Now that Coty Inc. has conquered the global fragrance market with a portfolio that includes Marc Jacobs, Calvin Klein and Sarah Jessica Parker, the scent-driven company is out to master color cosmetics.
The $3.3 billion firm catapulted that plan forward Friday by inking a deal to acquire DLI Holding Corp., which is known in the beauty industry as Del Laboratories, the maker of Sally Hansen nail care products.
Coty would not comment on the terms of the deal, but industry sources estimate the beauty firm paid roughly $800 million to Kelso & Co., the New York private equity firm that bought Del Labs for $465 million in 2004. The acquisition is expected to close by year's end, according to Coty.
Coty's chief executive officer Bernd Beetz said the company will house the acquired Del Labs' beauty brands — namely the market leader in nail care Sally Hansen, the value-priced cosmetics line NYC New York Color and La Cross beauty tools — under its Coty Beauty division. The mass market division currently includes Rimmel cosmetics and a bevy of fragrance brands including Adidas, David and Victoria Beckham, Celine Dion, Stetson, Shania Twain and the upcoming Tim McGraw scent. The deal also includes over-the-counter pharmaceuticals, including Orajel and Dermarest, which Beetz said he has no plans to divest at the present time.
The acquisition is intended to push Coty closer to its previously announced goal of becoming a $5 billion beauty firm by 2010.
Referring to his tenure at Coty, Beetz recalled that when he joined the firm six years ago it was a $1 billion fragrance house with the goal of growing into a $5 billion business, which would rank it among the world's top eight players. To make good on his declaration to groom Coty to be a leading global fragrance player, in 2005 the company acquired Unilever's global prestige fragrance business for $800 million, adding the marquee Calvin Klein brand to its portfolio. Industry sources estimated that since acquiring the fragrance brand, Coty has roughly doubled sales of Calvin Klein to $1 billion.
"We have an idea about how to build brands," said Beetz, referring to the success of the Calvin Klein acquisition. "[Del Labs] is going to be for color what Calvin Klein was for fragrance. It's an acquisition that will transform the company," added Beetz, deeming color cosmetics Coty's second growth pillar. Beetz noted the acquisition of Del Labs' Sally Hansen and NYC New York Color will bolster Coty's share of color cosmetics to 10 percent.NYC New York Color, which industry sources estimate generates $30 million at retail, has had a long-standing competition for retail shelf space with fellow value brand Wet 'n' Wild, which is owned by Markwins International Corp. Beetz said he sees an opportunity to build the NYC New York Color brand, in part, by taking it overseas, where it has little distribution.
Sally Hansen — which is primarily a nail care brand — made a bold bid for the color cosmetics market in 2003 by introducing a stand-alone makeup line called Sally Hansen Healing Beauty. By 2005 retailers collapsed the display into Sally Hansen's nail care planogram.
The acquisition will grow Coty's current $495 million cosmetics business to $835 million. According to Del Labs, cosmetics — including Sally Hansen and NYC New York Color — account for about 80 percent, or $340.7 million, of its 2006 net sales, which totaled $425.9 million. Excluding the planned Del Labs acquisition, cosmetics currently account for 15 percent of Coty's total company sales. Fragrance accounts for 68 percent of total sales with toiletries, at 14 percent, and skin care and sun care, at 3 percent, making up the balance.
Industry sources expect Coty will move swiftly to consolidate Del Labs' Uniondale, N.Y., headquarters into the fragrance firm's Manhattan offices.
Beetz dismissed the talk, saying that as it did with the Unilever fragrance acquisition, Coty plans to retain Del Labs' talent. Referring to employees that Coty acquired through the Unilever deal, Beetz said, "You will find them across all ranks of that company and that strengthens the organization. We will use that same approach."
Industry watchers have long suspected that Beetz aims to take the firm public, but said he would first need to round out its brand portfolio. The acquisition of Del Labs' beauty brands, particularly Sally Hansen, marks a decisive move to diversify Coty's business to include more profitable beauty categories. Beetz, as he has done in the past, acknowledged that acquisitions are part of the growth trajectory. Beetz would not reveal any acquisition targets, but both Unilever's fragrance portfolio and Del Labs were on the scale of $800 million.
Coty is 100 percent owned by the Ludwigshafen, Germany-based Joh. A. Benckiser GmbH, a private holding company that also owns 15 percent of the London-based consumer products firm Reckitt Benckiser. Peter Harf, the ceo of Joh. A. Benckiser, serves as Coty's chairman.
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