Unilever purchased Dollar Shave Club for an even one billion dollars. Let's look at four metric from publicly available data (WSJ - paywall) on the transaction.
- Unilever paid $312.50/customer
- $1 billion represents a 6.6x multiple on revenues
- Each percentage point of market share represents $200 million in purchase price
- 63% CAGR
Some thoughts on those numbers...
CLTV, customer lifetime value, is the driver most often referenced in VC discussions about user/customer-based businesses. I have know idea what the average CLTV is in the razor business but it's not hard to imagine it's north of $312 given that men and women are shaving for their entire adult lives, and brand loyalty is likely to be high as it's a personal item.
The revenue multiple feels like a byproduct of the more important number, which is market share. I've been around for the conversations in the board room about market share and a decline is justification for a full-fledged crisis management meeting for many companies. It sounds like Unilever was struggling with declining market share and this represented one of the quick and easy ways to reverse that trend. There can't be many 5% market share increases available in the razor business so it makes sense that each percentage point is worth $200 million.
Why invest in VC-type investments? 63% CAGR is why. That's one hell of a return for Technology Crossover Ventures and their fellow investors. Congratulations to them on a job well done!
Takeaways for Canopy community investors and founders...
- Competition from larger companies is less scary than you would first think. Big companies will purchase competitors rather than risk losing to them in straight up competition.
- Being a leader in a segment is more important than being a great overall company. DSC was still losing money but they won by taking market share.
- Underlying factors such as the data analytics available from direct to consumer plays are critically important to the overall value of a deal. My guess is the Unilever director in charge of this acquisition sold it on two things, (1) we can buy 5% market share, and (2) the underlying data available through DSC will pay dividends across our entire personal care product line.
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