CashflowandTIParenot thesamething

We have often been asked by management to weigh in on potential acquisition targets with a view toward understanding the likely consequences for TIP. We warn executive teams against acquiring low TIP companies. They may well add cash flow, but all too often cash flow without strong evidence of future growth opportunity does not excite investors.

Let’s walk through Lululemon’s acquisition of Mirror as an example of the kind of analysis we would do.

The pandemic, of course, was a boon to companies such as Lululemon. Freed from the office and the need to dress up, athleisure became everyday wear, not just something you wore for working out. Sales surged, as did TIP. Companies like Peleton were printing money. The workout at home craze benefitted other startups, like the subscription workout product, Mirror. As I’ve written about previously, Mirror was a seductive, sexy, high-growth startup with what it thought would be a compelling future sales story.