issue, they have 10 plants across the World, have some facilities in the US, some in Mexico which are USMCA compliant, and can move things around. They’ve stocked up on the few amount of Chinese inventory sold into the US. Lastly, the US is only about 35% of total revenue.

• Execution: this is a core risk, but is also what drives the thesis here, I think these guys are solid and so far have done a great job, but obviously if they turn out to be duds, it’s unfortunate. To me this is low probability.

• Growth but with dilution: the main fear is they issued 2M shares at $22 raising money to pay down the debt from the 4 acquisitions they made, and to give them dry powder to keep growing. I don’t believe LAKE will be a serial diluter, especially in ways that aren’t accretive.
  This was a deal that made sense with big backers, allowed them to go back to a healthy balance sheet, and done at what seems like a respectable price.
  They’ve also signaled that future deals are going to be smaller ($3-8M), and that they don’t have any intent to raise equity in the near future.
  The only form of dilution we may see, is equity components in deals, and I say that only because this was a big part of the strategy at TRNS, and it worked out great for them as a way to align interests.

• Economy: this doesn’t affect the fire business but the industrial PPE business. While spending can’t really be curbed here, it can be lower if there’s significant layoffs or shutdowns.

• Lumpy business: this isn’t a big risk, but can affect quarters. This business can be lumpy, driven by large-ish orders especially in Fire, so if one gets delayed by a quarter, it can play vs consensus. This is mostly near-term noise but always worth considering.

Conclusion

I like it, I think it’s a great story that can have true long-only backing for a long time. It’s a nice set up both near-term and long-term. And I think there’s fairly high probability of more than doubling our money here.

I own shares in Lakeland Fire + Safety (NASDAQ: LAKE). I may buy or sell at any moment without disclosing it. This is not financial advice this is for entertainment purposes only.