A traditional initial public offering (IPO) comes with an enormous amount of scrutiny. The SEC has a very specific process that companies must go through in order to sell shares to the public.
The IPO process does not eliminate people bringing flawed companies to market, but it does allow time for both experts and laymen to do their homework. That hasn’t stopped companies that were more hype than reality from going public. But it is a very high bar to clear that does stop many bad ideas from raising money from a public that tends to get excited about the next new thing, even when it has a flawed business model.
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An IPO, however, is not the only way to go public. In recent years, special purpose acquisition companies (SPACs) have become an increasingly popular way to reach public markets. Often called a blank check company, this is a sort of backdoor way to take a company public while avoiding the scrutiny of an IPO.
That’s how Parts ID, an automotive parts company, reached public markets in 2020. Now, under three years later, the debt-ridden company has filed for Chapter 11 bankruptcy.
Parts ID has significant debt.
Image source: Getty Images
Parts ID has filed Chapter 11 bankruptcy
Parts ID started with big goals. The company defines itself as “a technology-driven, digital commerce company focused on creating custom infrastructure and unique user experience within niche markets.”
The company, which sells automotive parts to consumers, operates a number of websites including TruckID.com, CarID.com, and CamperID.com. All of those sites offer a simple interface designed to help shoppers find what they need.
“Management believes that the company is a market leader and proven brand-builder, fueled by its commitment to delivering an engaging shopping experience; comprehensive, accurate, and varied product offerings; and continued digital commerce innovation,” the company shared in its most recent earnings filing.
In that report, the company showed about $18.7 million in assets against over $55 million in liabilities. In its bankruptcy filing, Parts ID reported similar numbers.
The company has continued operating and its websites remain operational. Parts ID has not posted anything about the filing on its corporate or its consumer-facing websites as of 10:32 a.m. ET on Dec. 27.
Parts ID is a significant risk
Even before the Chapter 11 filing, Rapid Ratings, a service that uses public data to track public companies’ financial health, rated the company a “very high default risk.” That rating was released on Dec. 16, ten days before the Dec. 26 bankruptcy filing.
“A Core Health Score of 26 suggests low levels of efficiency and a performance which is not sustainable over the long-term. Within the Resilience Indicators, we see significant weakness, and at this Core Health level, these Resilience Indicators are critical in determining default risk. Companies with this combination of Core Health and Resilience have a seriously troubling short and medium-term outlook,” Rapid Ratings shared on its website.
Parts ID has not commented on the Chapter 11 bankruptcy filing, but it did share some cost-cutting efforts in its Q3 earnings release.
“During 2022, we took several measures to reduce operating costs, including reducing advertising expenses, general and administrative overhead, and capital expenditures. In June 2022, we took steps to reduce our costs by reducing our employment base in the United States, and reducing our independent contractors in Ukraine, the Philippines, and Costa Rica, and by reducing other operating expenses,” the company shared.
Parts ID saved “approximately $12 million” from these cuts.
The company has also been impacted by Russia’s invasion of Ukraine.
“Our engineering and product data development team as well as back office and part of its customer service center are in Ukraine. Therefore, the conflict in Ukraine could have a material adverse effect on our business, financial condition, and results of operations. While the conflict has not caused significant disruptions to our operations to date, it could have a material adverse effect upon the company in future periods,” Parts ID shared.
The company has not shared a turnaround plan in conjunction with the bankruptcy filing.
