with BH Cosmetics · BH Cosmetics
LenderHawk analysis. Not affiliated with or endorsed by Acquisitions Anonymous.
The assets were bought out of bankruptcy because the brand still had recognition, a large email/social following, and potential value in the IP and customer list, even though the operating business had collapsed under debt, overhead, and declining sales.
Distressed DTC deals often hinge on buying the debt or the assets before another month of burn destroys value.
A buyer who can operate the category can justify a faster diligence process and a higher bid than a generalist finance buyer.
The biggest turnaround gains usually come from cutting wasted paid media, right-sizing staff, and renegotiating vendor terms, not from flashy growth tactics.
In e-commerce distress, the lender stack can include secured debt plus multiple unsecured programmatic lenders that are more flexible than traditional banks.
A 363 sale is attractive because it transfers assets free and clear, which reduces fraudulent-conveyance risk for the buyer.
For a commoditized cosmetics brand, the value is often in brand/IP, email list, and liquidation recovery rather than long-term standalone earnings.
If the business is already in bankruptcy, the auction price reflects what the market thinks the assets are worth after the operating model has failed.
A turnaround buyer needs to underwrite both cash recovery and optionality, because the equity story may be weak even when the liquidity story works.
Build a short-horizon cash model from available financials to identify cuts, working-capital sources, and the liquidity needed to survive the turnaround.
When to use: Use it when a distressed business needs near-term survival rather than a long-range strategic plan.
Acquire or influence the senior secured position to gain control of the capital structure and force a path through the distress.
When to use: Use it when the company is overlevered but still has operating value to salvage.
BH Cosmetics fell from 55.8 million of revenue in 2019 to 33.6 million in 2020 and 18.6 million through November 2021.
Mehtab uses the trajectory to show how fast the brand collapsed before the sale.
The company had negative 14.4 million of EBITDA on about 26 million of sales in 2021 tracking data.
The hosts use this to illustrate how broken the operating model had become.
MidOcean Partners initially bought 60% of the company in Q4 2017 and eventually put in about 32.5 million of equity.
The discussion frames how much capital was already trapped in the business before bankruptcy.
The credit agreement associated with the acquisition was about 25 million, with roughly 21 million outstanding later.
The debt load is used to explain why the capital stack became untenable.
The first forbearance began in February 2019, less than 18 months after MidOcean’s purchase.
The episode highlights how quickly the situation deteriorated.
A Chapter 5 subchapter is described as a lower-cost bankruptcy tool for small businesses with under 7 million in debt.
Mehtab contrasts bankruptcy options and why this one mattered for smaller distressed companies.
He says some programmatic lenders can extend ad-spend float by about 19 days beyond Facebook’s normal payment timing.
The example shows how working-capital tactics can create liquidity inside an e-commerce business.
The assets sold in a 363 auction for around 4 million.
The auction result anchors the valuation discussion.
Model a distressed e-commerce company on a 13-week cash basis before you worry about the longer-term equity story.
Why: The short-term liquidity gap is usually what kills the business first.
Cut paid media that is burning cash and rebuild only the channels that show durable unit economics.
Why: Low-quality acquisition spend can destroy scarce runway in a turnaround.
Interview department staff quickly and compare answers across the team to identify dead weight and hidden operators.
Why: Turnarounds reward speed, and teams often reveal the real performers almost immediately.
Push vendors and ad platforms for better payment terms whenever possible.
Why: Working-capital float can buy time without adding expensive new capital.
Treat bankruptcy auctions as a way to buy assets free and clear rather than as a conventional operating acquisition.
Why: That structure reduces title risk and can make distressed bids more actionable.
Underwrite more aggressively only when you understand the product and customer well enough to run the business post-close.
Why: Category knowledge is what lets an operator see value that financial buyers miss.
Mehtab described a floral business that was 75% bridal when purchased and then benefited from a much stronger organic channel than paid media. The team cut waste, replaced a poor website, and removed unproductive staff, which helped the business grow through COVID instead of collapsing.
Lesson: In distressed DTC, operational cleanup can matter more than market conditions if the underlying product has room to scale.
Mehtab described finding an accounting department where staff used calculators and then typed results into Excel instead of using formulas. The anecdote was used to show how obvious inefficiency can persist in distressed companies until a buyer walks the floor.
Lesson: Rapid, hands-on diligence can uncover simple labor inefficiencies that a balance sheet will never reveal.
Bill described buying a distressed business, then discovering paper vendor invoices in an accountant’s desk that had never been entered into the ERP. The bills belonged to a critical manufacturer, so the buyer had to absorb the surprise cost rather than risk damaging an essential supplier relationship.
Lesson: Even careful diligence can miss off-ledger liabilities, so purchase-price discipline must leave room for body blows.