American Exchange Is Set to Acquire Allbirds for $39 Million. Here's What Investors Need to Know.

Allbirds' (Nasdaq: BIRD) fall from grace is now complete.

The once-promising footwear maker said after hours Monday that it would sell itself to American Exchange, the owner of Aerosoles, for just $39 million, or roughly ten times less than what it raised in its IPO.

The decision closes the book on one of the biggest collapses in recent stock market history as Allbirds was worth $4 billion at one point, shortly after its IPO in Nov. 2021. Allbirds stock was down sharply for most of the session after the news came out, but closed up 1%. The price includes all of Allbirds' intellectual property and certain other assets and liabilities, such as inventory.

The company made several errors that torched the business and the stock. It expanded its product line too quickly, getting away from its core "wool runner" shoe and diluting the brand. Its focus on using sustainable materials meant that its products weren't always as durable as alternatives, and it opened brick-and-mortar stores too aggressively, eventually closing most of them.

Allbirds' revenue peaked in 2022 and has steadily eroded since then as it has not had a quarter of positive revenue growth in more than three years. Losses widened as well, and the sale of the business isn't surprising, considering how far the brand has fallen.

The lesson in Allbirds' downfall

There are several takeaways for investors here.

First, Allbirds stock may have been doomed just by the timing of its IPO. Going public in 2021, it caught the end of the pandemic boom, but crashed shortly afterward as investor sentiment moved away from tech stocks, including e-commerce brands like Allbirds, which first caught on in Silicon Valley. The stock lost more than 80% in just a matter of weeks.

It's also a reminder that consumer brands can be fickle, especially in markets like footwear. Competition is steep, and tastes can change quickly. Under Armour was once a hot, high-growth stock, but the company has now struggled to grow for the last decade.

Finally, it's a lesson, especially for consumer product start-ups, that growth is difficult to manage. Expanding too quickly can result in diluting your brand and burning too much cash. WeWork made a similar mistake, and it ended up killing that company's IPO.

The transaction is expected to close in the second quarter, and a distribution to shareholders of net proceeds is expected to be made in the third quarter, though it's currently unclear how much that will be.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends Under Armour. The Motley Fool has a disclosure policy.