Call it the biggest spate of takeovers in the beauty industry since the entry of the drug companies in the Seventies.
Private equity firms have made their presence felt of late with major investments and buyouts of beauty companies, which offer prospective investors high margins and relatively quick turnaround times. Some exit strategies for private equity firms in the beauty industry have taken three years and others have taken just a year.
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Burt’s Bees, the earth-friendly marketer of lip balms and natural lotions, was a prime example of a private equity triumph in beauty this year. New York-based private equity firm AEA Investors Inc. bought an 80 percent stake in the brand for $175 million four years ago. In 2005, the brand’s distribution was expanded to include the Walgreens and CVS chains, putting it in 20,000 stores. Then, last month, AEA sold the brand to Clorox Co. for $925 million — more than five times what the investment firm paid for it in 2003. Moreover, Kelso & Co. agreed on Friday to sell its Del Laboratories Inc. subsidiary to Coty Inc. in a deal estimated by industry sources to be worth $800 million.
In another high-profile deal, Washington-based Carlyle Group in January paid an estimated $450 million for Philosophy Inc., which has built its business in Sephora and on QVC. Also, in the spring, San Francisco-based TSG Consumer Partners LLC sold $207 million hair care brand PureOlogy to L’Oréal. In September, Miami-based investment firm The Equitium Group acquired Caswell-Massey from BFMA Holdings, another investment group based in Pompano Beach, Fla.
“The beauty industry is attractive to private equity firms because it offers a number of brands with large-scale and significant growth prospects,” William Susman, president and chief operating officer of Financo Inc., told WWD this year.
Going as far back as the middle of 2006, a number of private equity firms have cashed out their beauty investments: Berkshire Partners and JH Partners, owners of the fast-growing mineral makeup company Bare Escentuals, and Summit Partners, an investor in the mass market cosmetics brand Physicians Formula, took their respective beauty firms public, while North Castle Partners sold the skin care brand Doctor’s Dermatologic Formula, or DDF, to Procter & Gamble for an estimated $50 million to $90 million, and sold Avalon Natural Products to the Hain Celestial Group for $120 million.
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In 2006, TSG also bought stakes in N.V. Perricone M.D. and Smashbox Cosmetics and, in 2005, it invested in Alterna Professional Haircare. In 2004, Harvest Partners invested in Arbonne International.
“Large consumer-product companies are looking at these niche brands, but in many cases, the brands are too small for a Procter & Gamble or a Unilever to buy,” Cathy J. Leonhardt, managing director of Peter J. Solomon, said. “But once the business model has been proven out, they are ripe for a strategic buyer.”