💥Doja Cat & Iggy Azalea Ain't Influencing S..t💥
Geo Group, Sri Lanka, Boy Scouts, web3 Skepticism, Cineworld, Brazos & TriMark
Los Angeles-based BH Cosmetics Holdings LLC is a cruelty free, vegan, and “extra clean” (primarily e-commerce-based) cosmetics company that claims to be “more sustainable every day.”*
That claim didn’t age well.
We’ve, frankly, never heard of this company but, after taking a gander at its website, we’re into what it purports to stand for: diversity and inclusion, female empowerment, sustainability, and civic engagement. Its website declares that “normal is boring,” and, honestly, we agree! Normal IS boring. So, yes, stand out. Share your positive influence! Attract others to your remarkable self!! The world will follow!!!**
Well, hopefully not. We’d hate for the world to end up in bankruptcy court in the District of Delaware along with this company (and three debtor affiliates, together the “debtors”).
We’re not 100% sure where the debtors lost their way. It seems, as we’ll discuss below, that things starting unraveling in early 2019. But it’s also hard to pinpoint one thing when you’re talking about a company and management that seem to make one bad decision after another. Starting with the company mantra, “Badass with Heart.” That’s seriously cringeworthy. And then there’s the awful execution of that mantra. If you’re gonna go girl power and promote wild self-expression to promote a “Badass with Heart” lifestyle, you might want to start from a different vantage point than this one:
LOLOLOLOLOLOLOLOLOLOL. Is this for real or are we being trolled?
We can only imagine the brainstorming sessions in the C-suite, the team huddled around while Doja Cat’s “Boss Bitch” blasts in the background.
Chief Marketing Officer: “So, our particular brand of badassery really seems to resonate with our largely female demographic so we think we ought to double-down on it. We recommend an influencer partnership with Doja Cat to drive the message home.”
CEO: “Love it but I’ve got an even better strategy first. Let’s lean in to the female empowerment narrative and then, first chance we get, show how we’re “Badass at Heart” by plastering my mug on the company website sporting a sh*t-eating grin and wearing a totally boring and un-badass plain white t-shirt with no women in sight.”
Chief Marketing Officer (sighing and muttering to herself Dr. Fauci-style): “Moron.”
Not that the influencer idea worked much either. After all, the Doja Cat influencer campaign actually did happen.
But to no avail. For 2021 through November, the debtors earned approximately $18.6mm and had negative adjusted EBITDA of approximately $14.4mm. Apparently a company presence of 3.6mm Insta followers and 1.8mm Facebook followers plus a partnership with an artist who almost kinda sorta dated Lil’ Dicky isn’t a predictor of success. Who knew?🤷♀️ We’ll come back to this.
The big question is: why wasn’t this company a success? And we know what you’re thinking: clearly a DTC cosmetics seller isn’t going to fare particularly well when people aren’t going out and doing fun stuff that requires makeup. Right? RIGHT??
Not exactly. As of December ‘17, the company was party to a $25mm unitranche credit agreement with Fifth Third Bank NA, under which the debtors currently owe $9.62mm on the term loan portion and another $13.85mm under the revolver piece. The first of a series of five forbearances started February 2019 — yes, 2019, a full year before the pandemic shut things down — after the debtors triggered certain events of default. The forbearances provided the company with some wiggle room but the most relief came from MidOcean Partners V-BH LP first acquiring over 60% of the equity in Q417, followed by more money in 11/18, 2/19 and again in 2020 and 2021. All in, MidOcean put in at least $32.5mm.*** “Too much money chasing too few deals” resonates right here.
In early 2019 — presumably in conjunction with the first forbearance and new equity check — the company’s then-CEO and founder resigned and the company brought in a new management team. Per the debtors:
After analyzing the Company’s business and becoming familiar with its systems and products, the New Management Team recommended material changes to the Company’s operations and branding to increase sales, profitability, and brand recognition. Specifically, the New Management Team advised the Board to use 2020 as a transition year to redefine the Company’s direct platform towards growth with new product development and unique strategies to obtain and retain direct customers, right size the inventory through connecting and efficiently utilizing the Company’s distribution and sales systems, and develop the infrastructure needed to sell product to various wholesale channels. (emphasis added)
This transition necessitated the aforementioned additional equity infusions — approximately $14mm-worth, in fact. With “funding secured,” the debtors were able to make progress on their plan, ironing out a variety of bumps including their distribution systems, brand development, wholesale sales infrastructure, and new product development, to name just a few initiatives. It was during this time that the debtors sought after and signed influencers like Iggy Azalea and Doja Cat to bolster their offerings. Query whether it registered with Ms. Azalea and Ms. Cat that they were practically on private equity payroll at this point as the funds they secured amounted to a literal wealth transfer from MidOcean directly to their pockets.
Query also whether Ms. Azalea and Ms. Cat knew they were boarding a sinking ship: the company’s revenue had, by that point, already fallen from $55.8mm in ‘19 to $33.6mm in ‘20. It bears repeating: the knife continued to drop in ‘21 with sales through November of merely $14.4mm.**** 😬
The worst part is that the company had developed its own in-house natural skin care brand but tabled the launch to focus on and fund those two influencer partnerships.
It’s worth noting here that Iggy Azalea has 15.5mm followers on Insta, 10.4mm on Facebook, 2.9mm on Tiktok, and 7.6mm on Twitter. Meanwhile, Doja Cat boasts 19mm Insta followers, 4.5mm on Facebook, 17.1mm on TikTok and 4.2mm Twitter followers.
Given the celebrity influencers’ large number of social media followers and vast networks, the New Management Team believed that collaborations with the celebrity influencers would deliver significant sales increases.
And yet:
Iggy Azalea’s partnership launched first in August 2021 and…well…it apparently didn’t go so well:
After the first launch of the Celebrity Influencer Product Lines fell below expectations, the Debtors’ Board directed the New Management Team to retain Riveron Consulting, LLC (“Riveron”) as turnaround advisors to assist the Debtors in managing their cash, explore all viable restructuring alternatives, and structure the Debtors’ go-forward strategy. (emphasis added)
It’s bad when your product fails so badly that you can draw a direct line from its launch to the hiring of restructuring advisors, lol. Then came Ms. Cat:
In August 2021, the Company negotiated the Fifth Forbearance Agreement, which included an amortization holiday for two (2) quarters to create additional liquidity. Both the Board and the New Management Team remained optimistic in a turnaround following the second launch of the Celebrity Influencer Product Lines in September 2021. However, the second launch of the Celebrity Influencer Product Lines also fell significantly below expectations, and the Company was left with no clear strategy to return business to growth and sustainability. (emphasis added)
Here’s a shot of company management from back in the summer:
Now might be a good time to mention that social media followers can often mean f*ck all. Did BH audit those followers while negotiating the influencer contracts to determine how legitimate they might be? Do they have research somewhere that says that fake bots buy cheap cosmetics, lol?
It probably doesn’t help that there isn’t — as far as we could see — a single mention of this beauty collab anywhere on Ms. Cat’s Insta account which is, frankly, frikken hilarious. Here’s her marking a sucker:
Honestly, if there was no specific requirement in the contract that she post this stuff on her social channels X number of times over Y number of months/years then what the bloody hell was the point of the collaboration in the first place?
In contrast, at least Azalea acknowledges her product’s existence:
Not that it mattered, apparently.
So now what? The debtors have engaged investment bankers to market a sale of substantially all of their assets, including inventory and intellectual property. The marketing process commenced in late September ‘21 and ultimately led to one draft term sheet but the debtors determined, in consultation with their lenders, that it was not actionable. It must have been a dumpster-scraping offer.
As further triage, the debtors hired a consultant to liquidate their physical inventory and factor their receivables; and they closed their warehouse and headquarters and surrendered both facilities over to their landlords. Plus:
The Board further determined that a sale (the “IP Sale”) of the Company’s intellectual property assets and related tangible assets (“IP Assets”) may be necessary to maximize the value of the Debtors’ estates, particularly given the strength of the market for distressed assets of comparable size and type. To that end, the Debtors retained Hilco Streambank to serve as consultant and sale agent to market and implement the IP Sale.
No doubt. Aside from mass torts, the only thing that’s seemingly keeping bankruptcy courts busy lately are IP sale cases (see, e.g., Puff Daddy and Jessica Simpson). Hilco subsequently lined up a stalking horse bidder for the majority of the debtors’ IP and inventory. The purchase price? $4.3mm — a staggeringly low figure that, absent a significant overbid, meaningfully impairs the pre-petition lenders and absolutely incinerates MidOcean Partners.***** $2.7mm of that price is allocated towards the IP with the remainder for certain inventory. The proposed stalking horse bid does have protections baked in: a $172k breakup fee and a $150k expense reimbursement.
The debtors have obtained consent to use the cash collateral of their pre-petition lenders to fund the cases. The first day hearing is scheduled for Tuesday, January 18 2022 at 1pm ET.
The debtors are represented by Young Conaway Stargatt & Taylor LLP (M. Blake Cleary, Allison Mielke, S. Alexander Faris) as legal counsel, Riveron Consulting (Spencer Ware) as CRO and restructuring advisor, and Hilco Streambank (David Peress) to sell the IP.
*The company also has a wholesale channel, primarily through Ulta Beauty Inc. ($ULTA) and “similar beauty stores.”
**All of this is literally taken from the company website so don’t @ us.
***The company doesn’t specify what the equity check was for MidOcean’s acquisition of its initial 63% slug so the above total merely reflects subsequent capital infusions that pre-dated, corresponded with, and then followed the various forbearances under the credit agreement.
****To be fair to Ms. Cat, it appears her makeup line only came out in September ‘21 so there’s no telling how much she’s contributed to the top line through ‘21. At the time, Mr. Rodocanachi again leaned into the “Badass With Heart” theme lol:
“Doja Cat is a true creative genius and we were honored to work alongside her to launch this special collection,” Yannis Rodocanachi, chief executive officer of BH Cosmetics, said in a statement. “She really is a ‘Badass With Heart’ — our brand manifesto at BH — and it was such a pleasure to embark on this epic adventure to make these concepts a reality. I’m so excited for everyone to experience this incredible project. This was a truly authentic collaboration from start to finish.”
We’re sure she thinks it’s real badass that her brand is now affiliated with chapter 11 bankruptcy. Jessica Simpson be like:
*****Thankfully the firm has spared the “Deal Lead”:
👍 Winners of the Week👍
1. Abuse Claimants in the Boy Scouts of America Case (Long Full Recoveries?). If the