Jehoshaphat Research is short shares of GPGI Inc (NYSE:GPGI).
Executive Summary of Opinions:
GPGI, or “Great Positions in Good Industries,” is an American conglomerate that pays management fees to another public company controlled by the GPGI Chairman’s family. If GPGI does an acquisition, these management fees grow, and the bigger the acquisition, the greater the fees. Last month, following a relatively brief due diligence period, GPGI completed a humongous acquisition. Contain your surprise.
To get this humongous acquisition (Husky Technologies) approved by GPGI shareholders, GPGI got creative in its accounting. Dramatically overstating Husky’s free cash flow, using different versions of a key metric in different places, extrapolating a rare pocket of abnormal revenue growth into many years of projections, and padding its Adjusted EBITDA with opaque add-backs are some of the gimmicks we believe are being employed. Management is presenting Husky to GPGI shareholders as something it’s not and never has been.
All this inflates an already-inflated balloon. Former Husky employees tell us of aggressive methods their company would use even before the GPGI deal, such as shipping Husky’s products to its own parking lot to justify revenue recognition, or other means to “pull forward” revenue. If true this is the stuff of scandal, but our immediate concern is deflation to revenues in 2026, Husky’s first year as part of GPGI. Both Husky’s CEO and its CFO gave notice last week; both cited “personal reasons;” neither had a replacement lined up which suggests the resignations were surprises to GPGI.
All this sits atop a technical iceberg, which is unusually favorable for a short here. A large overhang of likely motivated sellers exists, including Husky’s former PE owner who somehow scored a “reduced” lockup on its 55m GPGI shares. And recent PIPE investors, unburdened by any such lockups, can crystallize sudden capital gains at current prices before ever having to take earnings risk. Meanwhile this conglomerate trades at a hefty sum-of-the-parts premium, no doubt due to the “cult-of-personality thesis” around the Chairman that might have substituted for some investors’ financial due diligence. A resulting information gap could why nobody seems to have noticed GPGI subtly “reframing” certain projections, even before reporting its first quarter with Husky.
Husky is a pig, a pig that a pair of pig farmers (its CEO and CFO) put lipstick on and sold to a pig broker. The pig broker then gave the pig lip injections. The pig broker sold part of the pig to a group of pig flippers in a PIPE (Private Investment with Pig Excrement). The pig flippers quickly notched a phenomenal IRR with little risk; they can now flip their pig parts to the public at a premium. After batting around some names for the new arrangement, the pig broker came up with GPIG, but decided that was too promotional; they wanted something more sober, more understated. They landed on “Great Positions in Good Industries, Inc.” The pig now pays management fees to the pig broker, based not on the weight of the pig but on the pro forma dimensions of its lips. The pig farmers left town.
The Full Thesis
First a bit of background. The economic model at GPGI is, shall we say, novel. The company used to be called CompoSecure, which was a nice little business making metal payment cards. In 2024, an investor named David Cote acquired a majority interest in CompoSecure, with a promise to turn it into an investment platform. The company then spun off a new public entity, Resolute Holdings (RHLD), as its “manager and capital allocator.”
Last month, GPGI acquired Husky Technologies, a plastics company which now comprises over 70% of GPGI’s EBITDA (CompoSecure is the rest). A PIPE transaction to fund the deal diluted the Cote family’s GPGI holdings, so they now own a much smaller share of GPGI, but they own the majority of RHLD.
Much of what’s “wrong” with GPGI flows from its being on the butt end of this incentive conflict.
I. Accounting Games
Former Husky Executive 2: “Everybody was like, okay, just get it on the flatbed truck. We’ll just park them, but the revenue was recognized…Everybody knew, like, everybody in the organization knew what was going on. We’d just put [finished products on a truck] in the parking lot, which is not a warehouse, because if it’s still sitting in your warehouse, you could argue, well then you haven’t really sold it. But in this case it went out, it sits in the parking lot…the pressure was on the revenue to make sure we did that.”
GPGI is grossly overstating Husky’s “free cash flow”
In January 2026, GPGI closed its acquisition of Husky Technologies, an industrial company that has been owned by three different private equity owners over the past couple of decades.i GPGI funded much of this acquisition through a PIPE transaction.ii Husky was a transformative acquisition for GPGI; it is now almost three-fourths of GPGI’s Adjusted EBITDA.
GPGI was basically debt-free before buying Husky, but this minnow-swallows-whale transaction resulted in a substantially levered combined company, as well as large management fee obligations to Resolute Holdings before shareholders get paid anything. So GPGI needs to de-lever for this stock to have any chance of working over time. Of course, Management has promised handsome growth in “free cash flow,” but that’s in quotes for a reason.
We don’t think investors realize exactly how much growth is implied by Management’s projections. GPGI has never provided a clear, comprehensive, “apples-to-apples” bridge between Husky’s historical free cash flow and its projections for the future. So we created one:
At the risk of stating the obvious, anyone who has underwritten the above hockey stick has a problem. Which is probably why, rather than just providing a clear, fulsome history of Husky’s actual free cash flow and projections that use the same methodology, GPGI has shoveled nonsense onto investors such as:
- Management abusing the definition of “free cash flow” for Husky’s historical numbers
- Management using different calculations for free cash flow in different places
- Management making FCF guidance for Husky that it quickly had to walk back
- Management walking back said FCF guidance in the cleverest and quietest way imaginable
- Management projecting FCF acceleration so rapid that it belies common sense, let alone for a company already long-owned by “sophisticated” PE investors who would have picked all the fruit there
The first hint that something is wrong with FCF
When they announced the Husky acquisition just three months ago, Management described a “7.5% free cash flow yield” on page 8 of its slide deck. What year does it look like they’re referring to in this slide when they talk about the FCF yield?
On the earnings call the same day, Management referred to this free cash flow yield as applying to “year 1.” What does “year 1” mean?
“Turning to Slides 8 and 9. These pages really summarize the pro forma platform. The combined businesses deliver immediate scale and are positioned to deliver mid- to high single-digit organic growth, approximately 70% recurring revenue, approximately 12.5% EBITDA growth annually, 100 basis points of margin expansion opportunity per year and approximately 7.5% free cash flow yield in year 1. Taken together, the company has a best-in-class financial profile, durable growth drivers, all being offered at a significant discount to peers.”
When those words were spoken by Management in November, the Husky deal was expected to close in Q126iv (and it did close on January 12th). And on that day, GPGI issued a press release reiterating (“as previously disclosed”) the claim about the FCF yield, but this with an ever so slightly modified version of the above language:
We are now meant to believe, apparently, that the first 11 months and 19 days is not “year 1.” So now it’s not 2026, it’s 2027, and we won’t have completed FCF results until February or March 2028. Now you see free cash flow, now you don’t!
Was Management just playing games in order to get this deal across the finish line when the shareholders would vote on it? Or did these guys really not know what “Year 1” looks like to everyone else, but then helpfully clarified it (while trying to make it look unchanged)? In any event, the real story with FCF isn’t the secretive walk-back, but the underlying absurdity of how GPGI is presenting Husky’s so-called “free cash flow” to the world.
Read the full report here by Jehoshaphat Research
