By and  on April 23, 2010

Smashbox Cosmetics, the brand founded by the great-grandsons of legendary Hollywood makeup artist Max Factor, is said to be close to signing a deal with a buyer.

Smashbox’s prowess in fast-growing retail channels, particularly TV shopping, and its presence in open-sell store formats, including Ulta, Sephora and Macy’s Impulse Beauty concept, make the company an attractive target for established beauty firms struggling to untether their businesses from department stores.

The Estée Lauder Cos. Inc., L’Oréal, Avon Products Inc. and Procter & Gamble Co. are said to have looked at the company within the last year and a half. Spokeswomen for the companies declined to comment.

The brand, which brothers Dean and Davis Factor started in 1996, generates about $130 million in wholesale revenue and $250 million in retail sales, according to a source with knowledge of the company’s finances. A sale likely would fetch $300 million to $400 million, based on industry estimates.

The line, best known for camera-friendly products such as Photo Finish primer and Photo Op Under Eye Brighter, is sold in Sephora, Ulta and in select Macy’s doors, as well as on QVC and online at smashbox.com and Beauty.com.

Private equity firm TSG Consumer Partners acquired a stake in the cosmetics company in 2006. Over the past two years, Smashbox intermittently has met with potential strategic buyers, including major beauty firms, industry sources said. They added that, about six months ago, Smashbox tapped Deutsche Bank to act as a financial adviser as it considered strategic alternatives, including the potential sale of the company. Deutsche Bank did not return calls seeking comment Thursday.

Budd Taylor, president of Smashbox Cosmetics, said the company was not for sale. “People often simply assume that eventually there is a sale whenever there is a private equity firm involved, and I am sure that is what ends up fueling rumors, but we are not for sale,” he said.

Hadley Mullin, a managing director at TSG, reiterated: “While Smashbox regularly receives inbound inquiries from strategics, the company is not for sale.”

Still, multichannel beauty brands have been in high demand of late — and have commanded high prices.

Shiseido Co. Ltd.’s $1.7 billion acquisition this year of mineral makeup company Bare Escentuals Inc. has given the Japanese cosmetics giant a stronger foothold across all retail channels, TV shopping and open sell included. Bare Escentuals is lauded for being at the forefront of the distribution in the U.S. beauty revolution, combining midmarket specialty store chains, such as Sephora and Ulta, with a strong TV shopping component and a department store anchor. It also operates its own stand-alone boutiques.

Smashbox, which is consistently a top-selling cosmetics brand on QVC, has similar appeal.

As for potential buyers, Smashbox would not seem to fit into the strategic focus of Lauder as outlined by Fabrizio Freda, the beauty firm’s president and chief executive officer. Freda consistently has named skin care and Asia as the firm’s two biggest opportunities.

During a roundtable with reporters in February, Freda said potential acquisitions must offer a distinctive positioning and growth, even if from a small base, and they must “live within high-touch retail channels.” He noted that historically, Lauder has plucked smaller brands, such as La Mer, from North America and “worked to make them a global, winning brand within two to three years.” But going forward, Lauder also plans to look overseas for acquisition targets. Freda said at the meeting that, for the time being, Lauder will steer clear of “transformational acquisitions” or large purchases that rely on creating cost synergies. “We’re not ready for that yet,” he said.

Lauder also is shedding underperforming businesses. In late January, the company shuttered retail distribution for its Prescriptives beauty brand, shifting the business to the brand’s Web site while supplies last.

One Wall Street analyst noted while Smashbox doesn’t neatly fit into Lauder’s strategic priorities, “Lauder can’t ignore open sell anymore.”

Mergers and acquisitions activity is heating up in the beauty industry. On Wednesday, L’Oréal USA said it made a deal to acquire Essie Cosmetics, one of the largest independent nail polish companies in the industry. So far this spring, Avon has embarked on a mini shopping spree, buying two smaller-size brands, namely the children’s personal care line Tiny Tillia and Liz Earle Beauty Co., which manufactures the Liz Earle Naturally Active Skincare brand. For its part, P&G’s most recent beauty acquisitions include niche men’s care brands Zirh Holdings and Art of Shaving.

To continue reading this article...

To Read the Full Article
SUBSCRIBE NOW

Tap into our Global Network

Of Industry Leaders and Designers

load comments
blog comments powered by Disqus