Anastasia Beverly Hills’ investment from private equity firm TPG may be the last big makeup deal the beauty world sees for a while.
The transaction, which sources say values the business at $3 billion, follows several other large deals in the makeup space, including L’Oréal’s acquisition of IT Cosmetics for $1.2 billion and the Estée Lauder Cos. Inc. purchase of Too Faced for $1.45 billion. According to experts, Anastasia will likely be the last of this large-scale makeup M&A era.
“There’s a sense that interest has been fed,” said Andrew Charbin, director at The Sage Group. “There are many good assets in the industry, but many good color cosmetics assets of scale that are independent and actionable from an M&A standpoint? There aren’t as many because there’s been so much M&A activity.”
Anastasia Soare, who founded the business in 1997 with a focus on eyebrows, told WWD that the TPG investment should help the company grow internationally and ramp up its e-commerce operations.
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The brand just expanded internationally with Sephora in Spain and Italy, and is expanding with Selfridges in the U.K., as well as Sephora in Russia, she said. “After that, we’ll expand in Asia,” Soare said, noting the brand has no plans to enter China because it does not test on animals.
Soare and her daughter, Claudia Soare, will remain in charge of the business, but the company is hiring staff as it works to scale globally. Claudia Soare said the business is hiring a chief financial officer, chief marketing officer, vice president of international sales and information technology director, and that it just hired an e-commerce expert who will be in charge of making the company’s web site a “destination.”
On the back end, Anastasia is looking at “big-ticket items that can help [the company] be nimble and global at the same time,” Claudia Soare said. Those options include potential pilot offices and direct warehousing in Europe, which would allow the business to launch products at the same time abroad as it launches in the U.S., Claudia Soare said.
For now, Anastasia will stay focused on makeup, and many launches are in the works for 2019, Claudia Soare said. “The market is shifting a little bit,” she said, noting that there is “a big focus on newness and trend” and that the brand is planning exclusives for its own web site as a point of difference.
As part of its efforts to scale digitally, the brand is going to be rolling out an “aggressive” digital marketing plan, Claudia Soare said. Anastasia was one of the first makeup brands to attract a massive following on social media, and now has about 17 million Instagram followers.
The business was said to have around $200 million in earnings before interest, taxes, depreciation and amortization with $340 million in net sales when it hired Imperial Capital to conduct a sale. Terms of TPG’s investment were not disclosed. Sources said the transaction included about $650 million in debt and that there was a close to 50-50 split between debt and equity. Goldman Sachs, RBC Capital Markets, UBS Investment Bank an Deutsche Bank provided financial advice to TPG on the deal and are providing the financing.
For TPG, the Anastasia transaction represents a new level of commitment to the beauty space. The firm had done beauty deals before, and has backed companies like E.l.f. Cosmetics and Beautycounter, but between Anastasia and its recent investment in Rodan & Fields, industry sources estimated TPG has put around $2 billion to work in beauty in the past two months.
Because of the size of both of the deals, industry sources said the exit options have narrowed. Exiting either business would require a multibillion-dollar sale (think $5 billion to $6 billion for Anastasia) — or an initial public offering — because at that transaction size, few buyers are out there, sources said.
“There will be exit options,” Charbin said. “One path is potentially a strategic buyer…the second option is there’s a decent case to be made for an IPO.”
While it may be a while until the beauty world sees a large M&A deal of this type again, beauty M&A is still expected to plug on. “We will probably see a bit more activity in broader skin care, both in the prestige end of the market, the clean sector, if you will, and also in the professional channel,” Charbin said. “A lot of entities, both strategic and financial, are looking to professional skin care as an interesting channel.”