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Hot M&A Market May Drive Revlon Deal

Valuations for beauty companies are high, which may have driven Revlon chairman Ron Perelman to consider strategic alternatives for the business.

The time might be right for Ronald Perelman to cash out at Revlon Inc.

Perelman, who is chairman of the mass beauty player, essentially put a “for sale” sign on the company when he said he’d consider strategic alternatives for the business in a filing Friday with the Securities and Exchange Commission. He owns 77.6 percent of Revlon through investment vehicle MacAndrew & Forbes Inc.

“Part of the reason they may be doing this are the tremendous valuations from M&A, particularly in beauty,” says The Sage Group’s Arash Farin. “It may be an opportunistic move. It’s a good time for the brand to explore this. You can look at the numbers and I think there are many elements that would attract a buyer.”

Shareholders approved of the move and pushed the stock up 11.6 percent to $28.08. The shares hit a 10-year high of $41.20 on March 31, but have since traded down and closed at $24.50 on Wednesday, a one-year low.

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The beauty category has had its fair share of M&A transactions recently — most notably, Coty Inc.’s $12.5 billion deal to pick up 41 beauty brands from Procter & Gamble. Unilever has been on a specialty skin-care spree, adding Kate Somerville, Murad and Dermalogica.

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Revlon holds something of an unusual position in the beauty market. It can’t keep up with the big players (Estée Lauder, L’Oréal or Coty) in terms of size or acquisitions, and it lacks the nimbleness of smaller companies.

But the brand, recognized by the industry as a quintessentially American business and overall desirable asset, is expected to draw interest from both strategic buyers and private equity companies.

“It’s a very rare and unique asset that should attract a lot of attention,” Farin says.

A would-be buyer for Revlon would need to be well funded. The company has a market capitalization of $1.46 billion and, including the face of its debt and its stock price, an enterprise value of $2.99 billion.

One obvious potential buyer, Coty, may be too tied up in a several billion dollars worth of other deals to take on Revlon at this point. Aside from the P&G deal, Coty is undertaking a $1 billion beauty acquisition in Brazil that is expected to close by the end of March. A spokesman said, “Coty’s policy is to never comment on rumor or speculation.”

Industry insiders expect conglomerates with personal-care segments, such as Reckitt Benckiser or Henkel, to show interest as well. Private equity players, which could revamp and sell the business (potentially to Coty) in a few years, are also expected to look into a deal.

Perelman could also buy the company outright, but that scenario is less likely than a strategic or private equity deal, sources said.

The financier’s 2009 take-private attempt ended in lawsuits, most notably one from the SEC, which charged the company with violating federal securities laws and misleading shareholders during the deal. In 2013, Revlon agreed to pay an $850,000 fine.

And Perelman, 73, may have simply recognized it’s time to get out and that the market right now is favorable. Wider global economic concerns, including stock market volatility, are also considered a factor.

During Perelman’s 30 years he’s been through a revolving door of ceo’s. The latest, Lorenzo Delpani, came on board in 2013 following Revlon’s $660 million acquisition of The Colomer Group, a beauty products company that sold Revlon-branded products to salons, among other things. Delpani improved Colomer’s performance under private equity company CVC Capital Partners before the firm sold it to Revlon.

Revlon logged $471.5 million in sales for the third quarter, a slight decrease year-over-year from $472.3 million. Total company earnings before interest, taxes, depreciation and amortization tallied $81 million in the third quarter, up from $79.8 million, year-over-year.