Edgewell is the latest strategic buyer to turn to a direct-to-consumer shaving business to bolster its grooming sales.
The company’s $1.37 billion Harry’s acquisition follows similar deals from Unilever, which bought Dollar Shave Club for a reported $1 billion in 2016, and Procter & Gamble, which acquired Bevel as part of the Walker & Co. transaction in 2018.
The move comes as some of Edgewell’s existing shave brands, like Schick and Wilkinson, have started to struggle. Outside of Edgewell, it adds to the consolidation in the grooming market, with newer brands being scooped up by owners of older, more sluggish ones.
“Shaving was once an amazingly vibrant, highly loyal and super high-margin category controlled by three companies. Today, it has been disrupted by two nascent companies who have methodically gained share by death by a thousand cuts and forever challenged the loyalty/price paradigm,” said Andrew Shore, managing director at Moelis, talking about the role grooming start-ups have played in today’s shave market.
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The Harry’s acquisition comes as Edgewell reported disappointing financial results.
“Fiscal [second-quarter] sales came in far worse than we expected,” Citi analyst Wendy Nicholson wrote in a note, saying that organic sales fell in wet shave, down 12 percent; feminine care, down 7 percent, and sun and skin care, down 7 percent.
But Harry’s, which a Euromonitor analyst said is the fastest-growing men’s shaving brand in the U.S., could boost some of those segments. The business is best known for its razors, but has broadened its assortment in recent years to include face and shower products. It also expanded from just selling direct-to-consumer to sales at retail giants like Target and Walmart. After the investment of private equity firm ACG Partners in 2018, Harry’s launched a women’s business, Flamingo, that makes razors and wax kits.
RBC analyst Nik Modi called the Harry’s deal a “smart move.”
According to Euromonitor, Harry’s sales more than doubled in 2018. Industry sources said they were at more than $250 million for 2018, and are expected to climb to $325 million in 2019.
“[Edgewell] benefits from Harry’s digital marketing, brand messaging and e-commerce/direct-to-consumer capabilities, while Harry’s business benefits from [Edgewell’s] patents and R&D capabilities, necessary to boost Harry’s product efficacy (and eventual trade-up strategy),” Modi wrote.
He also voiced the idea that now, Edgewell itself is a potential takeover target for a larger consumer packaged goods business.
As part of Edgewell, Harry’s is slated to help build out and scale consumer brands. Harry’s has done it before, both with its main men’s brand and with Flamingo, the recently launched women’s business. Harry’s cofounders and co-chief executive officers Andy Katz-Mayfield and Jeff Raider will now serve as co-presidents of U.S. operations for Harry’s.
In a statement, Katz-Mayfield and Raider noted that when they launched Harry’s six years ago they aimed to create a brand that better met consumer needs and could eventually be scaled into a CPG platform that creates more brands. They intend to “[deliver] on that vision” under Edgewell, using the brand’s technology and global footprint.
The Harry’s brand is expected to enter new geographic markets under Edgewell, and the startup’s e-commerce expertise is expected to boost some of Edgewell’s online growth more broadly.
Edgewell is paying for Harry’s in a cash and stock deal — 79 percent in cash, and 21 percent in stock. Harry’s shareholders will own about 11 percent of Edgewell when the deal closes. Edgewell expects to generate $20 million in earnings before interest, taxes, depreciation and amortization in annual cost savings by 2023, driven by production and supply chain optimization.
Goldman Sachs and Perella Weinberg Partners advised Edgewell, and Centerview Partners advised Harry’s on the deal.
The stalwarts of the grooming business have struggled with an influx of new, less expensive, more convenient brands over the past several years. In its latest quarter, Procter & Gamble, which owns grooming businesses Gillette, Mach 3, Braun and Venus, saw grooming sales dip 8 percent.
Harry’s and Dollar Shave Club are the poster children of grooming disruption. But other brands — like Billie, a women’s personal care company that makes razors and body wash; Sphynx, which makes portable razors, and Maapilim, which makes luxury men’s personal care and grooming products — have all recently hit the market and attracted money from the venture capital set, too.
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