By  on June 4, 2007

Another Niche, dermatological brand may have found a new home.

Talk surfaced Friday that the Estée Lauder Cos. is considering an acquisition of Murad Inc., the eponymous skin care brand founded in 1989 by El Segundo, Calif.-based dermatologist Howard Murad.

An Estée Lauder Cos. spokeswoman declined to comment on the transaction, but at least one industry source believes a letter of intent might have already been signed.

Large beauty firms' interest in clinical skin care brands, many of which are sold outside the department store realm, have percolated over the last several years. For instance, L'Oréal purchased the professional treatment brand SkinCeuticals two years ago, and in January, Procter & Gamble charged into the dermatologist skin care business by acquiring Doctor's Dermatologic Formula from a private equity fund for an estimated $50 million to more than $90 million.

Murad, which includes skin care products and dietary supplements, is sold via infomercial, on the Internet and in spas and specialty stores, including Ulta, Sephora and select Bath & Body Works. Industry sources estimate that it generates $100 million in manufacturer sales, with the Internet accounting for approximately $20 million to $30 million of sales.

Murad, should it be acquired by Lauder, would mark the beauty firm's third clinical skin care brand. Lauder's portfolio includes Clinique, which was created in 1968 as a dermatologist brand, and Rodan + Fields, which the firm acquired in 2003. The brand — created by Stanford University-trained dermatologists and frontwomen of Proactiv Solution, Katie Rodan and Kathy Fields — generated sales of $3.7 million in department stores last year, according to The NPD Group. As a point of comparison, Clinique reaped $1.2 billion during the same period. Several analysts speculated that, given Rodan + Fields challenges and Clinique's reliance on department stores, Murad would complement the Lauder portfolio by giving it a foothold in the active cosmetics segment — a business that L'Oréal has focused on growing in recent years — and alternative retail channels.

A.G. Edwards & Sons analyst Jason M. Gere said a dermatologist or doctor brand would be a nice "fill in" to Lauder's current portfolio, particularly given the plethora of young, niche skin care brands in the space that are increasingly grabbing consumers' attention. In a research report Tuesday, Gere wrote, "Considering that Estée Lauder and Clinique brands have slowing sales growth and past acquisitions such as MAC and Bobbi Brown have worked out very well, we wouldn't be surprised to see [Lauder] add to the portfolio over the next 12 to 18 months, if it wants to ensure it can deliver toward the high end of 6 percent to 8 percent organic sales growth longer-term."

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