Wall Street Finally Figures it Out

Wall Street Finally Figures it Out
Jennifer Leigh
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:
1. The network marketing business model has passed the acid test and is here to stay.
2. Network marketing does well in every economic cycle.
3. It has the potential of creating perpetual accelerating momentum.
4. 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