Episode 67: Quad Lock, Chemist Warehouse, waiving HECS, Tech Sector Job Drought, and the Importance of CFOs
The guys talk about the Quad Lock success story, Chemist Warehouse, the stupidity of waiving university debts, the great tech sector job cut continues, and why it's hard to hire the right CFO.
The Contrarians catchup
Adir played on the Royal Pines Resort Golf Course last week and got asked to play at Royal Melbourne, but is worried his handicap isn’t strong enough to be on the prestige course.
Adir flew business class on a Virgin Australia flight but ordered off the economy menu because pork was the only option on the business class menu, and was charged $12 for a sandwich.
The guys take the time, two weeks later, to discuss the US election and where it went wrong for the Democratic Party.
Adir: “Can you believe that anyone is seriously talking about reduction of HECS debt? Is there ever a more brutal $10B plus tax cut handed out to the future rich than waiving HECS debt?” Adam: “Why would you steal Biden’s dumbest policy?”
Adir splashes out in two areas: travel and body/handwash. For the latter, he got Molton Brown heavily on sale through OZSALE, but the wheels fell off with the last mile delivery which unravelled an otherwise seamless customer experience.
Chemist Warehouse is so Sigma
In December 2023, Sigma and Chemist Warehouse entered into a merger implementation agreement under which Sigma would acquire all the shares in Chemist Warehouse in exchange for Sigma shares and a $700M cash consideration.
Upon completion of the proposed merger, Chemist Warehouse shareholders will hold 85.75% of the ASX listed merged entity while Sigma shareholders will hold 14.25%.
The ACCC has approved the merge and a recent valuation put the combined business at $30B.
Adam: “There's no way it's a $30B business at $600M earnings. It's just not right. I don't know if that number was wrong or speculative, or if it was sort of $7-10B. That's a well-valued business. But it's a very well-run business. I think the big question is on the addressable market. But it's clearly been one of the great Australian retail stories for the last 30 years.”
Quad Lock Sells for $500M
Quadrant, the high-profile Sydney-based private equity firm, has traded a 60% holding in Quad Lock to Swedish giant, Thule. Thule has agreed to acquire phone mount retailer Quad Lock for $500M, equivalent to 10 times of its EBITDA.
During Quadrant’s four years of ownership, Quad Lock sales grew from 48M to 200M.
Adir: “When I look at the business [Thule], they need to try and find a way to stimulate growth because that's a well-run business. They just don't want to be ex-growth. Now, we live in interesting times where a business that we could be talking about having concerns is ex-growth and trades on 30 times earnings.”
Adam: “What's so great about this story is essentially it's such an unusual product that people need. I think they're probably the best in class of the product, but it's not as if they’re that much better than anyone else, but they charge a huge premium. They've got this incredible brand and the the whole site experience is excellent. They just they feel like a digitally native business and have turned this commoditised product into a really great, cool product.”
The employer-employee power struggle is Meta
Meta made news recently for firing staff who used $25 meal credits to buy household items.
The Wall Street Journal also noted this trend isn't exclusive to Meta, and as the employer-employee power struggle tilts more and more in company's favour, we're seeing some businesses using strict rules to really make an example of rule breakers or reduce payrolls without having official layoffs.
Adam: “The point is if you really want to keep somebody, if someone's really good, you're going to overlook someone taking 25 bucks in a sort of cheeky way. Ultimately what they should do is just tighten up their procedures. So it's partly Meta’s fault for being too trusting. But obviously the employees have done the wrong thing. Nobody's saying that happen, but it feels like a super harsh thing for a relatively immaterial amount of money.”
Adam: “If you're tenured and you're doing okay, you're taking a big risk moving to a different firm, because that person at that new firm could cut staff in six months, you don't have the longevity.”
Adir: “My general view is what most people should be doing is finding a company to work for where the work is enjoyable a large chunk of the time, they're learning, and that they feel like they're being treated respectfully by their boss and by the company. And the salary they're earning is, at the very least, a fair salary to be paid. And if you are in that position as an employee, then I'll be very, very careful in any economy upsetting that applecart, because most people do not leave for a 50% increase in salary.”
Listener question
I'm interested in hearing your thoughts about what makes a great CFO different from an average CFO. I understand what a great CEO can do and a great CTO, but I'm not clear essentially how like what a great CFO looks like and and had actually fun one. And I would love to hear you talk about it on the pod.
Adir: “The first thing is the best CFOs are fundamentally numerate people, which sounds a bit ridiculous, but lots of people whose job it is to do accounting and then they move through and become CFOs, they don't necessarily have a natural feel for numbers. They've just figured out how to manage the numbers, and they know how the accounting rules work. You and I, when we look at a spreadsheet, what we have in common is it pretty much pops out at us when there's something on that spreadsheet that looks like it's absurd or can't be right, or you look at some numbers and you say, that can't be right.”
Five other stories worth following:
Bluesky, a social media app founded by former Twitter boss Jack Dorsey, gained 2.5M+ new sign-ups after Trump’s reelection. At the same time, Elon Musk’s X saw the largest user exodus since 2022.
While bitcoin grabbed headlines and set records after Trump’s win, it’s been dogecoin that’s seen outsized gains and trading volume. The OG meme coin is up nearly 120% since the election (vs. BTC’s 30%), with alts like dogwifhat and pepe riding its coattails.
Netflix reported that a record 60M households watched Jake Paul defeat Mike Tyson last Friday, explaining the 95K+ reports of buffering and other tech issues. The fight also generated $17.8M in ticket revenue, making it the largest boxing gate outside of Nevada.
McDonald’s is shelling out $100M to win back customers after the E. coli outbreak that sickened 100+ people. The company will spend $35M on marketing — including a chicken nugget value deal — and $65M on the franchises most affected by the outbreak.
ByteDance, TikTok’s parent company, valued itself at ~$300B in a recent share buyback offer. The valuation comes despite the Biden administration’s law that would ban TikTok in the US unless ByteDance divests from it by mid-January.