Five Crowns Capital LLC. and Corbel Structured Equity Partners have invested in Cosmetic Design Group, a private-label cosmetics firm, which also owns the eye-pencil brand Styli-Style Cosmetics.
Terms of the deal were not disclosed. Maurice Rasgon, who founded Culver City, Calif.-based CDG nearly 30 years ago and was the sole owner, is remaining with the company, as is Steve Dickstein, who joined CDG as chief executive officer in 2012. He previously was ceo of Hugo Naturals for two years and before that, president of Freeman Beauty Labs for three years.
“We were looking at acquisitions, and I had a decision to make,” said Rasgon about CDG. “Either I was going to borrow or I was going to bring in a partner to finance [the acquisitions],” said Rasgon. “We have looked at acquisitions as large as $30 million, and we would not be able to handle that on our own. We have acquired companies in the past that were always $5 million and below.”
Jeffrey Schaffer, managing partner and founder at Five Crowns Capital, said the high caliber of CDG’s management team appealed to the Newport Beach, Calif.-based investment firm. “They have the perfect combination of entrepreneurialism, deep industry experience at big and small companies, and quick-to-market [capability], and that is really the most important part of an investment. The company has the right people, and we will apply them to other companies or brands.”
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CDG is the third investment in the beauty segment that Five Crowns Capital, which focuses on small- and middle-market companies, has made in roughly two years. Previously, it invested in self-tanning brand Beautisol and skin-care brand Cellessence. CDG is the only beauty company in Corbel Structured Equity Partners’ portfolio. Corbel’s strategy is to make noncontrol investments in profitable lower-middle-market firms.
In the past dozen or so years, Rasgon has been an active acquirer of beauty businesses. His list of purchases includes nail treatment brands American Classics and Salon Sciences, skin care brand Doll Face Beauty Cocktails, Milani Cosmetics, which he sold to current owners Ralph Bijou and Laurie Minc, and Styli-Style Cosmetics, a brand known for its flat eye pencils. CDG has concentrated Styli-Style on professional beauty distribution and is in the process of expanding its assortment from 96 stockkeeping units to around 300. Styli-Style’s products are priced mostly from $4.99 to $10.99.
About 70 percent of CDG’s revenues are from private-label products and the rest are from branded products. Rasgon is aiming to increase the percentage of CDG’s revenues from brands to 40 to 50 percent. “Private label is so competitive and needs to be sold at lower profit margins with high volume. With a brand, we can control the direction we want to take it and also have an opportunity for higher profit margin,” said Rasgon, who noted CDG is already in discussions with three companies about possible acquisitions in the near future. “We are looking for companies with national brands that have good profits that are widely distributed, preferably in areas that we aren’t.”
Although neither Schaffer nor Rasgon would divulge CDG’s annual revenues, Rasgon revealed the company registered a 20 percent jump in revenues last year. CDG has honed strengths in nail products — the company’s Web site estimates it produces more than 25 million bottles of nail lacquer annually — and a variety of color cosmetics products. In the late Eighties and early Nineties, the company made its mark perfecting glitter nail polishes for tween shoppers. “We were able to come up with new products and new technology that really spoke to that market,” Rasgon said.
On the private-label side of the business today, he pointed to interest from specialty retailers in developing house brands as a key growth driver. “They realize that if they put their name on it [a cosmetic brand], they can get a higher profit margin. They want someone who can react quickly, and they want to be able to buy the trendy shades because their [customers] are younger, more cutting-edge and on social media,” he said. “They see something that is trending, and they react right away.”