Youngevity International, Inc., and BeneYOU LLC announced they have executed a non-binding Letter of Intent whereby Youngevity will purchase certain assets of BeneYOU.
Both Youngevity, a leading multi-channel lifestyle company, and BeneYOU, a nutritional and beauty products company, have acknowledged their plans to execute a definitive Asset Purchase Agreement in the coming weeks with an intention to close the transaction by the end of October.
“We’ve built BeneYOU on principles of integrity, hard work and progressive thinking,” said BeneYOU CEO Ryan Anderson. “Like Youngevity, we know making customers and Associates the most important factors in our decision-making process leads to their satisfaction. We are especially gratified that the consistencies between our companies are as strong as they are, and we’re hopeful that we can bring this transaction to a successful conclusion by the end of this month.”
Dave Briskie, president and CFO of Youngevity, stated, “Given the size of the integration and the amount of communication that will take place between both companies, we felt that disclosing where we are in the acquisition process was prudent. Assuming a successful close, we will share additional information regarding the transaction at that time.”
Youngevity and BeneYou sign Letter of Intent.
Youngevity will seek to close the deal by the end of October.
This move could bolster the direct sales arm of Youngevity.
Long time readers of my coverage of Youngevity (YGYI) are well aware that my bullishness on the company is related to the coffee and CBD divisions more so than the direct selling arm. It is not that I do not like the concept of direct selling, but rather that direct selling tends to run through cycles and explosive growth is not typically in the cards. Instead, the direct selling business tends to simply move along with a more organic growth.
This week Youngevity announced that it has signed a Letter of Intent with BeneYou for the purchase of certain assets. While the exact terms of the agreement have not been disclosed, it would appear that it may be more substantial than many might think. In the press release, CEO Dave Briske stated the following:
“Given the size of the integration and the amount of communication that will take place between both companies we felt that disclosing where we are in the acquisition process was prudent. Assuming a successful close, we will share additional information regarding the transaction at that time.”
There is a dynamic in the direct selling business that investors in any direct selling company should be aware of. The distributors can be very product loyal. In fact, they can be loyal to a fault. That means that Youngevity is not only purchasing assets, but will also likely wind up with a fresh crop of new distributors seeking to keep access to a product that they already like. In simple terms, deals like this in direct selling become expansion vehicles for the overall business. Another dynamic is that newly minted distributors will now have a fresh group of other products to look at and consider in order to meet the sales goals of their direct selling home based business.
Think about where this can go. Youngevity will have new products which it can expose to its existing down-lines. It will also have new down-lines which it can expose its existing products to. Think a step further. Youngevity can take those existing BeneYou products and incorporate CBD into them, creating a whole new category of product which can capitalize on brand and company loyalty.
As coffee prices rise, and the CBD market comes out of its recent growing pains, Youngevity will have a whole new set of built in customers to market to. Consider that the company recently launched its own Hemp FX line in Japan, and you can picture groups of distributors having a level of excitement about the prospects of growing business.
What do investors need to consider about this deal? In my opinion, investors will better serve themselves by being a bit cautious around this deal until the terms are better understood. It is one thing to get excited about added product and down-lines, but it is another dynamic to grasp what will be paid. Did Youngevity overpay? Did it pay fair value? Did it get a steal of a deal? At this stage, we simply do not know. Thus, placing a bet on this company based upon this news alone is a speculative bet whether you are playing long or short.
In my opinion, the thing that makes me bullish about Youngevity is its coffee business and its CBD based business. These have real potential to deliver compelling growth numbers and real profits beginning as early as Q3 of this year. The company has cleaned up its balance sheet greatly, is adjusted EBITDA positive, and has structured its preferred shares to combat the volatility of the recent action in the CBD space. Youngevity has several coffee, hemp, and CBD deals inked, and seems to be on the path to capitalizing on both coffee and hemp. I also like the built-in customer base provided by the direct selling aspect of this company.
The key with this company is getting some of the revenue from these big deals into the books and showing an actual profit. With three business arms, there is some insulation from bad news in any single sector. I feel that the Youngevity direct selling arm is slightly undervalued, but its coffee and CBD arms are very undervalued. In simple terms, there is room to grow with this stock purely on a valuation basis. Add a big deal, or a successful product line, and you could see the valuation gap close quickly. Stay Tuned!