Former CFO at Adore Beauty
This executive was the CFO at Adore Beauty for 2 years prior to the company listing. He was responsible for professionalising reporting and preparing the company for IPO. He also worked closely with the founders to improve working capital management and improve the operating cost structure.Read moreView Profile Page
Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.
Can you provide a short introduction to your role and responsibilities at Adore?
I was approached by one of Kate’s colleagues, who mentioned that she was looking for a CFO, on a consulting basis. Adore had grown quite quickly and they hadn’t had anybody in the financial area. They had bookkeepers and they needed to get more accurate information; reporting needed to be improved. I met Kate and James, the two founders, and they asked me to come in. They had a business that had grown and, I suppose, a fully mature business, but didn’t have the background to it, so it was a bit unstable from the financial reporting structure side. Everything else was going very well for them.
My role was to take control of the financial reporting and the financial side of the business and turn it into something a bit more business-like and a little more complex; it was in its infancy stage.
This was a year or two before the sale to private equity?
Yes, probably two years before the sale to private equity.
What was the rationale around selling to private equity, in 2019, and listing the business pretty quickly after?
Let’s take a step back. The business had grown significantly and Kate had been talking to KPMG and they were looking at selling the business in early January 2018. After we went through a whole due diligence process, getting everything together, everything was put on hold on the basis that there was strong growth coming through. Rather than lose momentum, it was decided to that business quicker, and then sell it once we hit a certain target.
When we set the budget for 2019, that was set for about 74 million. That was on target from day one. There were some hiccups and, in March 2019, they decided it was time to put it back on the market. That was when the offers started coming in at about one times revenue.
I think the rationale behind selling the business in the first place was that Kate and James, at that point, were exhausted. They had been running the business for 20 odd years and, I believe, they wanted to step back a bit. At the end of the day, when they sold, from my understanding, they didn’t quite step back. I left a few months after the sale of the business.
Kate still seems pretty heavily involved.
Yes, and I believe so are Sam and James.
Why not just list straightaway?
I don’t think they were ready to list. When they sold to private equity, private equity obviously bought it at one times revenue and these guys had the maturity and knowledge about listings. We can well imagine they turned around and said, if we’ve bought this for one times revenue, we could probably list it for a lot more than that and at least double or triple our money, in the short term, which they clearly did. They listed just under a year after acquiring the business.
Was that not an interesting dynamic where they just purchased the company at one times revenue and then turned around and listed it at three, four or even higher times revenue?
We’re talking about private equity and private equity are interested in one thing and one thing only; return on investment. That was a great return on investment for their fundholders. They were obviously able to divest many of the shares and then return money to the shareholders and still hold a sizeable amount in the company.
I think they’ve still got about 20%. Do you think there is a potential hostile relationship between management and shareholders, due to that arbitraging of the valuation?
I don’t believe so. I haven’t heard anything to that effect and I have been speaking to many people around the world and nobody has mentioned it.
In your opinion, what really attracted the private equity buyers to Adore?
First of all, I believe they saw the growth. Online business was growing phenomenally in Australia. There had been a few sales, prior to that, of online businesses, but not necessarily in the beauty industry. The beauty industry was growing phenomenally and I think it was still in its infancy stage, in comparison to the rest of the world. They saw an opportunity there. As I said before, they are interested in opportunity and return on investment.