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Interest in Perricone, E.l.f. Stirs Beauty M&A Market

After a relatively slow first half, beauty dealmakers are getting back down to business.

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The beauty deal market is waking back up.

Investment bank Goldman Sachs is within weeks of finalizing an agreement to sell Perricone MD, while Financo is fielding interest for E.l.f. Cosmetics, according to sources.

The first half was relatively slow for beauty dealmakers after potential changes to the tax law pushed a raft of deals into the fourth quarter last year. But now strategic and financial buyers are getting back down to business — the one caveat is that many of the companies that are being bandied about have been in play for some time and have yet to make a connection.

“It is a pretty robust market for beauty,” said Arash Farin, vice president at investment bank The Sage Group, noting the sector has seen about 17 deals so far this year. “For the right growth story and the right management team, there’s an abundance of capital, making it an opportune time for certain companies to explore liquidity alternatives.”

Farin said the market still wasn’t at the “fever pitch” it experienced in the fourth quarter, but that it had “rebounded significantly.

“The lending markets are back in a pretty strong way,” he said. “The stock market’s performing very nicely and, in our universe, very few companies have not done well this year. There are many companies that are small and nimble and the L’Oréals out there are always looking for companies with sound technologies which also offer footprints in new or desirable locations.”

Perricone’s founder, Dr. Nicholas Perricone, declined to comment, as did Joey Shamah, chief executive officer and a founder of E.l.f.

TSG Consumer Partners holds a majority stake in Perricone and is a minority investor at E.l.f. A spokeswoman for the private equity firm and a spokesman for Goldman declined to comment Monday. Financo could not be reached.

Perricone founded his company in 1997 with an approach to help repair damaged skin with nutrient antioxidants in cosmeceutial formulations. The company sells a range of products — from moisturizers and foundations to facelifts and supplements — and introduced the OVM antiaging cream on QVC this summer. The dermatologist used eggshell membrane as his starting point for the proprietary Bio-Matrix Technology in the cream, a 2-oz. jar of which retails for $165.

Sources said E.l.f. hired Financo last year after it was approached for a buyout. The bank was kept on and has been taking bids from would-be buyers. The company is believed to have revenues of $110 million and earnings before interest, taxes, depreciation and amortization of about $25 million.

The digitally savvy E.l.f. was founded in 2004, finding its initial success online with beauty products priced at $1, $3 and $5.

Despite signs of a recent pickup in beauty M&A, Elsa Berry, founder of Vendôme Global Partners, said the last two years have been “kind of ho-hum” in the luxury beauty space, with many companies sitting on the market for extended periods or never selling.

 

StriVectin, for instance, was buzzed about in financial circles, but never traded.

Prices on hot brands have gone up and competition is starting earlier, with big players looking to round out their portfolios and private equity companies wanting to put their money to work and take advantage of favorable interest rates.

“Now in beauty, if you are a private equity group, you need to be prepared to buy smaller because the thresholds of where strategics get involved has become smaller,” Berry said. “You have to be prepared to jump in earlier in the growth curve.”

While the recently red-hot nail market has cooled some, Berry said there were several sectors that should be of interest to dealmakers looking toward the future. They include: hair care, skin-care products that are both natural and effective and men’s.

“Men’s is high growth, but not a huge market,” she said. “Not everyone is going after it.”

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