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Kylie & Forbes
The focus is on Kylie& #39;s net worth "crashing" but there& #39;s an even juicier story behind the scenes in the cut-throat world of dealmaking.
Here& #39;s the investment banking insider scoop [Thread]
The focus is on Kylie& #39;s net worth "crashing" but there& #39;s an even juicier story behind the scenes in the cut-throat world of dealmaking.
Here& #39;s the investment banking insider scoop [Thread]
Upfront - the Forbes rich list has always been a contest of massive egos and guesstimates
Kylie& #39;s story isn& #39;t surprising considering Trump actually lied his way onto the Forbes list
From 1985-1994 he had $1.2bn of losses on his tax filings yet appeared on the list 5 times!
Kylie& #39;s story isn& #39;t surprising considering Trump actually lied his way onto the Forbes list
From 1985-1994 he had $1.2bn of losses on his tax filings yet appeared on the list 5 times!
In late 2019 Coty bought 51% of Kylie Cosmetics for $600m implying the entire company was valued at $1.2bn. The Jenners claimed 2017 revenues were $330m.
So it looks like Coty were paying roughly 3.5x sales for Kylie Cosmetics (that& #39;s actually reasonable)... but they weren& #39;t!
So it looks like Coty were paying roughly 3.5x sales for Kylie Cosmetics (that& #39;s actually reasonable)... but they weren& #39;t!
To give you an idea on the valuation of cosmetics companies, paying anywhere between 3x- 4x of top-line (revenue) is considered normal.
L& #39;Occitane bought Elemis & paid 6.4x. You& #39;re thinking "shit, they overpaid"
Congrats, you little investment banker! Here& #39;s what analysts said:
L& #39;Occitane bought Elemis & paid 6.4x. You& #39;re thinking "shit, they overpaid"
Congrats, you little investment banker! Here& #39;s what analysts said:
So Coty cough up $600m for Kylie Cosmetics. Coty stock went up roughly 5%. It& #39;s not often that happens.
In M&A deals the buyers stock price usually goes down and the sellers stock price goes up. This reflects the fact most buyer& #39;s overpay.
So here, the market is like "YAY"
In M&A deals the buyers stock price usually goes down and the sellers stock price goes up. This reflects the fact most buyer& #39;s overpay.
So here, the market is like "YAY"
So everyone is thinking "fuck, this is a $300m business" but on a conference call with analysts the CFO says "uhm guys, Kylie cosmetics made $177m in the last 12 months & $125m in 2018"
You just paid 7x- 9x revenue!
This is like expecting a 6& #39;4 guy on a blind date, but he& #39;s 5& #39;4
You just paid 7x- 9x revenue!
This is like expecting a 6& #39;4 guy on a blind date, but he& #39;s 5& #39;4
On these deals, both the buyer and seller have dealmakers to advise them. They& #39;re usually expensive (I always felt too cheap). You& #39;re Coty closing a billion dollar deal, who do you hire?
Tiger Chark
No, I& #39;m fucking serious - that& #39;s their name.
They have 5 employees. CODE RED!
Tiger Chark
No, I& #39;m fucking serious - that& #39;s their name.
They have 5 employees. CODE RED!
As a buy-side advisor you should know EVERYTHING.
Your job is to find every little detail to chisel away at the price through analyzing the company. It& #39;s called "due diligence".
You get an army of accountants, lawyers & experts to meticulously undress this company. It& #39;s CSI.
Your job is to find every little detail to chisel away at the price through analyzing the company. It& #39;s called "due diligence".
You get an army of accountants, lawyers & experts to meticulously undress this company. It& #39;s CSI.
To hunt deals you need to be an animal.
Morgan Stanley& #39;s top technology investment banker, Michael Grimes knew Uber was huge and one day they would list on the stock market.
He wanted a role on the IPO badly so he drove an Uber for YEARS. His banking salary was a few million.
Morgan Stanley& #39;s top technology investment banker, Michael Grimes knew Uber was huge and one day they would list on the stock market.
He wanted a role on the IPO badly so he drove an Uber for YEARS. His banking salary was a few million.
Did Tiger Chark do a proper due diligence? Was Coty reckless? When did people know this was a fuck up?
On Day 1 analysts were sounding alarm bells. Some analysts drink the cool-aid.
Investment bankers love people who don& #39;t question shit. It makes the deal look good.
On Day 1 analysts were sounding alarm bells. Some analysts drink the cool-aid.
Investment bankers love people who don& #39;t question shit. It makes the deal look good.
As the deal started unraveling people began to realize, "hold on just a fucking minute we based Kylie& #39;s net worth on revenue numbers of $330m, this business is nowhere near that!"
Then it clicked!
Coty& #39;s stock price is down 70% since the day they acquired Kylie cosmetics
[END]
Then it clicked!
Coty& #39;s stock price is down 70% since the day they acquired Kylie cosmetics
[END]
EVERY Forbes list is incorrect. Not because the methodology or the research is flawed but because "net worth" is a point in time measure.
Here& #39;s a [Thread] on how "net worth" fluctuates. https://twitter.com/iamkoshiek/status/1253996357939081216?s=20">https://twitter.com/iamkoshie...
Here& #39;s a [Thread] on how "net worth" fluctuates. https://twitter.com/iamkoshiek/status/1253996357939081216?s=20">https://twitter.com/iamkoshie...
Why deals fail (based on my experience as a M&A banker)
- Overpaying!!
- Overconfidence ++ Egos
- Overestimating synergies
- Not factoring integration costs
- Too many advisors
- Poor deal structuring (funding)
- Limited management incentives
- Poor diligence
- Overpaying!!
- Overconfidence ++ Egos
- Overestimating synergies
- Not factoring integration costs
- Too many advisors
- Poor deal structuring (funding)
- Limited management incentives
- Poor diligence
Additional Links:
Today& #39;s Forbes media release on Kylie
#f34a82a25f7b">https://www.forbes.com/sites/chasewithorn/2020/05/29/inside-kylie-jennerss-web-of-lies-and-why-shes-no-longer-a-billionaire/ #f34a82a25f7b
The">https://www.forbes.com/sites/cha... Coty/ Kylie Cosmetics deal announcement press release
#38c9542f22d9">https://www.forbes.com/sites/andriacheng/2019/11/18/can-kylie-jenner-be-a-game-changer-for-coty-the-jury-is-still-out-on-that/ #38c9542f22d9
Forbes">https://www.forbes.com/sites/and... admitting their fuck up with Trump #75d3f8833d91">https://www.forbes.com/sites/danalexander/2019/05/08/why-we-took-trump-off-the-forbes-400-during-his-decade-of-tax-losses/ #75d3f8833d91">https://www.forbes.com/sites/dan...
Today& #39;s Forbes media release on Kylie
#f34a82a25f7b">https://www.forbes.com/sites/chasewithorn/2020/05/29/inside-kylie-jennerss-web-of-lies-and-why-shes-no-longer-a-billionaire/ #f34a82a25f7b
The">https://www.forbes.com/sites/cha... Coty/ Kylie Cosmetics deal announcement press release
#38c9542f22d9">https://www.forbes.com/sites/andriacheng/2019/11/18/can-kylie-jenner-be-a-game-changer-for-coty-the-jury-is-still-out-on-that/ #38c9542f22d9
Forbes">https://www.forbes.com/sites/and... admitting their fuck up with Trump #75d3f8833d91">https://www.forbes.com/sites/danalexander/2019/05/08/why-we-took-trump-off-the-forbes-400-during-his-decade-of-tax-losses/ #75d3f8833d91">https://www.forbes.com/sites/dan...
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