Naked Brand Group (NASDAQ:NAKD) has had a very turbulent year on the NASDAQ. After closing 202o at 19.2 cents per share, NAKD stock spiked to a closing high of $1.65 per share before tumbling back down to a low of 47.78 cents as of April 16.

Since then, the stock has drifted up to 61.55 cents as of Sept. 8. But get set again, as I suspect the stock could possibly spike another time. This is because the company made a major announcement.

The NAKD Stock Annual Meeting

The company just announced that it has found a potential target for its large pile of cash. The company has $270 million sitting in the bank. In an SEC filing on Aug. 20, Naked Brand Group’s Executive Chairman, Justin Davis-Rice, put forward his address to the company’s annual general meeting in Sydney on Aug. 20. He spent some time describing this target company.

In the address, he highlighted the re-appointment of Mr. Davis-Rice as CEO as well as the board’s new director, Simon Tripp. He is described as a “seasoned investment banker and M&A executive.” Moreover, several times the chairman highlights their strong balance sheet with $270 million in cash after repayment of all previous bank debt.

And then came his major news. First, he described the criteria that the company had for a major acquisition:

“Whilst many smaller opportunities exist and would seem easier to execute quickly, we have always believed and still strongly believe our attributes afford us the right to be selective seeking to partner with a substantial company, one that is an industry leader, with compelling growth prospects and disruptive technology.”

Then, he spent some time describing the acquisition:

“I am delighted to confirm we believe we have found such a company. We have recently reached preliminary agreement on non-binding terms and are now conducting due diligence. The company is in a sector which has been forecast to have strong growth for many decades to come.”

Due Diligence and Motivations

To say the least, he did not name the acquisition target. All they have done is sign a “preliminary” agreement. This seems to imply that they signed a letter of intent or some form of non-binding agreement. This allows Naked Brand Group to do due diligence on the acquisition target and to see if what they think they are buying is real.

One clearly gets the impression that the acquisition will use up most if not all of the $270 million in cash. Let’s put some thought into this.

First, why would a “growth” company sell to a public stock like this?

One reason is that it would be a type of a reverse merger, such as is seen these days with SPACs (special purpose acquisition companies). In other words, the merger or acquisition results in a share exchange, with the private growth company having control. They get to use the $270 million in cash for their growth.

Second, a major reason why a private growth company would do this would be to sell out for cash. This means that no new shares would be issued and the sellers would receive the bulk of the $270 million in cash. This could be the case if the growth company already throws off a large amount of cash flow.

What Likely Happened

I suspect that, given the company’s hiring of an investment banker, he probably brought the deal to the board. He wanted to stay on and asked to be part of the board. This implies that the company is a high-growth company that needs cash to continue growing. So, I suspect that the first scenario outlined above is the most likely situation.

This could result in further dilution of the stock. But I suspect that the board is hoping that the announcement of the deal, once it is final, could be such a positive event it could also allow for another capital raise.

What to Do With NAKD Stock

This is almost a binary event situation for investors. If the deal is seen as no good, NAKD stock could falter. In my last article on the stock, I wrote that investors should wait until it falls to its cash per share, plus a small amount for the value of its online lingerie FOH (Frederick’s of Hollywood) business. That works out to about 33.64 cents per share.

But now I am becoming more optimistic about NAKD stock. Given that Naked Brand Group has found a target that meets its criteria for growth, I suspect that it could move higher when it’s revealed. In other words, I suspect that this will be a transformative deal for both the company and its shareholders.

Given that cash really makes no money for investors, this could be a good thing for NAKD stock. So enterprising and risk-taking investors should stick with the stock. Those that are not willing to take risks should probably leave.

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On the date of publication, Mark R. Hake did not hold any position, directly or indirectly, in any of the securities mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.