Bullish on Beauty Care M&A Despite Summer Hiatus
Q3 2014
M&A activity in the Beauty Care sector took a breather over the summer. Despite the slowdown, Intrepid remains bullish on M&A for the remainder of 2014 and 2015 based on the strong demand drivers we see in the market and our growing client backlog. Third quarter sector highlights include: • Deal volume in Q3’14 declined over 60% from Q2'14 and Q3'13 (see page 3); • L'Oréal continued its torrid M&A pace with two more acquisitions this quarter, bringing its total to seven for 2014 year-to-date, while Estée Lauder announced M&A is a high priority; • Private equity continues to be aggressive for high-quality beauty care brands; and • Large corporates, including P&G and Puig, shed assets to focus on core brands and sectors. Steve Davis, Managing Director, Head of Beauty & Personal Care, SDavis@IntrepidIB.com
Recently Closed Transactions Encore Re-enters Prestige Cosmetics with Acquisition of Butter London – Encore Consumer Capital announced a majority investment in Seattle-based prestige cosmetics brand butter LONDON. Founded in 2005, butter LONDON became known for its nail lacquers and has since expanded its brand across the nail and color cosmetics categories. The company sells into Ulta, Nordstrom, Macy's, Sephora and beauty boutiques and online. The investment comes after Encore sold its ownership in prestige color cosmetics company Tarte to Kosé Corporation for $135 million in March.
Puig Focuses on Core Fragrance and Fashion with Sale of Payot – Puig sold Payot, a French skincare company, to LBO France in order to focus on its core businesses of fragrance and fashion. The private equity group acquired an 80% stake along with management and cosmetics entrepreneur Andrea Surliuga. Payot offers a range of skincare products including face care, body care, sun care and salon treatments sold primarily in beauty salons and boutiques. According to industry sources, the deal was valued between €30 million and €40 million, representing an estimated acquisition revenue multiple of 1.2x to 1.6x.
L'Oréal Continues Push into South America with Acquisition of Niely Cosméticos – L'Oréal announced an agreement to acquire Niely Cosméticos, a leading hair color and hair care company in Brazil. Niely markets its core brands (Cor & Ton and Niely Gold) to food, drug and specialty retailers. With sales of over $150 million, the acquisition provides L'Oréal increased presence into Brazil’s $8.9 billion hair care market (for comparison, the U.S. market is $11.5 billion) and helps close the market share gap with Unilever in the region. The deal is subject to regulatory approvals.
ADA Cosmetics Trades Private Equity Partners – Carlyle Group sold its ownership in ADA Cosmetics to Ardian (formerly AXA Private Equity). ADA manufactures beauty and personal care products such as shampoo, body lotion and soaps for hotels and other hospitality outlets. Since Carlyle’s investment in 2011, ADA Cosmetics increased revenue 20% and EBITDA 70%, and achieved 35% market share in Germany. According to Dow Jones, the deal was valued at approximately $125 million, implying a revenue multiple of 2.0x and a 3x return to Carlyle on its investment.
L’Oréal Invests in Technology with Acquisition of Sayuki Custom Cosmetics – According to industry sources, L’Oréal has acquired Sayuki Custom Cosmetics, the designer and inventor of a skincare scanning and color matching technology and software that allows a woman to match her skin color to custom cosmetic products such as concealers or foundations. The Sayuki technology then formulates and produces the finished custom product for the customer onsite at store-level in a matter of minutes.
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Industry News Elizabeth Arden Weighing Options – Investment firm Rhone Capital has approached Elizabeth Arden to acquire 20% of the public company. The offer comes as Elizabeth Arden reported weaker than expected sales of $192 million in Q2 compared to $268 million a year ago. The decline is attributed to a slower launch of new fragrances and lower than expected sales of celebrity fragrance brands. Colorescience Receives Financing – Colorescience received $15 million in a Series B round of funding led by investor Longwood Founders Management. According to the company, the funds will be used to significantly accelerate growth of Colorscience both in domestic and international markets. The mineral-based cosmetic and skincare company was previously owned by SkinMedica, but is now a standalone entity after Allergan acquired SkinMedica in December 2012. Conflict Lowers Industry Outlook for Eastern Europe and Russia – After a summer of conflict surrounding Ukraine’s southern Crimean Peninsula, Western sanctions against Russia have slowed the Russian economy and surrounding areas. Beauty care companies including L’Oréal and Unilever are lowering forecasts in the region, an area previously believed to have double-digit growth. Drybar Raises Additional Capital – Drybar Holdings LLC, a Los Angeles-based operator of blowdry-only salons, raised $20 million in funding from SPK Capital and existing investors including Castanea Partners. Proceeds will be used to accelerate expansion plans according to co-founder Alli Webb. Drybar has raised more than $50 million in capital since inception. Honest Company Raises Capital in Advance of IPO – The Honest Company raised $70 million in capital at close to a $1 billion valuation in advance of an anticipated IPO. According to the company, annual revenue is expected to reach over $150 million in 2014, implying a valuation multiple of over 5x revenue. The company produces eco-friendly diapers and a natural line of personal and beauty care and home related products. While the majority of products are sold online, the company has expanded into retail distribution including Whole Foods, Costco, Target and Nordstrom. The company previously raised $52 million in 2012.
M&A High Priority for Estée Lauder – Estée Lauder has put acquisitions back on the priority list following a more than four year absence from the market. According to Chief Financial Officer Tracey Travis, “M&A is a high priority for us. We certainly have lots of activity going on in terms of looking at acquisition opportunities.” Fabrizio Freda, Chief Executive Officer, added that Estée Lauder’s strategy is “about buying brands that we can develop over time. Buying a medium-sized brand and making it huge over the years.” P&G to Shed Non-core Brands – Procter & Gamble announced plans to divest over 100 brands from the P&G portfolio and focus on growing its core global brands. While P&G has not announced which brands will be sold, according to industry sources, two of the biggest brands likely to be shed are Duracell and Braun. According to certain analysts, P&G will not consider divesting core brands such as Pampers, Tide, Gillette, Pantene, Olay and SK-II. While P&G is shedding over half of its brands, the 80 brands P&G will likely keep contribute 90% of current P&G sales and 95% of profits. The Allergan / Valeant Saga Continues – Since April, Valeant Pharmaceuticals has mounted a takeover attempt of Botox maker Allergan. Allergan will be holding a special meeting on December 18th, where its shareholders will vote on Valeant’s proposal. Meanwhile, Valeant CEO Michael Pearson extended an olive branch to Allergan CEO David Pyott in a series of released letters. Such overtures have been rebuffed by Allergan. Allergan has engaged in talks to acquire Salix Pharmaceuticals in a further attempt to de-rail the Valeant deal.
Coty Reports Flat Full Year Revenue – Coty reported fiscal year 2014 sales of $4.5 billion, down from $4.6 billion a year ago. After growing revenues in 2011 and 2012 driven by the acquisitions of OPI and Philosophy, the company has failed to grow sales since its IPO in June 2013. Coty also announced it would be discontinuing TJoy, the Chinese skincare brand it acquired in 2011 for $400 million due to poor performance of the brand. In other news, Chief Executive Officer Michele Scannavini announced he was leaving Coty for personal reasons after having assumed the CEO role back in 2012. Chairman Bart Becht has taken over the CEO role while the company seeks a permanent successor.
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Publicly Traded Companies (USD Millions) Last Twelve Months Company
Revenue Growth
Enterprise Value / LTM
Enterprise Value
Market Cap
Revenue
Gross Profit
EBITDA
1-year
3-year
Revenue
EBITDA
$7,317
$5,476
$9,362
62.0%
6.7%
(10.2%)
(6.0%)
0.8x
11.6x
$16,999
$19,178
$7,860
62.9%
15.4%
0.1%
3.0%
2.2x
14.1x
$8,038
$5,860
$4,552
59.4%
15.4%
(2.1%)
3.8%
1.8x
11.4x
$885
$499
$1,164
45.0%
4.7%
(13.4%)
(0.3%)
0.8x
NA
$28,220
$28,491
$10,969
80.3%
20.1%
7.7%
7.6%
2.6x
12.8x
$704
$851
$472
50.1%
9.4%
(30.0%)
(1.1%)
1.5x
NA
$87,687
$88,856
$29,154
71.3%
20.5%
1.0%
4.5%
3.0x
14.7x
$3,383
$1,659
$1,792
65.0%
16.1%
29.9%
9.3%
1.9x
11.7x
$7,328
$6,749
$7,186
75.1%
10.7%
11.2%
4.0%
1.0x
9.5x
Mea n
63.4%
13.2%
(0.6%)
2.8%
1.7x
12.2x
Medi a n
62.9%
15.4%
0.1%
3.8%
1.8x
11.7x
5-Year Historical Trading Multiples TEV / EBITDA Multiples
TEV / Revenue Multiples
2.5x 2.0x 1.5x 1.0x
5-Year Average: 1.4x 0.5x Sep-09
Global Beauty Care Equity Price Performance
0% (10%) (20%)
4.1%
(2.1%) (2.9%) (5.0%)
20
Sep-13
Sep-14
20
18
21 16
15
15
12 (8.7%)
(11.5%) (16.7%)(16.9%)
(30%) (40%)
Sep-12
# of Announced Beauty Care Transactions by Quarter
30
Inter Parfums
10%
Sep-11
Global Beauty Care M&A Transactions
Past Three-Month Equity Price Performance
20%
Sep-10
(32.6%)
10
6
0 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14
Note: Indices calculated using a median equally-weighted basis; All data sourced from S&P Capital IQ as of 9/30/2014.
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Cosmetics
Hair Care
Skin Care
Professional Products
Natural Products
Fragrances
Body Care
Equipment / Tools
Select Transactions
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in partnership with Chief Executive Officer David Berglass
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and its affiliates, subsidiaries of
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*Executed by principals of Intrepid while at previous firms.
Beauty & Personal Care Team
Steve Davis Managing Director SDavis@IntrepidIB.com
Shahriar Attaie
About INTREPID
Blake Morell
Vice President Analyst SAttaie@IntrepidIB.com BMorell@IntrepidIB.com
Intrepid Investment Bankers is a specialty investment bank that provides M&A, capital raising and strategic advisory services to middle-market companies across various industry sectors. We have a unique culture rooted in our founders’ successful 30-year history of advising entrepreneur and family-owned businesses, financial sponsors and major corporations. We believe that every company has an entrepreneurial passion that drives it and a story that defines it. We deliver unconventional results through our unique ability to tell each client’s story, and drive relentless execution through senior banker immersion in each process. We augment our international capabilities through our membership and active participation in M&A International Inc., an exclusive global alliance of select independent middle-market M&A advisory firms. Follow Intrepid IB
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