Could John C. Malone, chairman of Liberty Media Corp., be beauty's next mogul?
In a move signaling deeper involvement in the industry, Malone's media empire has swallowed a minority stake in drinkable and topical skin care brand Borba.
The acquisition was made via the group's Liberty Interactive division, which oversees home shopping channel QVC. It isn't Liberty Interactive's first investment in the beauty world — the company also has stakes in brands Bare Escentuals and Philosophy.
And the deal might not be Liberty's last, marking a further incursion by outside moguls into the fashion and beauty worlds — a la Harvey Weinstein's investment in Halston and Ron Burkle's stake in Sean John. Meade Rudasill, chief operating officer of QVC, which is Liberty Interactive's largest holding, described the Borba deal as a precursor to a further broadening of the company's beauty investment portfolio.
"We wouldn't predict a specific pattern, but you can expect that you would see more of this over the next two to three years," Rudasill said. "Our approach is that it has to be the right company, the right spokesperson and the right ownership at the right time."
Although terms of the deal were not disclosed, industry sources estimate Liberty's investment in Borba to be around $5 million.
Founder Scott Vincent Borba remains as chief executive officer of Borba and the largest single shareholder in the Beverly Hills-based company. Brad Greenspan, the founder of MySpace creator Intermix Media Inc. who invested $3 million in Borba two years ago, will maintain a small stake in the company.
A yet-to-be-determined QVC executive will be given a seat on Borba's board.
"Our greatest value in partnering with emerging brands is that we can help them in our TV model and ramp up their volume," said Rudasill. "We are not looking at $200 million brands, [but] smaller brands. If you can see the potential and there is an established base and we see that it can grow, [that type of brand] is more of what we are looking for."
Rudasill continued that the investment strategy is not based on specified sales or growth rate targets alone. He cautioned that, with small companies, setting absolute targets can lead investors astray by directing their interest toward one-hit wonders. "You don't want to either be enamored by high growth on something small or not partner if you see there is an underlying thoughtful innovation," he said.Borba offers an illustrative model for any future potential investments by Liberty in thriving beauty upstarts. Established in 2005 by Borba, a serial entrepreneur who also has the dollar cosmetics brand Eyes. Lips. Face., or E.L.F. Cosmetics, under his belt, the firm generated $5 million in revenues in its debut fiscal year, $7 million in the second fiscal year and is projecting $20 million in the third fiscal year.
Borba, 34, bulldozed his way into the beauty industry by breaking into untapped markets. One failure he admits to is a company called Liquid Love, which about eight years ago was among the initiators of combining accessories and cosmetics. It made lip gloss rings and ice cube beauty products in martini glasses. "I didn't know about putting everything together, so the bolts would fall out," remembered Borba.
But he hit his stride with the namesake brand by introducing nutraceutical beverages at beauty retailers such as Sephora. Ironically, QVC hasn't featured the drinks because shipping costs made them undesirable to sell via television.
Still, Allen Burke, QVC's director of beauty merchandising, said he deduced from early meetings with Borba that "there is something here." Borba's launch of topical skin care made his products appropriate for QVC, where he started appearing a year ago and has notched up $5 million in sales so far.
"[Borba] is so excited by new concepts. He is only going to get stronger as time goes along. As more and more of your ideas are well received by the public, that does energize you," said Burke. "I don't think he is going to become a suit. He will always be a product guy. Increasingly, the industry will be looking to him for the next great thing."
Along with the Liberty deal comes heightened pressure for Borba to ramp up product development. Borba expects to offer a new product every 90 to 120 days, a significant pipeline infusion considering the brand currently has only 25 stockkeeping units.
A recent introduction is the Borba Atomizer, a reviving mist for linens as well as the face and body, which retails for $21.
"It has kind of been a huge building block, like a Lego system, to try to figure out how to build new categories. The biggest challenge and opportunity has been trying to find people that believe in the vision," said Borba. "What I do and will continue to do and not change is to innovate and do things that are unlike anything else because that is where the growth is."While QVC may be Liberty Media's largest holding, the company has nurtured firms across a variety of industries. Earlier this year, Liberty took a controlling stake in Backcountry.com, an operator of outdoor and action sports Web sites. Liberty Media, which racked up 2006 sales of $8.6 billion, also has interests in Provide Commerce, IAC/InterActiveCorp and Expedia.
"They have capital, and they look for other growth vehicles," said Rudasill of Liberty. "Liberty is making the investment [in Borba] because that is how things emerged from a capital standpoint. When we look at doing these kinds of things, it is symbiotic where we take advantage of the parent company and take direction where appropriate."
April Horace, an analyst with Janco Partners, warned against blowing Liberty Media's burgeoning interest in the beauty sector out of proportion. She explained the company has indicated that it will pursue acquisitions, but she did not believe beauty company pick-ups are a "major initiative."
"QVC generates $5.6 billion in revenues per year. They are not buying Estée Lauder," said Horace. "It is tough for me to see some small acquisition moving the needle for QVC."
Regardless, Liberty Media is an attractive investor option for fledging beauty brands. These companies have turned to QVC more and more as conventional retailers become harder to break into. And Liberty Media can offer, perhaps even more important than a cash infusion, rapid exposure to a vast consumer base.
"With Liberty and QVC, we needed a partner that would be able to showcase us extremely well, from an awareness perspective, to be able to get into homes a lot faster than we could do with any traditional investor, private equity or otherwise," said Borba. "You will grow slowly with other traditional firms versus a company like this."
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