Red Mountain’s iRobot Corporation (IRBT) Follies by Activist Stocks

The private equity style activist, Red Mountain Capital Partners, has taken to task the robot maker, iRobot. The idea is to break up the company. It owns just over 5% of the company. The thesis is to get iRobot to spinoff / sell off its security robots business — which already makes up less than 10% of revenues. This’ll leave its at-home robots (i.e. Roomba).

Red Mountain iRobot

The details of the Red Mountain plan include getting iRobot to focus on the home robot business (as mentioned), but also increase leverage and make some #corpgov changes. iRobot’s defense business has gone from over 40% of its revenues three years ago to the less than 10% mentioned earlier. On an income basis, it’s actually losing money.

The biggest advantages include the elimination of research and development spending for defense products. iRobot also already has the infrastructure in place to see some operating leverage benefits if it can scale it robots business.

It’s worth noting that the short seller Spruce Point Capital that put out the short hit piece on NCR is also short iRobot.