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The Top Targets
Only a handful of the brands listed below are actively on the
market, but many have attracted interest and financial investors,
such as private equity firms, hoping to take them to the next level.
Ahava: The Israel-based skin-care
brand, which touts products formulated
with Dead Sea minerals, repackaged
and re-branded its line three years
ago to call attention to its natural roots.
Sources say it was recently on the
market, but the process stalled.
Company size: $50 million in
wholesale sales (est.).
Carol’s Daughter: Founded
by Lisa Price in 1994 in her kitchen,
the natural skin and hair-care brand
later attracted a team of high-profile
investors lead by Steve Stoute, fueling
its expansion to Sephora and the
opening of its own shops. Sources
report the company was recently
looking for a buyer, but pulled out of
the process and began expanding its
reach to the mass market through a
partnership with Target.
Company size: $40 million to $50
million in wholesale sales (est.).
Caudalie: The spa and skin-care line
rooted in the French wine country of
Bordeaux has steadily built its business
across Europe, North America and Latin
America, and is now turning its attention
to Asia. The line, founded by husbandand-wife team Bernard and Mathilde
Thomas nearly 20 years ago, is often
mentioned as a very attractive target by
investment bankers, but is not exploring
a sale.
Company size: $70 million to $80
million in wholesale sales (est.).
It Cosmetics: Former TV news
anchor Jamie Kern Lima founded the
problem-solution color-cosmetics line
six year ago with her husband, Paulo
Lima. It’s since landed on QVC and
in Ulta doors, and attracted minority
investments from both TSG Consumer
Partners and Guthy-Renker.
Company size: $60 million to $70
million in wholesale sales (est.).
Nuxe Group: This natural French
skin-care and spa brand has been
growing at a double-digit clip over the
past 10 years. President and chief
executive officer Aliza Jabès, who has
nurtured Nuxe into a global brand sold
in 64 countries, is said to have recently
turned down interest from a minority
investor.
Company size: $210 million in
wholesale sales (est.).
NYX Cosmetics: This indie massmarket brand—highly touted for its
makeup-artistry positioning—has
recorded an average annual growth rate
of almost 50 percent for the last five
years. It is now looking for a buyer and
has tapped investment bank Piper Jaffray
for the purpose.
Company size: Over $100 million in
wholesale sales (est.).
Perricone MD: The namesake
brand of Dr. Nicholas Perricone rose
to prominence with the wave of doctor
brands in the late Nineties, and aims to
continue to push traditional boundaries
in skin care with products such as No
Makeup Skincare and Blue Plasma
daily peel. It’s owned by TSG Consumer
Partners and is actively on the market,
represented by Goldman Sachs.
Company size: $75 million to $100
million in wholesale sales (est.).
StriVectin: The clinical skin-care
company, best known for its stretchmark-cream–turned–wrinkle-fighter,
was purchased by private equity
firm Catterton Partners in July 2009.
The brand has been reformulated,
repackaged and repositioned. In
2012 StriVectin is said to have tapped
Goldman Sachs to explore a sale. The
firm shelved the process, but is expected
to return to the market in the future.
Company size: $100 million in
wholesale sales (est.).
Too Faced Cosmetics: Founded
in 1998 by Jerrod Blandino and Jeremy
Johnson as a feminine, flirty and fun
antidote to serious makeup-artist
brands, Too Faced is one of the last
cosmetics brands of the Nineties era
that has not been purchased by a large
beauty firm. The private equity firm
Weston Presidio acquired a majority in
2012, but Blandino insists there are no
plans to sell.
Company size: $70 million to $100
million in wholesale sales (est.).
Yes To Inc.: The skin-care franchise—
best known for its plucky Yes to Carrots
range—has grown to include Blueberries,
Cucumbers, Grapefruits and Tomatoes
offerings, as well as hair and baby-care
products. The mass-market brand is said
to have hired Deutsche Bank to explore
a sale several years ago.
Company size: $50 million to $60
million in wholesale sales (est.).
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brand had wholesale sales of around $28 million, and in late 2012, it purchased the men’s grooming brand Baxter of California, when it generated an
estimated $3 million in annual sales. Financial observers say Lauder, which
hasn’t acquired a brand since its 2010 purchase of Smashbox Cosmetics,
has been peeking at some smaller brands, including Butter London, a nail
lacquer and cosmetics brand that generates an estimated $20 million in
wholesale sales.
Lauder declined to comment on its interest in smaller-size assets, but the
company did point to its history of nurturing acquired lines into large, global brands. “Acquisitions have played a strong role in our growth strategy for
more than 20 years, beginning with the wildly successful and beloved MAC
brand in 1994,” says Peter Jueptner, the company’s senior vice president of
strategy and new business development. “[Lauder] has a proven track record
of acquiring high-potential, entrepreneurial brands with global opportunity—like La Mer, Bobbi Brown Cosmetics and most recently, Smashbox—and
shaping them into market leaders... We are continually monitoring the market for the right opportunities, looking at potential minority investments and
acquisitions that present compelling opportunities to strengthen our position
by geography, product category or channel.”
For now, many large beauty firms—Lauder included—seem to be in a
browsing mode rather than a buying one. In fact, many deals on the market
are failing because the targets are simply too small.
“There’s a point at which you’re just not relevant,” says one investment banker. “Brands with wholesale sales of $50 million and north seem to matter.”
Traditionally, brands with wholesale sales under $60 million have largely
been the domain of private equity firms, which are eager to build scale and
then sell to a strategic buyer or pursue an initial public offering.
Hansen explains that the larger beauty firms are often not set up to manage
brands with less than $60 million in revenue. “They require a different level
of attention, management and care,” he says.
T
he changing retail landscape—in which
Sephora and TV retailers have morphed from a hospitable landing spot for
newbies to powerful channels with more-stringent trade terms—have made
smaller brands seem like a more risky bet to strategic buyers. “It’s harder and
harder to buy small,” says Joyce Greenberg, ceo of CAP Greenberg. “It used to
be that Sephora and TV retail provided a platform for small brands... Distribution has become very expensive, and more difficult for a new brand to obtain.”
To garner genuine interest from strategic buyers, Shaun Westfall, a managing director at Piper Jaffray, says a brand generally needs to meet three core
criteria. “First, the business should benefit from distribution and relevance in
three major accounts or channels—such as Sephora, Ulta and a direct channel
like QVC—and at least a toehold internationally. Next, a brand needs to demonstrate a set of high-replenishment hero products. Lastly, you need to show
success and brand awareness across multiple geographies and demographics,”
he says. “Once you have met all three, you become highly valuable. Strategics
will pay more for less risk.”
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He says that when companies hit all three of these marks, multiples can
reach 2.5 to 4 times revenue and double-digit earnings before interest, taxes,
depreciation and amortization levels.
In terms of category, skin care still attracts the most interest from buyers,
but there’s more activity swirling around color cosmetics thanks to the success
of Urban Decay, which was purchased by L’Oréal in late 2012, and Lauder’s
Smashbox. Steven Davis, a managing director at Intrepid Investment Bankers,
expects color to remain an active space. “There are a number of color cosmetics firms owned by entrepreneurs that
are doing well, and private equity groups
have significant investments in good color cosmetics brands,” says Davis.
One of those brands is Too Faced
Cosmetics, one of the last of the indies
established in the late Nineties to resist
a buyout offer from a large beauty firm.
The private equity firm Weston Presidio
acquired a majority stake in Too Faced
in 2012, but cofounder Jerrod Blandino insists the fun, flirty makeup-artist
brand is not for sale. “We are not looking
to sell. We’ve never talked about that.
We’ve had major giants contact us but
we are happy and fulfilled,” says Blandino. Referring to Weston Presidio’s involvement, he says, “They help guide us
and fund our growth. They don’t get in
our way. They’ve helped propel us.”
NYX Cosmetics, which recently
tapped investment bank Piper Jaffray
in its search for a buyer, is getting lots
of attention for its makeup-artistry
positioning and social-media prowess.
Founded in 1999 by Toni Ko and often
referred to as the “MAC of mass,” NYX
has recorded an average annual growth
rate of almost 50 percent for the last five
years, according to the company, which
declined to comment on talk of a potential sale. Its wholesale sales are said to
surpass $100 million, according to industry sources.
NYX’s use of social media—vloggers love the brand—has allowed the company to achieve higher margins than a typical mass color brand, says one financial observer.
A brand’s ability to leverage social media is also a crucial element when it
comes to attracting attention. “Some incumbent firms have a harder time doing that and are learning to leverage their capabilities,” says Jennifer Baxter
Moser, a managing director at TSG Consumer Partners. “The smaller brands
don’t compete in either print or [any other] traditional advertising strategies,
but are able to use digital and social media to scale quickly and compete with
the larger companies.”
In her view, these companies provide value to consumers in ways that traditional brands sometimes are unable to deliver, whether it’s innovative products or different price points.
Davis at Intrepid says that while color is gaining in popularity, skin care
is still a favored category. “The complexity of color can scare away some potential acquirers,” he says. “In skin care, the firms that could attract a little
more attention are those that have some technological angle associated with
the product.” Antiaging skin care is still an attractive market, he says, adding
that men’s skin care—although still in the early innings of development—is
another category that could gain traction.
Investors are also closely watching the device category. Andrew Charbin, a vice president at investment banking firm The Sage Group, says,
“One industry space that seems to be gaining more attention is the beauty
tools and device sector.” L’Oréal’s acquisition of Clarisonic in 2011 and the
recent Iluminage Beauty venture between Unilever and Syneron Beauty
are two of the more-recent developments that have brought attention to
this space. “Strategic buyers are always creating formulas for new products, and the tools and device category
brings an added dimension of engagement to the consumer experience, combining hard and soft technologies, not
to mention the potential there is from a
marketing and distribution perspective
to cross-sell and make claims of optimized efficacy,” says Charbin.
On the international front, a growing
number of Asian buyers are active in the
beauty M&A space, whether it’s Western
multinationals looking to expand their
footprint eastwards with brands that are
relevant to consumers in emerging countries, or Asian companies looking to become bigger players in the West.
“Asia-based companies are becoming
real players in M&A processes, and their
objectives are changing,” says Vennette
Ho, a managing director at Financo. “It
used to be they only wanted to buy brands
that had proven success in Asia. Now they
are also looking at brands that extend their
reach beyond Asia.”
Kosé’s recent acquisition of Tarte Cosmetics has amplified the growing trend of
Asian companies buying foreign brands,
often to gain a foothold in markets outside of Asia, such as the U.S. Within the
last three years, Pola Orbis Holdings Inc.,
a leading Japanese player, purchased two
skin-care companies, namely Australia’s
Jurlique Group and the U.S.-based H20 Plus. Shiseido Co. Ltd. has also expanded its presence well beyond Asia with bold acquisitions such as Bare
Escentuals in 2010. In some cases, Asian companies are also the sellers. In
February, Shiseido agreed to sell two brands, Carita and Decléor, to L’Oréal.
The same trend is happening outside of Japan in Korea. Andrew Postal,
a managing partner at advisory firm Marketing Management Group Inc.,
which works with Korean firms, says that many of them are now “looking
outside of Korea for growth. One place is China, but they are also looking at
the U.S.” Postal explains that they are looking at brands to bring back to Korea, as well as how to bring their home-grown brands overseas. At press time,
for example, Korean giant LG Household & Healthcare Ltd. was reportedly
considering a bid for Elizabeth Arden, among other companies.
Observers expect all of these dynamics to further accelerate the pace of
deals this year, particularly with beauty companies and private equity firms
armed with money to invest in expanding their portfolios. William D. Busko,
a managing director at investment banking firm Consensus Advisors, says,
“Beauty has been an active sector across all investment classes, whether venture capital, private equity or traditional and nontraditional strategic buyers.”
Says Financo’s Ho, “Good brands that exhibit good growth are always attractive targets. If you are a willing seller, it’s just a matter of timing.” ■
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