- Playboy Enterprises to merge with Mountain Crest Acquisition Corp (ticker: MCAC)
- Company name to change to PLBY Group, Inc., to trade under “PLBY” on Nasdaq
- Ebitda forecast to quadruple to $100 million by 2025
- SPAC share price implies enterprise value of 10.3x 2021 Ebitda, well below comps
- Playboy completely out of magazine publishing business, moved onto consumer and digital
- Owners including CEO Ben Kohn rolling 100% of their equity into new business
- Top growth area is sexual wellness, boosted by shelf space at Walmart, CVS
- Licensing deals lock in at least $400 million of cash flow in coming years
- Leverage under 2x Ebitda leaves ample room for M&A, likely in wellness or apparel
- Playboy boasts strong ESG credentials with independent board, social responsibility
Playboy. One of the most recognized brands in the world, perhaps only behind Coca-Cola or Nike. Now, with the company under the right leadership, its financial performance will once again turn heads.
Playboy Enterprises will return to the public markets after merging with Mountain Crest Acquisition Corp (ticker: MCAC), a special purpose acquisition company that raised cash to find a target. Investors who buy MCAC shares now will see them automatically convert to shares in newly-named PLBY Group, Inc., which will trade under the “PLBY” ticker on Nasdaq once the deal is formally approved.
The first thing investors need to understand is that Playboy is no longer a magazine. It’s not even an online publication. Instead, current management led by CEO Ben Kohn will harness the brand power cultivated over the last 67 years and monetize it through the most attractive channels. As an experienced private equity investor, Mr. Kohn has no attachment to the company’s legacy model but is focused on maximizing cash flow. While there may not be a buck in magazines anymore, there is tremendous scope to grow the brand in everything from apparel to lotion to digital gaming.
Perhaps the category with greatest immediate potential is sexual wellness, which includes everything from condoms to topical sprays to lingerie. Anyone who has walked into drugstore or big box retailer recently would notice the vast increase in such items for sale in recent years. A cultural shift around sexual health has cleared the way for retailers to add SKUs and the Playboy brand is a natural fit.
Indeed, Playboy has merchandise at over 10,000 physical points of sale, including thousands of Walmart Inc. and CVS stores across the U.S. Once Playboy is on the shelf, it can expand further by introducing new products it develops itself or via acquisition. The category is highly fragmented with no other company commanding significant brand recognition, making it ripe for M&A.
Sexual wellness also works very well with direct sales – especially online for customers who still want to keep such purchases discreet. The average order in the category was an impressive $72 in the first half of 2020 – a number that has scope to grow. Altogether, Playboy expects sexual wellness revenue to rise to $139 million in 2025 from $55 million in 2020.
An important part of Playboy’s strategy is to keep customer acquisition cost, or CAC, very low. That’s possible by introducing existing customers to adjacent categories; a lingerie customer, for instance, could quickly become a cosmetics shopper.
Another strategic tack that will reduce CAC and drive revenue is converting product categories from licensed to owned-and-operated. In North American apparel, for instance, the company takes licensing fees for items like t shirts, generating extremely-high margin revenue. But there are serious advantages to taking such products in house.
While margins are lower for owned-and-operated items, the scope to increase revenue is much greater. When Playboy actually owns the relationship with the customer rather than leaving it to a third party, the company can nimbly find ways to maximize sales. Over time, the potential profit dollars become far greater than they would under a pure licensing model.
To be sure, there are advantages to keeping the licensing model in, say, the Asia Pacific region, where Playboy makes about 40% of all product sales. Without investing in significant operations in the region, the company can continue to generate licensing revenue for years to come. As a whole, the company has $400 million of contracted guaranteed cash flows from licensing – which should give investors great comfort around overall projections.
Another area of great potential is digital, which encompasses gaming and other online experiences. Playboy already partners with Scientific Games Corporation in a highly-successful casino gaming app. There’s scope to go much further with a digital Playboy Mansion fit with poker, virtual pool parties, and concerts.
The company’s finances are also in great shape. Once hobbled with debt, the company’s leverage is now under 2 times Ebitda, making M&A a real opportunity. And thanks to some rough times under the Hefner regime, the company built up over $180 million in net operating losses. That means the vast majority of Ebitda will drop straight to the bottom line for years to come.
Playboy expects Ebitda to grow from $28 million in 2020 to $40 million in 2021 and at least $100 million in 2025. Even so, it trades at just 10.3 times 2021 Ebitda. By comparison, Trojan parent Church & Dwight Co., Inc. trades at 18.7 times consensus 2021 Ebitda, according to Sentieo, an AI-enabled research platform. Zynga Inc., meanwhile, commands a multiple of 15.5 times.
While no longer part of the business, it’s important to remember that Playboy magazine was an icon in its day. It boasted smart interviews with luminaries like Martin Luther King Jr., Malcom X, Jimmy Carter and John Lennon. Its fiction section published then little-known stars in literary world like Vladimir Nabokov and Saul Bellow. Indeed, Hugh Hefner offered George Plimpton a job as editor of the magazine several times.
The magazine was cool. And it taught squares how to get hip to the groove. From progressive politics, to libertarian ideals, to free jazz, it had an opinion about how to be a cultivated, sophisticated man. The front door to the original Playboy mansion in Chicago’s Gold Coast had a brass plate with the Latin inscription, Si Non Oscillas, Noli Tintinnare. “If you don’t swing, don’t ring.”
The company has taken the best of that history and embraced social responsibility, distancing itself from the image some have of Hugh Hefner in a dressing robe surrounded by scantily-clad women. The company has long championed diversity and women’s rights, supporting everything from the ACLU to Black Lives Matter. The Bunnies who model the lingerie these days come in all shapes, sizes, and colors.
What’s more, the company scrapped the dual share class structure and has an independent board. That contributes to an ESG rating that would have seemed unimaginable several years ago.
It’s time for investors forget whatever they thought about Playboy Enterprises and get more intimate with PLBY Group.
IPO Edge Contact:
John Jannarone, Editor-in-Chief