1/ I‘ve been called to the Sunday night soapbox, so here it is - a thread on how Kylie Jenner took Coty for $600M, why she’s likely NOT really a billionaire, and how the deal compares to other notables in the beauty space.

2/ First - let’s talk valuation. The transaction values @kyliecosmetics at $1.2B, which is 6.8X TTM reported revenue of $177M. This is quite rich, above market for beauty brand M&A. To give some context, here are a few recent rumored valuation multiples in beauty/personal care:

3/
First Aid Beauty (acq. by P&G) = 5X rev
Drunk Elephant (acq. by Shiseido) = 5.8X rev
Tatcha (acq. by Unilever) = 5X rev
Sun Bum (acq. by SCJ) = 5.5X rev
* Kylie Cosmetics (acq. by Coty) = 6.8X rev

Public comps trading ~4X rev (P&G, Estée Lauder, Colegate-Palmolive, etc)

4/ Strategic buyers are paying crazy prices right now for growing new-wave brands, and it’s clear Kylie cashed out at a premium, near top-of-market valuation. Which is interesting because...

5/ Celebrity-driven brands are (obviously) totally dependent on the celebrity - Kylie Cosmetics’ value would decline dramatically if @KylieJenner stopped promoting it. Typically, brands so dependent on a single person are discounted vs. “standalone” brands. But not so here.

6/ More surprising - Kylie Cosmetics’ sales are declining notably (62% since 2016), which is not typically a driver of premium valuations. Especially considering comparably valued brands like Drunk Elephant and Glossier are reportedly doubling YoY.

7/ So despite declining sales AND a reliance on Kylie’s personal brand, Coty STILL paid up and valued @kyliecosmetics at 6.8X TTM revenue. So -

A) - bravo @KylieJenner

B) - Coty has a serious uphill climb in order to not get totally smoked on this investment.

8/ I know Kylie still owns 49%. But does anyone really think she’ll still be pushing Kylie Cosmetics this hard on her Instagram (or VR headset) in 10 years? Because that’s what Coty’s going to need to realize value here.

9/ Finally - to address the talk of Kylie now being a billionaire as a result of this deal ($600M of cash + $600M of remaining interest).

I’d love to see her divest the remaining 49% at anything close to the price she just got. Why?

10/ Would you like to pay up to own 100% of a Kardashian brand that no Kardashians hold a financial stake in any longer? Tough sell to find someone to hold that bag.

11/ I’d also be shocked (but it’s possible) if she actually owned 100% of Kylie Cosmetics as positioned to the media. I’d almost guarantee Seed Beauty got equity or an equity-like pref. Who is Seed Beauty you ask?

12/ Think of Seed as a one-stop outsourcing shop for celebrity beauty brands. You bring your 151M instagram followers, Seed brings the rest - product dev, manufacturing, fulfillment, etc. Here’s some great background on Seed (which is an awesome business): https://www.instyle.com/news/secret-company-behind-kkw-beauty-and-kylie-cosmetics

13/ As part of the transaction, Seed is likely out as Kylie’s logistics partner - that’s going to hurt. If Seed had any business acumen at all (and they do), they’d have negotiated in a buyout or equity upside to protect themselves in this scenario. They got paid this week too.

14/ In summary - one HELL of a deal for @KylieJenner to get even 51% liquid at a strong valuation. But just because the 1st half of @kyliecosmetics is worth $600M, don’t believe for a minute the 2nd half is worth the same. You can’t do $600M+$600M = $1.2B for Kylie.

15/ But that doesn’t matter much to Kylie - she’s liquid, and Coty now has a heck of a lot to prove based on the price they just paid. The remaining 49% is just gravy for Kylie, and now she’s playing with house money. *FIN*