The secretive short seller looking to bulldoze Soho House
When Soho House announced plans to open up its exclusive doors to the public markets in 2021, investors hoped they might be in for a touch of stock market glitz and glamour.
What they have been left with, however, more resembles a bruising hangover.
The global members club chain, founded in the 1990s on Soho’s Greek Street, has collapsed in value since floating at a valuation of $2.8bn in 2021.
Shares in the firm had already plummeted some 50 per cent below their IPO price last week when short seller Glasshouse Research launched a stinging report that claimed the firm was heading the way of collapsed property-cum-tech firm Wework.
In essence, short selling means investors bet against a company’s share price and rake in hefty profits when it falls. Investors borrow a stock, sell it on and then buy it back on the cheap after the price has plummeted, leaving them with a profit. Some of those short sellers also produce research reports in which they – as a rule – pick apart the bona fides of those same firms they’ve invested in.
The author of the report into Soho House is a secretive investment firm called Glasshouse, an anonymous short seller which claims to be made up of a group of “forensic accountants and analysts who have worked for prominent Wall Street hedge funds and boutique forensic accounting firms”.
According to its website, the firm’s stated mission is searching for a “culture of fraud” within public companies.
Glasshouse’s bruising crtiques stretch back to 2016 when it published its first report on the Californian builder, Tutor Perini. Since then the shadowy investor has launched attacks on a range of US listed firms including Granite Construction and Natus Medical.
In response to questions from City PM, Glasshouse says it remains anonymous “for safety reasons” and would not go into “too much in depth” beyond the description on its website.
“We have a solid track record of finding accounting red flags at public companies even before the company’s own auditors find them,” a spokesperson identifying themselves only as Stephen, added.
Fittingly, however, Glasshouse itself has come under fire for throwing stones. After the firm released a report attacking US-listed vaccine maker Catalent last year, rival short seller Fiat Lux launched a short-on-short counter attack criticising what it called the “one-dimensional application of a boilerplate ‘forensic accounting’ checklist”.
“A more comprehensive review of Glasshouse’s claims, attended by the appropriate context, reveals that most of them are not as worrisome as depicted by the report, and that they have demonstrably not had the negative financial impact that the report suggests,” Fiat Lux wrote.
“In several cases, we believe that Glasshouse’s observations and claims are plainly and demonstrably false,” the firm added.
Glasshouse spokesperson ‘Stephen’ told City PM that Fiat Lux was “entitled to its opinion” but claimed its report on Catalent “resulted in the firm’s CFO getting fired and the company delaying earnings and SEC filings on multiple occasions due to accounting errors and internal control concerns”.
Ultimately, Catalent rebounded and was picked up by the parent firm of Novo Nordisk in an $11bn deal last week. Catalent did not immediately respond to a request for comment.
Share price change in Glasshouse targets
Unusually in the case of Soho House, Glasshouse has predicted its share price will tumble to zero. Soho House’s headache has also been compounded by potential lawsuits, including one from Gibbs Law Group which says it is investigating a potential class action on behalf of shareholders who lost money in the float.
In the meantime, however, it looks like Glasshouse’s campaign may be cut short.
In a statement to the market on Friday, Soho House said it “fundamentally rejects the allegations” in the report, which were designed to “adversely impact the company’s stock price for the benefit of the short-seller”. And alongside that, was the revelation that the firm had begun exploring a potential sale, which sent shares rising around 13 per cent by Monday afternoon.
It appears the public members club may be going private once again.