Jay-Z is being investigated by the SEC over $200m Rocawear sale to ICONIX

[panopticon]

"I tried to sell [Rocawear] one more time and they fukked it up in the due diligence, and I said I'm out"

Due diligence isn't something that a buyer fukks up...unless they purchase an asset and it turns out it wasn't what it was purported to be

When a buyer does due diligence and a deal falls apart because of whatever the process revealed that they didn't find to their liking...that isn't on the buyer, that's on the seller

That's literally the definition of successful due diligence

"There was a time when Jay had no parts of Rocawear...he wouldn't show up, that's why I was in the ad. The minute they sold and I wasn't a part of it, all of a sudden he was in the ad! One could look at that as devaluing the company intentionally...Before I left I was in everything only because he would not show up. But the minute I left he was pumping it up pumping it up."

This would be some cold ass shyt on Jay's part if true ...intentionally devaluing Rocawear while it was under Dame's management through refusing to participate in marketing / promotion that would help boost the brand, essentially forcing Dame to sell his stake to Jay because without Jay's participation, the brand wasn't worth much...then as soon as Dame's stake has been secured, turning around and getting involved to the maximum extent possible to boost the (eventual) sales price to Iconix and improve his chances of getting that additional $35 million in Iconix stock if certain targets were met over the following five years...

This nikka Jay is ruthless if what Dame's saying is true

 

[mson]

"I tried to sell [Rocawear] one more time and they fukked it up in the due diligence, and I said I'm out"

Due diligence isn't something that a buyer fukks up...unless they purchase an asset and it turns out it wasn't what it was purported to be

When a buyer does due diligence and a deal falls apart because of whatever the process revealed that they didn't find to their liking...that isn't on the buyer, that's on the seller

That's literally the definition of successful due diligence

"There was a time when Jay had no parts of Rocawear...he wouldn't show up, that's why I was in the ad. The minute they sold and I wasn't a part of it, all of a sudden he was in the ad! One could look at that as devaluing the company intentionally...Before I left I was in everything only because he would not show up. But the minute I left he was pumping it up pumping it up."

This would be some cold ass shyt on Jay's part if true ...intentionally devaluing Rocawear while it was under Dame's management through refusing to participate in marketing / promotion that would help boost the brand, essentially forcing Dame to sell his stake to Jay because without Jay's participation, the brand wasn't worth much...then as soon as Dame's stake has been secured, turning around and selling Rocawear to Iconix and getting involved to the maximum extent possible to boost the sales price and improve his chances of getting that additional $35 million in Iconix stock if certain targets were met over the following five years...

This nikka Jay is ruthless if what Dame's saying is true

I thought he was talking about his own people concerning the due diligence.

 

[blackzeus]

The $700 million in revenue was revenue across all retailers for Rocawear-branded products in 2007.

Think of it like this:

1) Rocawear sells a branded XXXXL white tee with a Rocawear logo to Macy's wholesale for $10.

2) Macy's turns around and sells that same white tee to a young nikka for $35.

From the retailers' perspective (Macy's) that Rocawear white tee generated $35 in revenue to Macy's.

From Rocawear's perspective (the manufacturer), that Rocawear white tee generated $10 in revenue to Rocawear.

From this article:

Jay-Z Cashes in With Rocawear Deal

"...Rocawear currently does more than $700 million in annual retail sales, Iconix said."

Whenever a "retail sales" figure is quoted for an apparel manufacturer that distributes all of its product through brick & mortar retailers (meaning they don't own any of their own stores) that figure is calculated off the price that those retailers sell the goods for - not the wholesale price that the actual manufacturer receives for those goods.

The idea is to get an apples-to-apples comparison of actual market demand for different brands - because all these different brands are sold right next to one another in a Macy's, Bloomingdale's, etc., what Wall Street is most interested in is what the final price to consumers is - with the assumption that different wholesale arrangements can be worked out between the manufacturer and retailers given the demand for their particular brand.

Given that wholesale prices are generally anywhere from 1/5-1/2 of the final retail price, it isn't far fetched to assume that Rocawear did ~$200-$250 million in revenue on those $700 million in retail sales. Which would make this transaction perfectly reasonable

Let's say you're right. Let's say that Rocawear wholesaling for 50 cents on the dollar (usually wholesale in the apparel industry is closer to 10-20%), that's still 350 Ms. Let's say they wholesaled for 10 cents on the dollar. That's still 70Ms. You mean to say Mr. Sell Water to a Well sold his company for 3 years worth of revenue?!!!!!!

From my understanding in clothing you usually get a royalty (flat fee) plus a percentage of each sale. Face it breh some fishy sh*t was going on. Either it was a pump and dump scam from the beginning, or there was accounting fraud going on after it started becoming an established brand.

 

[blackzeus]

Yall read about Tidal inflating them streaming numbers for Beyonce and kanye too right?

"F*ck Jay Z he broke and I smoke daily" Damn please don't tell me Jay has been faking the funk and has been getting his Madoff on First 50 is a snitch and now Jay is just a Russian bag man

 

[panopticon]

Let's say you're right. Let's say that Rocawear wholesaling for 50 cents on the dollar (usually wholesale in the apparel industry is closer to 10-20%), that's still 350 Ms. Let's say they wholesaled for 10 cents on the dollar. That's still 70Ms. You mean to say Mr. Sell Water to a Well sold his company for 3 years worth of revenue?!!!!!!

From my understanding in clothing you usually get a royalty (flat fee) plus a percentage of each sale. Face it breh some fishy sh*t was going on. Either it was a pump and dump scam from the beginning, or there was accounting fraud going on after it started becoming an established brand.

That's revenue.

Revenue isn't profits.

M&A transactions are generally done at a particular multiple of EBITDA (Earnings before Interest, Taxes, Depreciation & Amortization).

EBITDA is used primarily because it strips away all of the accounting-related shenanigans that can inflate/deflate a company's net income (profits) - for example taking on significant amounts of debt (which is tax-deductible for corporates), utilizing accelerated depreciation schemes (to inflate net income), etc etc. It's the cleanest measure available to figure out exactly what the cash-generating potential of a given asset really is.

Ultimately, the value of an investment is dependent on its ability to generate cash flows into the future. EBITDA is a quick and dirty way to figure this out, and multiples are used rather than all of the components of a proper DCF analysis (which would incorporate cash taxes, an assumed discount rate to account for inflation, and an assumed growth rate of cash flows) so that you can have an easily-digested shorthand way to discuss value.

I posted a link to a PDF a few posts back and did the math to back out what Rocawear's EBITDA would have been given the average transaction multiple for retail / apparel companies in 2007 and the reported sale price. A $204 million sale price at the sector-average EBITDA multiple in 2007 implied Rocawear generated $21.7 million in EBITDA / year.

We don't know exactly what Rocawear's wholesale agreements were with retailers, so its tough to figure out exactly what Rocawear's cut of that $700 million in total retail sales was.

But we do know what EBITDA margins are (EBITDA / Total Revenue) for the average apparel maker - they range from roughly 12%-17%.

So take that $21.7 million EBITDA figure, and divide it by 0.12 = $180.83 million, divide it by 0.17 = $127.65 million

$127.65 million in revenue against $700 million in total retail sales would imply wholesale pricing at just under 1/5 of retail pricing

$180.83 million in revenue against $700 million in total retail sales would imply wholesale pricing at just over 1/4 of retail pricing

Given all that, the transaction math checks out to me - and that isn't even including the Iconix stock earnout that was put in place as an incentive for Jay-Z to maximize his efforts in the marketing/promotion partnership he had with Iconix post-sale

 

[blackzeus]

That's revenue.

Revenue isn't profits.

M&A transactions are generally done at a particular multiple of EBITDA (Earnings before Interest, Taxes, Depreciation & Amortization).

EBITDA is used primarily because it strips away all of the accounting-related shenanigans that can inflate/deflate a company's net income (profits) - for example taking on significant amounts of debt (which is tax-deductible for corporates), utilizing accelerated depreciation schemes (to inflate net income), etc etc. It's the cleanest measure available to figure out exactly what the cash-generating potential of a given asset really is.

I posted a link to a PDF a few posts back and did the math to back out what Rocawear's EBITDA would have been given the average transaction multiple for retail / apparel companies in 2007 and the reported sale price. A $204 million sale price at the sector-average EBITDA multiple in 2007 implied Rocawear generated $21.7 million in EBITDA / year.

We don't know exactly what Rocawear's wholesale agreements were with retailers, so its tough to figure out exactly what Rocawear's cut of that $700 million in total retail sales was.

But we do know what EBITDA margins are (EBITDA / Total Revenue) for the average apparel maker - they range from roughly 12%-17%.

So take that $21.7 million EBITDA figure, and divide it by 0.12 = $180.83 million, divide it by 0.17 = $127.65 million

$127.65 million in revenue against $700 million in total retail sales would imply wholesale pricing at just under 1/5 of retail pricing

$180.83 million in revenue against $700 million in total retail sales would imply wholesale pricing at just over 1/4 of retail pricing

Given all that, the transaction math checks out to me - and that isn't even including the Iconix stock earnout that was put in place as an incentive for Jay-Z to maximize his efforts in the marketing/promotion partnership he had with Iconix post-sale

Rocawear wasn't publicly traded at the time. Here's a little business primer and I'm finna call it a night:

Times Revenue Method

What is the 'Times Revenue Method'
The times revenue method is a valuation method used to determine the maximum value of a company. The times revenue method uses a multiple of current revenues to determine the "ceiling" or maximum value for a particular business. Depending on the industry and the local business and economic environment, the multiple might be one to two times the actual revenues. In some industries, the multiple might be less than one.

For example, assume corporation ABC's revenues over the past 12 months were $100,000. Under the times revenue method, one might value the company anywhere between $50,000 (half times revenue) and $200,000 (two times revenue).



Read more: Times Revenue Method Times Revenue Method
Follow us: Investopedia on Facebook

How to Value a Business?

Revenue is the crudest approximation of a business's worth. If the business sells $100,000 per year, you can think of it as a $100,000 revenue stream. Often, businesses are valued at a multiple of their revenue. The multiple depends on the industry. For instance, a business might typically sell for "two times sales" or "one times sales." If you have a good stockbroker, he or she may be able to help you research typical sales multiples for your industry. A good business broker can also help you if he or she has done valuations in the industry you're investigating.

But alas, revenue doesn't mean profit. If you're in doubt, just look at Amazon.com: It had 2002 sales of almost $4 billion, but no profit. In fact, it hasn't made one cent of profit since the day it was founded. How much would you pay for an ongoing $4 billion per year that you have to pump an additional $380 million per year into just to keep it afloat?

 

[panopticon]

Rocawear wasn't publicly traded at the time. Here's a little business primer and I'm finna call it a night:

Times Revenue Method



How to Value a Business?

If you read the first sentence of the second quote, you'll see it says:

"Revenue is the crudest approximation of a business's worth."

Think of it this way: I could run a company that does $100 million in revenue a year. You'd be blown away, right? Wow! $100 million in revenue!!

But it turns out, I'm doing $100 million in revenue against $99 million in salary expenses, rent, utilities, insurance, COGS, etc. BTW, this is the restaurant business writ large, lol.

My $100 million revenue business is only generating $1 million in EBITDA.

Let's say transaction multiples in my sector average 10. So my business, if I were to put it up for sale, would most likely yield bids in the $10 million range. And that on that gaudy $100 million revenue figure!

Now think about another company. This company does only $10 million in revenue. Wow. Must be a real POS compared to company 1, right?

But it turns out, this other company does $10 million in revenue against only $1 million in salary expenses, rent, utilities, insurance, COGS, etc. BTW, this is the software licensing business, lol.

My $10 million revenue business is generating $9 million in EBITDA.

Let's say, just for the sake of argument, that transaction multiples in this other sector also average 10. So my business, if I were to put it up for sale, would most likely yield bids in the $90 million range.

There isn't a worse way to try and value a business than by using revenue. It doesn't give you enough information.

Value is ultimately about cash generation. Get to cash and build from there.

 

[Swing]

They need to ask him about those 92 bricks...

”Now... Mr. Z, could you please tell us about the transaction where you misplaced 92 bricks?”

 

[the cac mamba]

:jayfdup:

 

[panopticon]

”Now... Mr. Z, could you please tell us about the transaction where you misplaced 92 bricks?”

"It says here that after you misplaced said bricks, that you fell back?"

"Could you explain exactly what you meant by fall back?"

"A trust fall, perhaps? Developing closer ties with your...Roc-A-...Feller? Fella? Rockerfeller? associates through a corporate retreat featuring trust-building exercises?"

"Or maybe in your shock at the misplacement of said bricks, you physically fell backwards due to a momentary drop in blood pressure?"



"Your Honor, please direct the witness to answer the question. The disposition of the 92 bricks in question are a critical component of The People's arguments."

 

[Swing]

"Or maybe in your shock at the misplacement of said bricks, you physically fell backwards due to a momentary drop in blood pressure?"

 

[panopticon]

92 bricks never gets old fam

 

[mobbinfms]

If he doesn't testify that could be interpreted as him being part of the scam. So it's time to see if Jay values his street cred or his family more now

I’ll have to plead ignorance here. What are the Street credit ramifications of testifying in an SEC investigation?

 

[mobbinfms]

It wasn't worth that much,

What was it worth in 2007 then? And how did you get to that figure?

 

[mobbinfms]

"I tried to sell [Rocawear] one more time and they fukked it up in the due diligence, and I said I'm out"

Due diligence isn't something that a buyer fukks up...unless they purchase an asset and it turns out it wasn't what it was purported to be

When a buyer does due diligence and a deal falls apart because of whatever the process revealed that they didn't find to their liking...that isn't on the buyer, that's on the seller

That's literally the definition of successful due diligence

"There was a time when Jay had no parts of Rocawear...he wouldn't show up, that's why I was in the ad. The minute they sold and I wasn't a part of it, all of a sudden he was in the ad! One could look at that as devaluing the company intentionally...Before I left I was in everything only because he would not show up. But the minute I left he was pumping it up pumping it up."

This would be some cold ass shyt on Jay's part if true ...intentionally devaluing Rocawear while it was under Dame's management through refusing to participate in marketing / promotion that would help boost the brand, essentially forcing Dame to sell his stake to Jay because without Jay's participation, the brand wasn't worth much...then as soon as Dame's stake has been secured, turning around and getting involved to the maximum extent possible to boost the (eventual) sales price to Iconix and improve his chances of getting that additional $35 million in Iconix stock if certain targets were met over the following five years...

This nikka Jay is ruthless if what Dame's saying is true

That’s business. This is all after they fell out right?