Unilever announced yesterday that it sold control of Dollar Shave Club to private equity group Nexus Capital Management.
Unilever bought Dollar Shave Club for $1 billion at the height of excitement over direct-to-consumer brands. Terms for Unilever’s sale of Dollar Shave Club were not announced.
The whole thing sounds like the arc of a celebrity relationship to me.
In 2016, Unilever, one of the best-funded and best-known owners of consumer brands (Dove soap, Hellmann’s Mayonnaise, Pepsodent, Lipton and many others), acquired a rising star brand that was riding a wave of notoriety driven by then-current trends. Direct-to-consumer brands were raging hot and investors could hardly pay enough for them and their newfound access to millennial consumers. Investments were based on revenue and not profits and it looked like there was no ceiling to it.
Over time, the environment changed. Competition piled in attracted by high valuations and availability of investment capital. But over time, the excitement about the direct-to-consumer business model wore off as challenges became more apparent. Investors lowered their valuations and the cost of attracting consumers to brands went up and up. Profitability moved farther into the future and became more uncertain for so many direct-to-consumer businesses.
As direct-to-consumer brands expanded into physical retail stores and became available in established retailers, Dollar Shave Club moved onto the shelves in Walmart and Target and other retailers. That made the business look more like traditional wholesale and the many challenges wholesale brands face every day.
Eventually, Unilever decided that Dollar Shave Club wasn’t in a “core strategic growth area” for the giant company and it gave up control.
So there you have it: investments and acquisitions that so often follow the same path as Brad Pitt, Angelina Jolie and Jennifer Aniston. Excitement, thrill, opportunity, no limits, followed by this-isn’t-special, disappointment, frustration, different kinds of growth and eventually, divorce.
Like many a divorce, it’s thorny and Unilever will have joint custody. It’s retaining 35% and the private equity group will own the rest.
So often, financial markets including mergers and acquisitions are driven by emotions. So often there’s a belief that something transitory is permanent, that change won’t come. But that never happens, life changes, feelings change, consumers change, business changes and companies can’t always adapt. So there’s divorce and divestiture.
The challenge in mergers and acquisitions is to figure out what really endures, where is customer behavior going versus what’s transient and only in-the-moment. The investors who don’t let themselves get caught up in excitement driven by the flow of capital into short-term trends pay the right price for what they buy and can make a ton of money. It requires a very disciplined approach and even the best investors and buyers don’t always get it right.
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