In
the last few years Wall Street has finally figured out what we have known for
years, that MLM companies have some tremendous advantages over traditional
businesses.
This is good news to those who participate in the MLM industry. What’s the
good news? Some of the world’s most successful investment firms have
purchased well-established MLM companies for enormous sums. Why? Because they
understand the value of a good investment. Who are these investors and what
companies are they buying?
In September 2002, Warren Buffett, CEO of multi-billion dollar strong
Berkshire Hathaway and the second richest man in the world, purchased Pampered
Chef for $1.5 billion. According to Fortune Magazine, Buffett purchased
Pampered Chef because it has no debt, high profit margins, a gung-ho
management team, and world markets to conquer.
Then in May 2004, Ripplewood Holdings L.L.C. and Activated Holdings LLC
acquired an 81% ownership of Shaklee Corporation for approximately $310
million. Activated Holdings was so excited about their investment of Shaklee
that their managing partner Roger Barnett moved from
New York
to
San Francisco
to run the company. Barnett researched the industry and spent hundreds of
hours talking to leaders and owners of 75 MLM and Party Plan companies, and
decided buying Shaklee was the best long-term investment he could make. He
believes MLM is the greatest business model ever invented. He also believes
it will grow more in the next 10 years, than in its entire history combined.
Barnett cites four major reasons for his enthusiasm toward Direct Sales:
- The
network marketing business model has passed the acid test and is here to
stay.
- Network
marketing does well in every economic cycle.
- It
has the potential of creating perpetual accelerating momentum.
- Entrepreneurs
and savvy business people around the globe are discovering the genius of
this business model.
Another
example of an MLM company being of value to investment firms is Jafra. Jafra
is an MLM company that sells and distributes high-end cosmetics and fragrances
internationally through more than 400,000 independent beauty consultants.
Jafra was sold by Gillette in 1998 for $200 million dollars to Clayton
Dubilier & Rice Inc. In 2003 CD&R took out a special dividend of $160
million dollars. In April 2004 Jafra was acquired by Vorwerk & Co. KG, a
private Germany-based direct seller of household appliances. When the special
dividend is added to the profit of the sale, CD&R profited approximately
$360 million dollars in just over five years’ time.
These investment firms are finding out what MLM professionals knew all along.
MLM companies gives people a chance to go out and not only sell a product, but
instruct customers on how to use it and offer support to their customers. And
what does this interaction between salesperson and customer mean to owner like
Buffett and Barnett? It means they get instant and constructive feedback on
their products. They can easily access information about their customer base,
can find out what works and what doesn’t in their sales presentations as
well as the value and efficiency of the products themselves.
As financial investments, MLM companies have much going for them. As with the
sale of Jafra, it is clear that MLM companies can appreciate significantly
with time.
Publicly traded MLM companies have also become more valuable. Recently, when
MLM companies go public, their stock sales have skyrocketed. Whereas, in the
past, companies that went public normally would be forced to buy back their
stock and re-privatize the company.
Consider these numbers:
In January of 2003
Avon
's Stock was worth $8.30, now it is worth $31.80. In that same time period,
Pre-Paid Legal went from $18.10 to $37.77, Usana from $16.80 to $64.56,
Mannatech from $19.90 to $21.37, Nature's Sunshine from $8.50 to $19.77, and
Nuskin went from $11.59 to $23.20. This means that to buy 1000 shares of each
in January 2003 would have cost $49,310 and today it would be worth $168,850.
To put that in to perspective, if $49,310 would have been invested into the
S&P 500, today it would be worth $59,172. Those numbers speak for
themselves.
So why does all this matter to owners, executives, distributors, and customers
of MLM companies? When companies need to expand or when a company needs to
maintain or increase their momentum when its visionary founder retires, a
company often needs to look to Wall Street to provide the financing in order
to achieve these goals. For many years, distributors and others in MLM have
made it almost a point of pride to say, “we have a closely held company”
or, “our company has no debt”. The success of some of these companies that
have embraced Wall Street and the financial discipline that it often requires
is causing some to rethink the value of having a strong financial backer
behind their company.
The Direct Sales industry continues to gain public notoriety as Pampered Chef
and Shaklee join 15 other
public MLM companies now on Wall Street. These companies clearly enjoy the
best of both worlds, public mainstream businesses, with the control and
support that only MLM companies can provide.
Jennifer
Leigh is MLM.com's new staff writer