Guthy-Renker has stepped up to the acquisition plate with a $15.7 million deal for Modern Health Labs, which is known for its Scalp Med brand of hair growth products.
The Scalp Med purchase, which gives Guthy-Renker 51 percent of a tested infomercial player that racked up $100 million in sales over the last two years, is the first of what’s expected to be a number of beauty and personal care plays by the direct-response giant. The acquisition strategy is a break from Guthy-Renker’s long-standing practice of growing brands such as Proactiv Solution and Sheer Cover in-house.
“As you grow, to be 10, 15 percent bigger than the year before, you need more than you used to,” said Ben Van de Bunt, co-owner of Guthy-Renker. “We are trying to accelerate homegrown [brands] and acquisitions. There will definitely not be a slowdown in the homegrown [strategy].”
Guthy-Renker, based in Palm Desert, Calif., broke into the acquisition fray in earnest last year when it entered the sweepstakes for Kate Somerville, a skin care business that ultimately merged in spring with San Francisco-based private equity firm JH Partners. Shortly after the JH deal, Greg Renker, founding principal of Guthy-Renker, said acquisition targets would largely be companies under $100 million in annual revenues that had a history, even if brief, of success on television either with infomercials or shopping channel appearances.
Van de Bunt explained that Scalp Med was an attractive brand due to its two years experience running infomercials and its appeal to women, who constitute one-third of its customers. He estimated that Guthy-Renker would triple the brand’s revenues in the next five years by drawing upon its infrastructure to sell Scalp Med’s minoxidil-fueled products, which were created by Nevada Hair and Scalp Institute director Shane Malek.
“People feel that the [hair growth] products available to them aren’t effective,” said Van de Bunt. “From everything that we can see in terms of [Scalp Med’s] customer response, the inventor of this product has come up with a great solution to a big problem.”
Van de Bunt equated Scalp Med’s ability to show before-after results imagery, critical to woo infomercial audiences, to Proactiv, Guthy-Renker’s largest brand that accounted for almost half its more than $1.6 billion in sales last year. He said Guthy-Renker is currently developing is own Scalp Med infomercials that are slated to run in the first half of this year. Guthy Renker has wrangled celebrities, including Sean “P. Diddy” Combs and Jessica Simpson, into its Proactiv spots and could eventually do the same for Scalp Med.
This story first appeared in the January 16, 2008 issue of WWD. Subscribe Today.
This year, Guthy-Renker could acquire as many as four companies, according to Van de Bunt. However, he cautioned, “It’s going to be opportunistically driven. If there is nothing out there, we are open to waiting.”
Beauty and personal care companies are the top acquisition priority, but firms that offer Guthy-Renker infrastructure support are also on its acquisition to-do list. For now, Guthy-Renker is paying for firms in cash, although it could someday set up a fund if the number and size of acquisitions mounts.
“People now know we are a buyer and if you are a fast and anxious and honorable buyer with cash, it is a pretty good opportunity [for a seller]. We are not hurt the way that other private equity companies have been in the last eight months,” Van de Bunt said. “Our idea was to start small and see if we had the ability to identify great opportunities.”