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NewAge’s (NBEV.Q) recent acquisition of ARIIX comes with a host of serious concerns

ARIIX
11/17/2020

Every so often one of my friends will inform me of their business opportunity and try to recruit me. That’s almost immediately a red flag. I try not to flinch away because I recognize what this is—and the flinch signals in the marketing brain an opportunity to try some amateur apologia that their handler has programmed into them during one of their many ‘marketing moment’ meetings, or whatever cryptic cult shit their particular company has called it.

Eventually, it comes out. They’re a distributor for a company and the more people they get under them, the more money they make. I’ve been offered CutCo Knives, Dotera, and Herbalife. If you’re especially good friends with your prospective CutCo Knives salesperson, you may get a glimpse of the spare bedroom they’re using to supplement their unsold merchandise. Check it a year later and see if that’s changed. Most of the time, it hasn’t and that sunny disposition they wore on day one has now been smacked with reality’s mallet—they’re the customer, not you.

And that’s the CAVEAT on NewAge’s (NBEV.Q) acquisition of ARIIX today, as reported in a press release. Let’s be generous and called ARIIX a multi-level marketing offering, but what else can we call a company with more distributors than customers?  Right.

The specifics are that ARIIX represents an increase in $20 million in additional annualized EBITDA within the first 18 months, and will increase revenue in terms of cost of the goods being sold, manufacturing efficiencies and scale, reduction of operational redundancy, as well as in marketing and branding strategies and channel expansion. NewAge has already saved more than $10 million over the past six months, and anticipates further benefits.

If ARIIX is run like most other MLM’s, these numbers are rock solid. It’s not that ARIIX doesn’t sell their products—they do. It’s the majority of the buyers are their distributors. Those poor suckers down the chain who end up with the back rooms full of products they can’t move, but also represent sunk costs they can’t explain to their husbands.

Here are some peculiar pros and cons:

Pros

  • Support and training offered by the company
  • Range of products to sell and promote
  • Multiple ways to earn money
  • FDA-approved products
  • There are positive reviews about the products

Cons

  • 90% of recruits make less than $15k a year
  • You’re encouraged to recruit more members to make money
  • Negative ARIIX reviews online
  • The health and wellness industry is very saturated
  • Expensive costs to join and stay active

So the dream job they advertise where you set your own hours and live the life you want? Yeah. Not quite. If you want to make money, you’re putting in 12-16 hour days on $15K a year. You also need to get more people under you—which means recruiting your friends and family into the business. Unfortunately, the well dries up, not just for you but for the company itself.

Here’s a YouTube clip to provide more information:

 

This isn’t a good look for NBEV, either. They originally signed an agreement in July to acquire ARIIX and four other e-commerce/direct selling companies, and then amended the agreement in September. NewAge believes the combination will create a company with expected revenues exceeding $500 million, and a blended gross margin of 70%, with an expected EBITDA of more than $30 million.

“We are very pleased to be able to fully converge these great companies now that the merger is complete. Both the revenue and cost synergies of the combined organization will start to be recognized immediately in Q4, in our financial results. Importantly, this merger represents a major strengthening for NewAge in its direct-to-consumer model where we see the most significant opportunities for growth and profitability. We believe we now have the scale, the team, the brands, and the financial strength to drive excellent growth and return for shareholders and all of our valued independent representatives and consultants worldwide,” said Brent Willis, chief executive officer of NewAge.

But let’s for a second consider that these numbers aren’t smoke—they aren’t sustainable. These types of deals are guaranteed to burn out over time as people run headlong into the harsh reality that they can’t move a $45 stainless steel water-bottle when compared to the dollar store version, or a $75 skin cream, when you can get a skin cream from a recognizable brand for the same price.

The suggestion that a company might willingly merge with another company using this particular business model suggests either a lack of due diligence (and therefore incompetence) or a flagrant disregard for the people working down the chain, who have clearly been deceived, and therefore, immorality and incompetence.

Like I said, not a good look.

—Joseph Morton

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