Thread by @iamkoshiek

Kylie & Forbes

The focus is on Kylie's net worth "crashing" but there's an even juicier story behind the scenes in the cut-throat world of dealmaking.

Here's the investment banking insider scoop [Thread]

Upfront - the Forbes rich list has always been a contest of massive egos and guesstimates

Kylie's story isn'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's actually reasonable)... but they weren'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'Occitane bought Elemis & paid 6.4x. You're thinking "shit, they overpaid"

Congrats, you little investment banker! Here's what analysts said:

So Coty cough up $600m for Kylie Cosmetics. Coty stock went up roughly 5%. It'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'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 6'4 guy on a blind date, but he's 5'4

On these deals, both the buyer and seller have dealmakers to advise them. They're usually expensive (I always felt too cheap). You're Coty closing a billion dollar deal, who do you hire?

Tiger Chark

No, I'm fucking serious - that'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's called "due diligence".

You get an army of accountants, lawyers & experts to meticulously undress this company. It's CSI.

To hunt deals you need to be an animal.

Morgan Stanley'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'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's net worth on revenue numbers of $330m, this business is nowhere near that!"

Then it clicked!

Coty'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's a [Thread] on how "net worth" fluctuates.

https://twitter.com/iamkoshiek/status/1253996357939081216?s=20

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

Additional Links:

Today's Forbes media release on Kylie
forbes.com/sites/chasewit…

The Coty/ Kylie Cosmetics deal announcement press release
forbes.com/sites/andriach…

Forbes admitting their fuck up with Trump
forbes.com/sites/danalexa…

Shout-out if you're reading this to the end.
Make Finance Great Again!

Here's Tiger Chark's site. In case anyone is keen for a quick internship. It looks like something out of a "wanderlust" Instagram post & much less like an investment bank.

Tiger Chark could have made around R100m in fees on this deal (on average fee estimates)

100 stacks, not bad?

Afternote: Will Kylie to go to jail? No, she only lied to Forbes

By the time they signed the deal, Coty + Tiger Chark knew the real numbers. They went ahead anyway.

Of course investors, analysts & the public had no fucking clue ++ Coty have done bad deals before (see CoverGirl)