By and  on October 5, 2009

Sally Beauty Holdings Inc. said Friday its Beauty Systems Group LLC subsidiary has acquired Schoeneman Beauty Supply Inc., a privately held beauty products distributor based in Pottsville, Pa., for $61 million in cash.

The acquisition, which will help BSG increase its national presence, particularly in the Northeast, is expected to add slightly to the Denton, Tex.-based company’s earnings per share in 2010. Upon full integration of Schoeneman, the hair products and beauty supplies distributor also anticipates cost synergies to be realized, which will further enhance EPS in 2011.

“This acquisition directly supports BSG’s strategy of extending our distribution reach in important geographic regions of the U.S.,” said BSG president John Golliher. “We expect this combination to provide us with a greater opportunity to compete in Pennsylvania, southern New Jersey, Delaware and West Virginia.”

According to Dale Schoeneman, chief executive officer of Schoeneman, “not only do the two companies share similar cultures, but the added scale and financial resources of the BSG organization bring enormous benefits to our customers, employees, suppliers and community.”

Schoeneman, which operates 43 beauty supply stores, now anticipates revenue for 2009 to be $86 million to $89 million, according to Sally Beauty.

After news of the deal, Moody’s Investor Service changed its outlook on Sally Beauty to “stable” from “negative” and upgraded the ratings on its secured term loans to “B1” from “B2” and the speculative grade liquidity rating to SGL-2 from SGL-3. The ratings agency said the change in outlook reflected the “improvement in Sally’s credit metrics and operating performance.”

“These guys have proven that the business model’s fairly resilient,” said Charles O’Shea, Moody’s vice president and senior analyst. O’Shea, who described the deal as “relatively small” and “sensible,” said Sally’s “revenues have been relatively steady. There are a lot of retailers out there that are struggling. These guys seem to be running counter to that.”

BSG, which sells and distributes beauty and hair care products in over 3,700 stores nationally and abroad, has annual revenues of more than $2.6 billion.

At the end of trading Friday, Sally Beauty Holdings’ stock fell 7 cents, or 1 percent, to $6.78.

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