Paul Gedman just loves data.
Along with former THG colleague Andy Duckworth, he founded Manchester-based eComplete in 2020, to disrupt the world of private equity.
eComplete’s first investment – a cool £50m in CurrentBody- made headlines recently when its parent company, The Beauty Tech Group, floated on the London Stock Exchange with a valuation of £300m.
As part of the IPO, eComplete sold 30 per cent of its stake in the company and rolled the remaining 70 per cent over.
“I’d actually regret it for a long time if we sold 100 per cent at £300m,” he told The Dealmaker Uncut podcast’s co-hosts Jonathan Boyers and Chris Maguire.
CurrentBody was the first of four investments made by eComplete and Gedman is currently in the middle of trying to raise another £100m for more investments.
THG
Before setting up eComplete, Gedman was the CEO of THG’s Beauty division, helping grow turnover to £600m, across 40 territories, aided by 10 acquisitions.
He joined forces with former Myprotein CEO Andy Duckworth in 2020 to launch eComplete to provide an alternative to private equity with a data-first approach.
He said: “After studying the private equity (PE) model we were surprised to find there are no leading specialist Direct-To-Consumer (DTC) investors who could actually help founders and management teams and we were underwhelmed with the returns of the top quartile firms.
“We felt with our experience and understanding, we could more efficiently identify winners with big potential, help accelerate growth, internationalise and unlock bottlenecks.
“Traditional PE firms look for strong brands, categories, management teams that can grow, they focus on financial models and look for references of similar success stories.
“They tend to boil the ocean with excessive due diligence (DD) and prioritise downside protection in deal structures.
“We get conviction from DTC proof points, not financial models, we use hundreds of data points to understand the opportunity, we use real relevant info.
“Unless you have been an operator in DTC you don’t understand what you are looking at or how to effect change.
“We do our own commercial DD in house, our growth plan, we understand the risk and reward better as we are operators.
“Our due diligence is a three-year plan of action from day one, to derisk, to accelerate to internationalise and to remove costs. We do this by deploying eComplete expertise into the assets to execute alongside current teams.”
Gedman told The Dealmaker Uncut podcast that the success of CurrentBody (now The Beauty Tech Group) had vindicated their approach.
Founded by Laurence Newman and Andrew Showman in 2009, The Beauty Tech Group has established itself as a leader in developing and retailing advanced at-home beauty devices via its three brands – CurrentBody Skin, ZIIP Beauty and Tria Laser.
Gedman said: “Laurence and Andrew have been great, and I have to mention Sam Glynn, the CFO and COO, who is treated and considered a founder due to his impact.
“I’d confidently say they think well of us, and what did help is that they had been through a few rounds of PE, so they were used to these processes.
“As we have been in their shoes, and had eComplete employees helping to execute some of the clear growth opportunities, we were clear partners in the trenches with them as equals.
“Problems are joint problems and wins – with the ultimate being the IPO – were things we could celebrate together.
“It was also our first deal so that experience and their feedback really helped shape our model and we are so much better today for that experience.”
eComplete second investment was in Give Me Cosmetics and they’ve now got two more deals under their belt.
Explaining their approach Gedman said: “If I have to be very specific, it’s always product and repeat rate but we have a detailed investment scorecard that rates and ranks 40 different data points, gross profit (GP), average order value (AOV), growth, customer acquisition costs (CAC), compliance risks, growth opportunities, valuation, etc.
“The overall average score is key to get us motivated to run hard at a process but it’s our commercial due diligence (CDD) output that is effectively our three-year plan that we invest on.”
Decision to IPO
Explaining why The Beauty Tech Group went down the IPO route he said: “The PE market is not in a good place for consumer brands of DTC.
“The Beauty Tech Group had blown the lights out against all its metrics but it’s a new category with no global DTC brands predecessors and consumer is out of favour.
“It was a simple choice: Do we wait for PE to recover its appetite for consumer and find one firm that would write a £300m cheque or was it more likely for us to raise £100m to sell 30 per cent to 20/30 public funds?
“We discussed it many times. Commercially it made sense for me and Andy from eComplete’s perspective but there were a few more dimensions to the decision for Laurence, Sam and Andrew. It was easy for us in comparison.”
Gedman, who has previously raised £100m, said raising funds was never easy but the success of The Beauty Tech Group had helped.
Trading reputation for capital
“Raising money is hard,” he admitted. “You’re trading your reputation for capital, you’re betting your professional life on each acquisition. We cannot lose.
“Reflecting on what we have got done this year and the opportunity ahead is exciting, we are going to accelerate our plans now we have started to prove the model.
“The time we are in is very unique. Consumer brands are unpopular, DTC brands are unpopular, which goes to price, with the shift from social first to AI first that is round the corner.
“There is a moment in time to hit all the key levers you have to create value in PE, enhancing EBITDA, multiple arbitrage and cash generation.”
Gedman predicted AI would change the landscape for everyone.
“A business with 50 people today will have 20 in 2/3 years,” he said. “What happens to upper funnel brand when ChatGPT steals 50 per cent of search?
“The best businesses are formed in downturn scenarios. The fact that no-one is interested in consumer brands and DTC really excites us, especially when combined with AI.”
The Dealmaker Uncut is co-hosted by Jonathan Boyers, Head of Alvarez & Marsal Corporate Finance, and Chris Maguire, Executive Editor of BusinessCloud. You can listen to the Paul Gedman interview here