By  on April 21, 2010

Essie Cosmetics has met its Sugar Daddy, so to speak.

L’Oréal USA announced Wednesday afternoon it made a deal to acquire Essie Cosmetics, one of the largest independent nail polish companies in the beauty industry, for an undisclosed amount. Essie is best known for its wide array of nail polish colors and its quirky names, such as No Prenup, Limo-Scene and the aforementioned Sugar Daddy, a light, sheer pink.

Industry watchers said Essie, which had $28 million in wholesale sales for the latest 12 months, presents its new parent with several growth opportunities.

The first is to expand the brand into cosmetics, a move Alexander Panos, a managing director of TSG Consumer Partners, the New York-based private equity firm, has said would be a natural extension for the brand.

“It can be in many categories, namely eye, lip and face. That’s the Holy Grail for any brand,” he said.

Panos added L’Oréal is a great fit for Essie, as it has both the professional and mass experience to best navigate Essie for future growth.

Another is to take the company further into international regions. Essie, which is sold in more than 100 countries, is small overseas in comparison to its closest competitors.

“OPI and Orly have had more success internationally and this is a way for [Essie] to do that more without taking on any risks,” said Jani Friedman of Demeter Group, a boutique investment bank based in San Francisco.

In addition to international expansion, domestic growth through hair salons is another opportunity.

“L’Oréal has one of the largest salon network distributions. They use it to pump all of their hair care brands through,” Friedman said. “Now they can do that with Essie to salons that don’t currently carry polish.”

A long-term goal would be taking the brand to mass or masstige retailers, added Friedman.

The brand will continue to feel founder Essie Weingarten’s presence and thumbprint as she and her husband, Max Sartino, who serves as Essie’s chief executive officer, have both signed multiyear deals with L’Oréal.

“I am staying on and very committed. My baby was starting to grow so fast and we just saw it going to new heights and we needed the right partner. We saw that only one company could do cosmetics to perfection and that’s L’Oréal. I am giving them my diamond in the raw and I know they will polish it and take it to the moon,” said Weingarten.

Michel Dyens & Co., a New York and Paris-based investment banking firm, advised Essie Cosmetics in the sale to L’Oréal.

L’Oréal would not disclose a purchase price for Essie but Friedman estimated since cosmetic companies are selling for about 1.8 times revenue (based on deals from 2003 to 2010) that the beauty firm likely paid about $50 million on the low end to $60 million on the high end since Essie is such a “specialized brand.” Earlier this month Essie said the brand realized $150 million in retail sales for 2009, a figure that is a reflection of the multiple used in the distributor network to reach salons and ultimately the consumer.

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