UPDATED: (see below)
DD3 Acquisition Corp. (DDMX), announced this morning that they have entered into a definitive agreement to merge with Betterware de Mexico (“Betterware”), a direct-to-consumer selling company in Mexico, focused on the home solutions and organization segment. The combined company will operate as “Betterware” and is expected to remain publicly listed on Nasdaq. The transaction implies an initial enterprise value of approximately US$367 million representing a multiple of 8.6x Betterware’s estimated 2019 EBITDA.
Betterware is focused on the home organization segment, with a product portfolio for daily solutions including home organization, kitchen preparation, food containers, smart furniture, technology and mobility, as well as other minor categories. Additionally, Betterware is supported by its business intelligence and data analytics unit, which provides daily monitoring of key metrics and product intelligence. Betterware is supported by a sales force comprised of more than 400,000 distributors and associates.
Furthermore, Betterware has achieved a 98.5% rate of just-in-time deliveries anywhere in the country, within 24 to 48 hours and with zero last mile cost. Betterware’s asset light model also has enabled the company to grow at a double-digit rate with very limited capex and high cash conversion rates.
The management teams of DD3 and Betterware will hold a conference call and make a presentation regarding the transaction on August 6, 2019 at 11:00 AM ET.
In connection with this event, DD3 will file an investor presentation with the SEC which can be viewed at http://www.sec.gov or downloadable one hour prior to the conference call from DD3’s website at: http://ir.dd3.mx
For those wishing to participate, please dial:
- +1 334-323-7224 and use the passcode “BETTER”.
- To follow the investor presentation, go to: https://www.conferenceamerica.com/webecho/GuestLogin.aspx?ConfRef=79265289&Pin=3933 This platform will be open during the live conference call.
- Recordings will also be available to play/download at DD3’s website 1 hr. after the call for a 1-week period, and as per request.
Quick takes: The presentation will not be available until until 10:00AM tomorrow, so we only have the headline details of this transaction. However, at first blush, this looks like a pretty interesting company….sort of like the “Amazon” of home goods in Mexico. However, without real detail, we’ll have to hold off on any further “quick takes”. Look for an update post-call and release of the presentation tomorrow.
UPDATE: The presentation and 8-K were filed fairly immediately after this original article was posted so we have more information to go on now. It would appear this is a multi-level-marketing compay (MLM) of sorts, which, it seems the press release and presentation go out of their way not to use that moniker. For good reason….MLM’s are controversial (ask Bill Ackman about Herbalife), however, if you’ve ever been on Facebook or Instagram, you’ve probably seen a few of your friends pushing Rodan & Fields, which would appear to be one of the more successful MLMs. Betterware appears to at least offer “associates” the ability to just purchase products for themselves. However, it’s difficult to determine what the actual requirements are for “associates”. Is there a minimum amount of product they need to purchase? Are they required to sell a minimum amount of product? Can they only make a one time purchase for their themselves? I tried going to the Betterware website, but it’s in Spanish and unfortunately, no habla español.
Having said that, I am personally not a fan of the MLM business model. If you drill down on the actual sales of most MLMs, it’s usually not actual customers buying the product, but associates and distributors in your network who are then stuck with the inventory (at a very heavy personal cost if you’re at the bottom of the chain). So while the comps and company growth of Betterware look good, ultimately, I can’t get behind this transaction until we know exactly what is required of associates and distributors in their model. However, it will be interesting to hear what management has to say on tomorrow’s conference call. For now, it’s a pass for me until we can get clarity.
- Current Betterware shareholders will roll over most of their equity stakes and will remain majority owners of the combined company, with an anticipated ~80% stake at closing, while the remaining ownership will be held by public investors and DD3.
- Luis Campos, Chairman of Betterware, and Andres Campos, CEO of Betterware, will continue to run the combined company.
- Martin Werner, CEO & Chairman of DD3, and Guillermo Ortiz, board member of DD3, are expected to join the combined company’s board of directors.
- The transaction is expected to be completed during the fourth quarter of 2019.
- Proceeds from the transaction will be used by the combined company to support and enhance future growth and maintain financial flexibility, among other uses considered by current shareholders of Betterware.