Adir Shiffman’s Post

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Executive Chairman, Catapult Sports

The acquisition announced today of Go-To Skincare Pty Ltd by BWX Limited caught my attention. The price is $89m cash for a 50.1% stake. This is a nice business that has been growing EBITDA at 39% a year for the past three years, although revenue has grown 50% a year which in fact implies declining margins. FY21 sales are about $37m, EBITDA $11.6m. These are very healthy margins of close to 32% - that is definitely worth a premium. Interestingly, EBIT growth has been relatively consistent and there was no huge COVID jump. It would be revealing to see 1H21 for 2H21 - if I was an investor that’s key info for me right now. Overall this control transaction could make sense for BWX given Go-to is growing revenue way faster, although FY21 EBITDA grew more slowly. They also have big margins. If BWX actually get their $3m of synergies it will be good, and even more so if they can keep shifting to a direct business model and sell it via e-commerce channels. That’s the real high-margin opportunity for BWX. It is of course EPS accretive, because BWX trades on a big multiple, and it’s a significant addition to their EBITDA. But in no way is this price bargain basement stuff. It’s probably fair. However, keep in mind that if BWX buys the other half, they will effectively be paying for growth that they helped drive. This is the challenging part of these deal structures. For the vendors, the downside is that they lose control and they’ve also lost competitive tension when selling the remaining 49.9%. They do, however, pocket a capital gain of 7.5x this year’s profit and presumably they will keep collecting dividends. There is no cashflow reported anywhere in the presentation so my assumption is that it’s not raining cash or else cash would probably be front and centre. Overall, we can see why this deal got done and it’s reasonably balanced. To finish, two surprising features of the deal: 1. It’s all cash. Why wouldn’t the vendors take any BWX stock? Is it price? 2. Why is BWX paying a dividend simultaneously with raising $100m? There are accounting reasons, but it’s a weird look in my view. This will be one to watch, and it is a great brand with a great following. Congrats to all. PS: I only glanced through this deck so there might be stuff I missed. https://lnkd.in/gF2SNkDW

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Rebecca Eastwood

Partner at Ignition Lane

2y

Thanks, this is interesting. Go To's growth definitely speaks to the power of providing an exceptional customer experience. I'm not that surprised to see there's no major covid jump - I'd expect that most of Go To's target customer base would already have been shopping online before the pandemic. It's also an extremely crowded market. Plus, its not the kind of product you would use more of because you're stuck at home - there's only so much moisturiser I'll go through in a year. Declining margins probably also due to vast new product development, too.

Dale Pearce

COO @ Platinum Outsourcing - helping Australian businesses get easy access to remote teams 🌏 AFR Fast Starter 2022

2y

So 7.5 x EBITDA for a 50.1% stake? Is that not high? Adir Shiffman

Hayley Worley

Founder @sheetsociety #8 Top 50 People in eCommerce

2y

Thanks for sharing your insights 👏🏻

David 'Unfair Competition' Connolly

Executive Management, Strategic Sales

2y

Todd Scott - interesting transaction in cosmetics

Roi Abraham

All things growth @ Uptick

2y

My favourite Adir Shiffman posts 😏

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