4 ms·

It a 5.5% cap with nothing backing it. Il take any random real estate deal (which has tons of tax benefits) over this any day of the week, plenty of which exist

by ds 4y ago

It a 5.5% cap with nothing backing it. Il take any random real estate deal (which has tons of tax benefits) over this any day of the week, plenty of which exist at the same cap or higher and come with actual assets (land, building, etc..) Dont get me wrong, Listerine is definitely as strong a brand as there is (I cant even name a competitor off the top of my head) so im not that worried about this going to zero, but that said I would still expect a cap of ~8-10% to have this make sense over other options backed by assets.

conductr 4y ago
I wouldn’t mind if it wasn’t priced so high (what isn’t these days). Assets have downsides too. Insurance, taxes, maintenance, and general overhead in the sense that they are significantly less passive. I don’t get the “nothing backing it” part, maybe it’s not tangible but the brand here does have massive value and all but guarantees substantial gross sales year after year.
- dvt 4y ago
  > I wouldn’t mind if it wasn’t priced so high (what isn’t these days). It's funny, to me it seems extremely cheap. With $2M, you can basically guarantee 100k/yr in perpetuity while being hedged against MMT interest-rate-fiddling, money-printing-induced inflation, a crypto crash, a stock market crash, a housing bubble crash, a tech bubble pop, etc.
  - hodder 4y ago
    This was my thinking. Top line risk on a staple consumer asset that’s been around over a hundred years, and can scale rev with inflation. No margin risk. Seems very cheap. Can prob borrow modestly under the yield and write off the interest on a leveraged version of the asset.
intuitionist 4y ago
The brand may not be a hard asset but I’d say it’s likely to hold its value better than plenty of hard assets (is an office building in San Francisco really less risky than Listerine?) and than lots of other royalty-generating intangibles at similar cap rates (will there still be any Neil Diamond fans alive in 20 years?)
- Kon-Peki 4y ago
  > (will there still be any Neil Diamond fans alive in 20 years?) Will people in the UK ever stop singing songs at football matches?
yakak 4y ago
That's a silly comparison. Investors would be comparing this to some pretty low yield bonds they would buy to mitigate the risks of being over invested in real estate and stocks. Even in a recession after a lot of bubbles burst, consumer brands of household items tend to sell pretty well.
- icelancer 4y ago
  Right. At some point you can't just buy more VTI, houses, or whatever. It's almost like the term "hedge fund" means something.
ars 4y ago
> I cant even name a competitor off the top of my head Store brands are the competitor. They are exactly the same, but cost less.
- cgriswald 4y ago
  Also Crest Pro-Health, ACT, and TheraBreath of the top of my head. I imagine Colgate also has a mouthwash.
reaperducer 4y ago
This is what used to be called "passive income."
icelancer 4y ago
>> It a 5.5% cap with nothing backing it. This is not true. Listerine has one of the most famous contract law cases in the world backing the royalties for life, tested in court. It is almost assuredly the most secure contract of this type you can possibly acquire.

by ds 4y ago

conductr 4y ago

I wouldn’t mind if it wasn’t priced so high (what isn’t these days). Assets have downsides too. Insurance, taxes, maintenance, and general overhead in the sense that they are significantly less passive. I don’t get the “nothing backing it” part, maybe it’s not tangible but the brand here does have massive value and all but guarantees substantial gross sales year after year.

dvt 4y ago
> I wouldn’t mind if it wasn’t priced so high (what isn’t these days). It's funny, to me it seems extremely cheap. With $2M, you can basically guarantee 100k/yr in perpetuity while being hedged against MMT interest-rate-fiddling, money-printing-induced inflation, a crypto crash, a stock market crash, a housing bubble crash, a tech bubble pop, etc.
- hodder 4y ago
  This was my thinking. Top line risk on a staple consumer asset that’s been around over a hundred years, and can scale rev with inflation. No margin risk. Seems very cheap. Can prob borrow modestly under the yield and write off the interest on a leveraged version of the asset.

intuitionist 4y ago

The brand may not be a hard asset but I’d say it’s likely to hold its value better than plenty of hard assets (is an office building in San Francisco really less risky than Listerine?) and than lots of other royalty-generating intangibles at similar cap rates (will there still be any Neil Diamond fans alive in 20 years?)

Kon-Peki 4y ago
> (will there still be any Neil Diamond fans alive in 20 years?) Will people in the UK ever stop singing songs at football matches?

yakak 4y ago

That's a silly comparison. Investors would be comparing this to some pretty low yield bonds they would buy to mitigate the risks of being over invested in real estate and stocks. Even in a recession after a lot of bubbles burst, consumer brands of household items tend to sell pretty well.

icelancer 4y ago
Right. At some point you can't just buy more VTI, houses, or whatever. It's almost like the term "hedge fund" means something.

ars 4y ago

> I cant even name a competitor off the top of my head Store brands are the competitor. They are exactly the same, but cost less.

cgriswald 4y ago
Also Crest Pro-Health, ACT, and TheraBreath of the top of my head. I imagine Colgate also has a mouthwash.

reaperducer 4y ago

This is what used to be called "passive income."

icelancer 4y ago

>> It a 5.5% cap with nothing backing it. This is not true. Listerine has one of the most famous contract law cases in the world backing the royalties for life, tested in court. It is almost assuredly the most secure contract of this type you can possibly acquire.