Put yourself in Rhian’s shoes for just a moment. And this is relevant for all the other posts claiming that the founder is winning here and HLF shareholders are losing.
Think about this for a moment.
If this all fails miserably and takes down HLF with it (which I’m not by any means suggesting it might) then all Rhian ends up with is a cash payment of $2.8m.
Of the $22m total consideration (incl $5m earnout), for which Rhian owns 50%, so $11m for her, Rhian gets:
So, in summary, a lot of Rhian’s payout (in fact $8.2m of the $11m, or 75%) is reliant on:
- $2.8m cash upfront
- $3.2m in shares
- Issued at 12c, so already worth $2.7m at 10c
- Partially escrowed for 12 months, rest at 24 months
- $0.5m cash in September 2022 if earnout 1 targets are met (rev >$25m, EBITDA >$5m)
- $2.0m in shares in September 2022 based on above targets
- $0.5m cash in September 2023 if earnout 2 targets are met (rev >$30m, EBITDA >$6.5m)
- $2.0m in shares in September 2023 based on above targets
Otherwise all she is guaranteed to get is $2.8m cash upfront and whatever her HLF shares are worth.
- THM hitting the earnout targets (remember revenue has been broadly flat for ~5 years so to grow it 25% over 1 year and 50% over 2 would be significant)
- HLF doing well and her escrowed shares being worth more than or equal to their issue price in 12 and 24 months time
Think about it a bit more.
$2.8m is not a huge sum for a business that she has spent 11 years building, where she invested $300k of her money upfront (just that invested well elsewhere ie property (she sold her home to start the business) would be worth $1m+ today) and reinvested all the profits along the way.
Appreciate she would have received a partial payout ($5m?) when WhiteOak came in (when revenue was $10m) but the overall point I am trying to make is she isn’t “cashing in now”, she isn’t saying farewell, she is far from throwing in the towel!
She is receiving only 25% of the value of THM now with the other 75% contingent on THM and HLF as a whole performing well.
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