M&A Announcement

Dec 19, 2019

Slides

a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jack Jansen, Senior Vice President of Corporate Business Development for Helen of Troy. Thank you. You may begin. Thank you, operator. Good morning, everyone, and welcome. On today's call, our CEO, Mr. Julian Minnenberg and our CFO, Mr. Brian Grass, will discuss Helen of Troy's signing of a definitive agreement to acquire Drybar Products LLC. Mr. Minnenberg will highlight the strategic rationale of the acquisition, and Mr. Grasps will provide a transaction summary. Following that, the operator will open up the call so that we may take any questions you may have for us today. Before I turn the call over to Mr. Mininberg, I would like to note that this conference call may contain certain forward looking statements that are based on management's current expectation with respect to future events or financial performance. Generally, the words anticipates, believes, expects and other words similar are words identifying forward looking statements. Forward looking statements are subject to a number of risks and uncertainties that could cause anticipated results to differ materially from the actual results. This conference call may also include information that may be considered non GAAP financial information. These non GAAP measures are not an alternative to GAAP financial information and may be calculated differently than the non GAAP financial information disclosed by other companies. The company cautions listeners not to place undue reliance on forward looking statements or non GAAP information. A copy of today's release as well as an investor presentation with further detail about the transaction have been posted to the Investor Relations section of the company's website at www.helenoftroy.com. These can be obtained by selecting the Investor Relations tab on the company's homepage and then selecting Press Releases and the Events and Presentations tabs. Please note that our comments today are limited to this transaction. We will be releasing and discussing our results from the 2020 during our 01/08/2020 earnings call. I will now turn the conference call over to Mr. Minenburg. Thank you, Jack, and good morning to everyone. Thank you for joining us today. This morning, we announced the signing of a definitive agreement to acquire Drybar Products LLC for a total expected cash consideration of approximately $255,000,000 subject to certain customary closing adjustments. This is great news for Helen of Troy as we will add an eighth leadership brand to our portfolio, add meaningful accretion to our key financial measures, add critical mass to our flywheel and expand our beauty product portfolio into the prestige segment of hair care with the Drybar line of appliances, liquids and accessories. The acquisition includes the Drybar trademark, other intellectual property associated with Drybar's hair care products, certain production assets and working capital related to the products business. Concurrently with the closing of the transaction, we will enter into a relationship with Drybar Holdings LLC, the owner and longtime operator of the highly successful and growing fleet of Drybar salons. They will use the Drybar brand in their continued management of all Drybar salons. For those of you who might be new to Drybar, it is a unique modern lifestyle brand synonymous with creating an experience where women can feel beautiful, happy and confident. Drybar opened its first salon in 2010, disrupting the industry with the simple concept of no cuts, no color, just blowouts. Drybar launched its award winning prestige hair care and styling products in 2013, making it the only prestige hair care brand offering blowout and a broad suite of liquids, tools and accessories. Drybar product sales have grown rapidly over the past six years to approximately $65,000,000 in expected 2019 sales, doubling since 2016 as the salon footprint grew and as distribution expanded to major prestige beauty retailers such as Ulta, Sephora and Nordstrom. For 2017, Drybar earned Ulta's prestigious Partner of the Year award across all supplier categories. Thousands of times every day, Drybar stylists exclusively use Drybar products to deliver amazing blowouts for the highly coveted target audience of on trend, young, affluent women seeking a high quality, fun experience. Those 3,000 plus stylists are a force multiplier for Drybar products. We believe Drybar is an excellent fit for our Beauty segment and for Helen of Troy as we can add value and take advantage of the many opportunities we see to continue to enhance the business. Our Beauty organization has been significantly upgraded, and we are bringing highly innovative products to market in The U. S. And internationally, generating strong results. Drybar will add a multi category leader to our portfolio in prestige hair care that will complement our Revlon and Hot Tools brands and extend Helen of Troy beauty across the good, better and now best segments. Drybar products are sold through premium retailers, which will add Sephora and Nordstrom to our beauty customer mix and will add to Helen of Troy's position at our major existing customers such as Ulta and Amazon. We believe Helen of Troy can add significant value to the Drybar brand and products through our expertise in appliances, new product development, sales, marketing, digital and brick and mortar category development and international. We also believe the brand's credibility with professional stylists will give us even more runway for growth with that critical professional audience. And we love the fact that the products are cruelty free and free of paraben, sulfate and phthalate, just right for our socially conscious consumers. At the corporate level, we expect Helen of Troy to bring significant additional value to drive our products through our scale, infrastructure, systems and operational excellence, generating meaningful synergies as we integrate. Financially, the acquisition will sweeten our beauty and consolidated Helen of Troy mix and put our capital and cash flow to work in a strategic investment that is immediately accretive even before expected synergies. Turning to the relationship between Helen of Troy and Drybar Holdings, we believe that this is a better together combination that will strengthen a moded powerhouse brand with significant growth opportunities. Helen of Troy will capitalize on its fifty years of experience in the beauty products industry, focusing on improving and expanding product innovation, distribution and marketing for Drybar. Drybar Holdings will continue on operate to operate the salons, now with a single-minded service focus to grow its salon footprint and delight even more consumers in The U. S. And abroad. The transaction we are announcing today will also include exclusive distribution for Drybar products to be sold at all current and future Drybar corporate owned and franchised salons. In each of them, Drybar's stylists proudly use and demonstrate only Drybar products and are incentivized through commission to sell them to their customers. Drybar expects to double its store count in The U. S. Over the next five years as well as begin international expansion in 2020. We believe that with this unique combination and each side focusing on its proven wheelhouse, we can further accelerate Drybar's presence in the prestige hair salon and product market with a business model unlike any other in the industry. Stepping back, we have been and will remain very disciplined in our assessment of acquisition opportunities. Today's announcement marks Helen of Troy's first acquisition since we acquired Hydro Flask in 2016. As talked during our May Investor Day, M and A is a key component of our growth strategy. Our primary goal continues to be adding businesses that offer a leading market position, offer the right fit to expand our portfolio, the right adjacencies to our wheelhouse and where we believe our existing capabilities can add significant value. The Drybar acquisition strongly aligns with Helen of Troy's capital allocation strategy of investing our strong cash flow in businesses that can accelerate our flywheel for profitable growth in Phase two of our transformation. We are very pleased to welcome Drybar's current CEO and the Drybar products team to Helen of Troy once the acquisition is completed. This talented and experienced team will report into Helen of Troy Beauty, providing immediate continuity for Drybar products and the relationship with Drybar Holdings. The products team will continue to operate from its current headquarters in Irvine, California and be located in the same office space as our new Drybar Holdings colleagues. With that, I'd like to turn the call over to Brian Grass to review the financials of the transaction with you in more detail. Thank you, Julian. I'm pleased to provide some background on Drybar Products' historical performance, the expected accretion from the transaction, some perspective on valuation and our expected post acquisition pro form a leverage ratio for the end of fiscal twenty twenty. Drybar Products has experienced considerable sales growth across its categories, supported by an expanding assortment of innovative products while driving substantial margin improvement. The business is projected to achieve net sales revenue in the range of $64,000,000 to $66,000,000 in calendar year 2019, representing growth of 15.9% to 19.5%. Pro form a with Helen of Troy's fiscal twenty twenty expectations would result in consolidated net sales growth of 3.4% to 5.4% compared to the pre acquisition outlook of 2.9% to 4.8% provided in our October earnings release. The business has a very attractive margin profile and on a pro form a basis would be accretive to fiscal twenty twenty consolidated gross profit margin by approximately 80 basis to 90 basis points and accretive to Beauty segment's gross profit margin by approximately three twenty five basis to three fifty basis points. Pro form a consolidated adjusted EBITDA margin accretion to fiscal twenty twenty would be approximately 40 to 50 basis points before synergies. We believe the valuation is attractive with an implied multiple of less than 13 times estimated calendar year twenty nineteen adjusted EBITDA before any expected synergies, which compares favorably to Helen of Troy's current EV to trailing twelve month adjusted EBITDA multiple of approximately 16.4 times. For the Drybar multiple, we are using mostly backward looking adjusted EBITDA for the full calendar year 2019, which is near completion. For additional perspective on the multiple, we announced the acquisition of Hydro Flask in February 2016 and reported a transaction multiple of less than 12 times using forward looking adjusted EBITDA for the full calendar year 2016. If we were to use the forward looking adjusted EBITDA multiple similarly for Drybar, the reported multiple will be lower than the reported multiple for Hydro Flask. We've chosen to use a pre synergy backward looking multiple for Drybar as we have not fully assessed the size and timing of synergy opportunities and also want to determine the level of innovation investments we will make going forward as we work to elevate Drybar products to the next level. With its prestige positioning and high price points, we believe we have the perfect opportunity to invest in meaningful new innovation for bar products that we can also apply across our portfolio of beauty brands. The dry bar products business is also very similar to Hydro Flask at the time of acquisition in terms of revenue size, historical growth rate, adjusted EBITDA margin, synergy opportunities and low working capital and CapEx needs. The transaction is expected to be immediately accretive to Helena Troy's consolidated growth rate, gross profit margin, adjusted EBITDA margin, adjusted diluted earnings per share and cash flow from operations and even more accretive to comparable measures in the Beauty segment. We believe the addition of Drybar products will meaningfully elevate the financial profile and portfolio quality of the Beauty segment, putting it on par with our other segments. Said another way, we believe the financial profile and valuation of Drybar compares favorably to our own businesses that we know well. We believe it also compares favorably to precedent transactions in the prestige beauty space. We will provide an update on our fiscal twenty twenty outlook, including the incremental impact from Drybar when we report our results for the third quarter on 01/08/2020. We expect to finance the purchase price with cash on hand in our revolving credit facility. Due to our strong cash flow generation and the incremental full year pro form a EBITDA from the transaction, we anticipate ending fiscal twenty twenty with a post acquisition leverage ratio just slightly above the pre acquisition ratio we reported at the end of our second quarter ended August 3139. As such, we believe we have sufficient dry powder to actively pursue the next attractive capital deployment opportunity that is right for us. With that, I'll turn the call over to the operator to take your questions. Thank you. At this time, we'll be conducting a question and answer session. You may press two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Bob Labick with CJS Securities. Please proceed with your question. Hey, Hey, good morning. Congratulations and happy holidays. Yeah, thanks. Much appreciated and same to you. Thank you. I know you mentioned this, but you guys gave a lot of really good information there. So maybe just to start, my first question, you could talk about how this deal is better together. Like the better together aspects of Hydro Flask have been fantastic and well noted. Talk about the opportunities here. What are you bringing to Drybar products that they couldn't or didn't do on their own? And how this will help grow beyond just financial synergies? Yes, understood. I think this is a classic example of better together, which we've talked about a lot over the years. It really starts with the capabilities of the two companies. Drybar Holdings has focused primarily on the salons. They've done nothing short of a spectacular job. They've disrupted the industry. They've launched 140 stores. They've had tremendous growth, tremendous success, accumulated a base of millions of satisfied consumers. They're very good at it, and they're absolutely committed to doing more. The idea is just in its early innings and we believe and so today that there's a lot more in area. Having them focus now 100% on their proven area and the vision that they have for the franchises and further corporate stores all around the world is a huge unshackler for them to double down in their area. The products area has also been tremendously successful, but it's not their natural wheelhouse. Because the prestige category, hair care and this brand in particular have been growing so strongly and they've done such a great job, the result is a brand that's largely independent from a product standpoint, but nonetheless benefits from the salons and all of that strength. That's where Helen of Troy comes in. Helen of Troy is fifty one years in consumer products, specifically in beauty. Helen of Troy has a long track record of success in appliances. These types of liquids bring an incredible difference versus the personal care type of liquids, where compete more in mass. And then our entire infrastructure scale, shared services, sourcing, our tax structure, human resources, ERP, all of this is built for a multibillion dollar company that is ready for acquisition and has proven many times it can do so. So you put that together, it's the mother of all better together in my view, and it frees us as well to focus on our wheelhouse, where we know that we're strong, where we have a long track record of success in focusing on products. Then you take the relationship, where we're highly connected or will be when the transaction is completed to drive our holdings. And that partnership gives us the opportunity to do for the brand what neither can do alone. And then the last point is the brand itself gets a bit of a moat around it, which it already has between the model, but now the power of the two companies and that unshackled nature, that sounds like better together to me. Well, Bob, I would just add, this is Brian, that what we like is the prestige positioning and the high margins, we think allows us to focus a lot of investment in innovation and really come up with some new and interesting products, which we're already doing for our base appliance business, but we think we can accelerate that even further with the combination of dry bar and the high margins and take a little bit of that margin and invest it and really accelerate the innovation that we can introduce to iBar or Drybar and then apply across the other brands in beauty. So we see a lot of synergies with respect to new product innovation and kind of using the margin lift that Drybar brings to fund continued and accelerated innovation. So a lot of synergistic attributes of the combination of the two. Yeah, that sounds fantastic. Sounds really good. Just real quick on their sales. Can you give us perhaps a breakdown of appliance sales versus liquids and their sales to their internal salons versus external retail sales? Just kind of general sense of each of those things. The breakdown on the categories, it's about fifty-fifty split is the right way to think about it. It fluctuates a little bit back and forth, but fifty-fifty is a good rule of thumb. And then on the breakdown to salons versus the rest of the group, I mean, can think eightytwenty, but that's probably going to also bounce around a little bit. Just as a rule of thumb, I would use the eightytwenty as a rule of thumb, not And just for clarity, the eightytwenty is 80% outside of and the the 20 range, inside. It will change. The big retailers are opening doors. .Com is growing fast. We're getting very good at digital. Amazon is added to the mix now. So you can see why that would be dynamic. And then the salons themselves, as you may have seen in our materials, are looking to expand, and in fact double their footprint in the next five years. Not all stores will be exactly the same size and yet they'll all have prominent display of the Drybar products, inclusive use of the Drybar products. So it's a big channel expander for us. They've been very at getting big wins in these other retailers to the eightytwenty point. And we believe that because it's in our customer base and we're even adding some new stuff that we can do a lot more in the customer base, both in the 80 and with them now in the 20. Well, and I would just add, Bob, that with the way we model this transaction, we even though they have strong expansion plans for the retail stores, we derisked, we believe, the model by not necessarily banking on all that planned expansion. And so our modeling actually has the percentage of revenue coming from the stores decreasing over time. Although that is not their expansion plan, we felt like to derisk the model, it was better to model it that way. And we believe even with a lower dependency on store revenue over time, the model is attractive and supports the acquisition very well. So hopefully that gives you a little color. Our view is the products stand on their own. It's kind of icing on the cake that you have the stores and the halo effect from them to continue to supplement, the growth that we think we're going to get, to outside customers. Got it. That's great. And then last one for me, I'll get back in queue. Maybe just taking a half step back, how did the transaction come about? Can you just give us a little background of was it Chopped? Was it a relationship you already had? What was the impetus for this relationship? Hey Bob, this is Jack. It was a process we, as you've heard us speak about before, we look for opportunities both through the investment banking side and then also through other various opportunities, whether it's private owners, private equity. This one happened to come through investment banking in a relationship that we had, and there was a fit. They ran a competitive process. And ultimately, we liked what we saw. You've heard all the reasons why this was a bit versus our criteria. And today we're announcing the transaction. So we're pretty And excited about as part of Phase two, we said in our Investor Day back in May that we have amped up our footprint in our internal M and A group. So it's great to have access to the deal flow. I personally happened to meet John Heffner, the CEO current CEO of Drybar at a CEO event a few years ago. He's an absolute phenomenal guy. And it was just very clear that there was a potential for mutual interest. All the things that Jack said occurred and nice to have our ear to the ground, nice to be in the right place and we're very pleased that even in a competitive process, Helen of Troy was able to distinguish in itself and earn a spot as a great partner for the salons as well as just the right fit to buy the products business. Okay, super. Congratulations. It sounds super. Thanks Bob. Thank you Bob. Thank you. Our next question comes from the line of Olivia Tong with Bank of America. Please proceed with your question. Great, thanks. Good morning. Couple First, of things can you talk to the growth rate over the years? Was it just a huge start? And then now it's sort of settling to very strong growth, clearly above Helen of Troy rates, but slower than it had been in the past? Or is the addition of all the different things, whether it's incremental tools, accessories, liquids, etcetera, keeping that growth rate pretty steady over the last couple of years? Yes. I mean, it's a great question. Mathematically, the law of small numbers, you might think anything that grows at an accelerated rate in the beginning is going to have bigger percentages than later on if the law of larger numbers kicks in. And that said, the growth rate has been consistently very strong, double triple digits, I believe, in the beginning, double digits now and high double digits even in 2019. While we're not talking about our projections as a company yet for fiscal twenty twenty, we like very much the growth prospects for the brand itself and see it continuing to grow at similar rates to its historic past. So this is not something that had a boom and has somehow leveled off and we're buying the flat years. We're buying into meaningful double digit growth and well above our fleet average, which itself is accelerating. So to accelerate our base plus buy something that is growing fast and makes us grow faster and helps beauty grow faster. As Brian mentioned in his call, brings Beauty way up in terms of its profile within our multi segment portfolio. That's a great deal, and we're not buying the flat or down part of a curve. It's the contrary. Well, Olivia, I'd just add that as we model the transaction, we spent a lot of time on the white space, future white space and the building blocks of the business and we feel comfortable and we know a lot of the customers and opportunities and we understand international, which is a building block. So we felt like we had a lot of good perspective on the building blocks And we feel like we even derisk those building blocks and still have very strong growth rate. So, no, to answer your question, I mean, because of the lot of large numbers, you won't have the same growth rates you had as the products were just introduced. But there's as Julian said, there are still very strong growth rates we see now and going forward. Got it. Across the portfolio, how different do you expect the growth rates to be between appliances, consumables, hair, accessories? And then as you think about expanding this near term versus long term, How much as you sort of segment the priorities, is further expansion in The U. S. The first priority before international? Is it both at the same time? Or is there another opportunity to speak of? Sure, so on the growth rates across the categories, whether it's tools, liquids, brushes, accessories, we see growth in all of them. The tools are growing with new products. They have some wonderful innovation. There's even some new items out in the marketplace this holiday season in tools. The liquids and accessories are growing even faster than the tools, both come at significant gross margins and well above Helen Troy's average as you heard from Brian in the pro formas. And then the brushes, combs and accessories are also growing, but the smallest part of the business, the tools and the liquids are really sort of the fifty-fifty so to speak of the two. And in terms of growth rates, not only all of them growing, but all of them growing faster than us. In terms of investing in them, we'll invest in both and it's important because of the business model. The way it works is with those stylists using these products every day, the complete blowout experience that the consumer gets in those shops is a source of delight. They need to walk in feeling like they're going to have a great experience and walk away not only looking great, but feeling great and hopefully with a bag of these products that can help them maintain their look at home or enjoy the same that they got from the hands of a professional stylist in the store. So we'll invest in both and we think they'll grow. The proliferation of liquids is impressive, in this brand and we think there's more possibilities and we ourselves bring an awful lot to the party in terms of tools, brushes, accessories, etcetera. And in terms of the international versus The U. S, the history of those 140 salons are U. S. Salons today. There's been a lot of inbound inquiry to drive our holdings on the subject of international expansion. They've made some terrific deals going forward outside of The U. S. They will be announcing them at the appropriate time in 2020. We're very excited about them. And we believe that the international expansion will not only be attractive, but in parallel to significant further expansion in The U. S. They've done a major study of sites and locations and store potential in The U. S. And literally see the ability to double their store count with the majority of those being in The U. S. Over the next five years. So lots of ways to grow, I think is the shortest way to say it. Got it. Two last questions around the math. Just the accretion expectations, you talked about sales and margins. When we get to EPS, just given obviously the cost of financing the acquisition, is it fair to assume that the accretion in percentage terms is similar to the top line impact? And then just to clarify, in terms of the outlook for fiscal 'twenty, you're thinking this is the addition the numbers you gave in terms of accretion, that's the addition to your existing outlook. So your expectations are all in inclusive of Drybar should result in the outlook for sales margin EPS to be ahead of your pre dry bar outlook. I just want to clarify that. Yes, all ahead of the pre dry bar outlook, but just be careful with the accretion. What we gave you in terms of the expansion to growth and the margins was a pro form a calculation using calendar year 2019 pro form a with our fiscal twenty twenty expectations on a full year basis. So that's how those numbers and they should be proportional as they go layer into Helen of Troy. But I just want to be careful and make sure you understand that those calculations were pro form a on a full year basis, putting their full fiscal year in with our full fiscal year. Does that make sense? Yeah, yeah. I understand. It's more of the trying to understand when you get to the bottom line, the accretion, and then also just clarification that your numbers, pre Drybar to post Drybar, the outlook should be going up for the inclusion of Drybar. Absolutely. So yes, we didn't provide EPS. We will provide that when we give our earnings release in January. And you asked whether it would be proportional. And I'd say, yes, directionally, should be proportional to the EBITDA accretion. The only thing in there that might wiggle some is taxes. We do expect to get tax efficiencies in this transaction. So if we're able to do that, actually, the EPS accretion might be a little bit proportionally better, in that regard. The only thing you need to account for is the extra interest that we'll have from the debt. But yes, I think you're in the ballpark on you can sync up the EBITDA accretion with the EPS accretion. And yes, it should be accretive just for the period of time that will fall into fiscal twenty twenty. Great. Thanks very much. Thank you. Our next question comes from the line of Linda Bolton Weiser with D. A. Davidson. Please proceed with your question. Hi, so I'm wondering, in terms of your ability to expand the distribution for the products, I mean, don't really have a ton of stuff. I mean, you do have a bunch of product that goes into Ulta, but I'm not aware that you sell anything into places like Nordstrom, for example. So maybe you could outline how you think about expanding the distribution for their products. And also, can you tell us of the 80% that's sold to outside parties, what percent for them is e commerce versus brick and mortar? And I'm assuming your competencies in e commerce can help them quite a bit. Thanks. Yes. Linda, it's Brian. I may not understand the first part of your question. You mentioned Nordstrom and and that we don't sell into them. Are you referring to to the current beauty segments? Yeah. No. Yeah. What I'm thinking about here is how you can help Drybar expand their product sales. And my thought is that you supply mass retailers and that they supply high end retailers like Nordstrom. So there doesn't seem to be any synergy or any any way that you can help them because you don't you supply mass. So can you help me kind of understand how you're going to help them expand their distribution for their products? Yes. Thanks, Linda. Julien here. Let's start with Ulta. It's big. It's big for Drybar. It's big for us. Excluding Drybar, Helen of Troy through its Revlon and Hot Tools is one of the biggest players at Ulta in the appliance area itself, a two time winner of Vendor the of the Year award from Ulta in the appliance area. So, to say we have a significant presence relationship and we're very proud of the partnership between us and Ulta. Drybar itself has also done a good job at that customer. Now with the good, better, best approach, the opportunity to work across the shelves, not just there, but in other places, gives us a chance to work with customers like that one to do even more. And there's enormous respect between us and the customer as well as the brands in their independent ownership and now hopefully in their combined ownership as the deal closes. Ulta is opening new stores and there's an opportunity there to better segment and to deliver. In the case of areas like Sephora and Nordstrom, we do much less. So this is good in the other way. We may not add incremental shelf space there through, the relationships, but we will through new products. Helen of Troy is an innovation machine. You've seen that across the entire company driving our mid single digit growth during transformation phase one and now already into the early days of transformation Phase two. And in Beauty in particular, our new product development capability, particularly in appliances has been significant. You've seen, the results, especially in the creation of the volumizer category, and the ability to bring innovation, that we know how to do and that Drybar is less focused on in the products area is a huge opportunity to expand shelf space with winning products based on that track record. We've got a long line of people in the engineering, in process and other capability. There's speed outside on the ground outside The U. S. By the hundreds who are working across the global go to market capability. And in our sourcing groups, our engineering teams in Asia, for example, there's a large infrastructure. So we think we have a lot to bring to the party in terms of new product development to expand shelf space for Drybar in those stores. And then looking at mass, this is a prestige brand. It's not our expectation to bring it to mass. And that said, on Amazon, where many things are sold across tiers, we have done very well at Amazon. You know that more than 20% of our sales are online. And I think we said in our last public call that something on the order of two thirds of that is related to Amazon. We've gotten very good at digital. We have a lot of resource and a lot of firepower to add to what Drybar already does. And they themselves have only just gotten started on Amazon. We think we can do a lot more there. So there's a bit of a slice across the customers. Then you add others, like Macy's, as an example, where we do business and they are just starting. So we have some know how there. And then in the international front, as I mentioned before, they do not distribute today, but we do. And there's opportunities there with that footprint on the ground. Great. And can I also ask you, it's kind of interesting about your owning the brand now and that you would be collecting like a royalty fee from the salon chain? So I'm thinking if they have about $100,000,000 of revenue or so give or take and you might get a royalty of 3% to 5%, is that 3,000,000 to $5,000,000 of annual profit that we can count on? Yes. Let me start here and Brian may have some things to say here too. First of all, like with all of the license agreements at Helen of Troy, the terms are confidential and therefore we don't disclose specific terms or rates like the ones you're asking for. The full economics of the acquisition will be incorporated into our go forward guidance. So you'll be able to see the upside, not just in the accretion, but in all of our numbers. And then all in, the EBITDA margin on the acquired business is in the high 20s. And so regardless of how it apportions out among the different parts, you're seeing something that's highly significant. It's higher than Helen of Troy. It is accretive. And so it's hopefully helpful to see that it comes from the full package and the full package of the brand is a winning one. So Linda, it's Brian. You can I think we're comfortable with counting on EBITDA margins in the high 20s on a go forward basis? And that's all in economics where we don't break down royalties versus sales and disclose the terms of those agreements. But hopefully, EBITDA margin in the high twenties is attractive to you. We think it's attractive. Yes. Yes. It is. Thank you. Congratulations. It's a great great deal. Thank you. Thank you. Our next question comes from the line of Steve Marotta with CL King and Associates. Please proceed with your question. Good morning, Julian, Brian, and Jack. I have a quick question about the competitive landscape. Can you talk about Drybar? How it fits in with the marketplace? Were they first or second movers? Are there larger players in the industry? Can you just talk a little bit about who else is out there doing something similar and how big they are? Yes. So yes, good. Hi, Stephen. Thanks for joining today. In terms of the salons, I'll speak a little bit and then also on the product side. So in the salons, they are not only the first mover, but the major disruptor. They brought the concept to market in the beginning, the idea of just blowouts, no cuts, no color. And this has not only gotten them the footprint of 140 stores and counting, but to our knowledge, there's no major player that's even close in terms of store count. In terms of impact on consumers, they've managed to create a level of awareness, a buzz and a respect in the industry, where there's no one else on the salon side to our knowledge, that has earned that kind of reputation. There's not a lot of market share data that we're aware of, so to say, they're number one with X number of SharePoints and Y number of SharePoints lead over the next guy. We don't believe there is data like that. But we do feel comfortable, saying that they are the leading player in the blowout focus concept, for The United States. There are other folks, there's lots of blowout bars out there, but none of them have this kind of first mover, none of them this kind of footprint and none of them this kind of reputation awareness. They basically like the Kleenex of this industry. They've just earned it. That creates a brand that has awareness and the prestige profile. You can see it in their margins. You can see it in the price points. You can see it in the way the products are displayed, the kind of distribution they have, the delight from consumers if you read the online reviews, the repurchase rates, all kinds of indicators that those things carry through. On the product side, there are quite a few prestige product competitors. So now you're on the appliance side, in the world of the Dyson's, the GHDs as examples with Drybar. And on the liquid side, as we mentioned in the investor deck that we posted on our website and also in our prepared remarks, Kerasas, Aveda, Devicurl are examples, Bumble and Bumble are the kind of players. You then compare that to the items that we sell today, which are either in the mass or pro channels, thinking of Revlon, Hot Tools, Professional as an example. Or on the liquid side, where we're really, it's not a comparison. You're talking about fast moving consumer goods in the mass market, the personal care space, it's not the same thing. So you get the idea. I hope that there is an absolutely distinctive business model for Drybar. It's not only extended across the brand, but into the products, both for appliances and liquids and it puts them up against a tier of players where you've heard already the growth rates and their ability to compete. And we think we can add value to that. Steve, hopefully it's a competitive landscape. Yes, would just make try to make the point that they're the leader. We believe they're the leader in the services category and they're the only brand that's scaled across services, appliances and liquids. So we think that that's an advantage and has a huge halo effect. They've no one else has done that in terms of the scale across those three categories. So, you know, we view them as as having a leadership position in many ways. There are competitors in services, there are competitors in appliances, and there are competitors in liquids, but they're all different. There's not a single competitor that competes in all three. That's very helpful. And I realize that you won't be directly running the salons and that's a licensing agreement. But I'm just curious as to the split between franchise and corporate owned currently and if you expect that dynamic to change over time? Yes. This is primarily in the kitchen of the salon, the salon group, but there are important number of corporate stores today and franchises is a faster growing part of their mix. There will be some corporate, but even more franchise in the future. Sometimes when people hear about franchise, they might think, oh, that's an area to lose control. We've been extremely impressed by the Drybar's group's ability to manage their franchise network, because of the caliber of what Drybar is in terms of Drybar Holdings, know how and, kind of a type of business proposition. They've been able to attract the top franchisees outside of The U. S, the top area developers and they're in a position where they're picking among the best. The agreements that they have and the oversight and the collaborative nature of which they work with the franchisees, is not only impressive, but it makes for a seamlessness terms of whether they're corporate or franchise based. And in terms of our agreements, with Drybar, assuming the transaction closes as expected, on the timing that we have already announced, We believe that the we know actually that the agreements cut across corporate and franchise stores equally. So the policies, the way the products will be displayed, the behavior of the stylist, exclusivity, the prominence, the pricing, all this stuff, there'll be no difference between a franchise and a corporate owned. And then last thing I would say is that the financial incentives are also nicely in place. The products business is highly profitable for Drybar, whether it's an owned store or a franchise based store. And because the agreements are very careful about how the behaviors are across the two, you should see a very consistent product and you should see people wanting on the Drybar holding side to make the products business extremely successful, whether it's franchise or corporate owned. That's very helpful. Thank you very much. Thank you, Steve. Thank you. Ladies and gentlemen, this concludes our question and answer session. I'll turn the floor back to Mr. Mintenberg for any final comments. Great. Well, thank you for joining us today and for discussing this transaction. As we've talked before, we're very selective in our M and A work, and we're very excited to add Drybar products to our portfolio as our eighth leadership brand. We love the fit and the opportunities that we see ahead for us, both in the brand, in beauty, and as it takes advantage of all we've built in Phase one of our transformation and now into Phase two as the company goes forward in its overall strategic plan. We also look forward to discussing this acquisition in more detail during our earnings call in January as well as at the ICR Exchange Conference. So have a great day and thank you very much. Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.