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With General Atlantic Investment, Morphe Plans to Buy More Brands

The business now has a more than $2.2 billion valuation.

Is Morphe going to be the next big beauty platform?

New investors General Atlantic are counting on it.

The private equity firm is said to have taken a 60 percent stake in the beauty business at a $2.2 billion valuation, industry sources said. Morphe is said to be on track to do nearly $500 million in net sales for 2019, with about $130 million in earnings before interest, taxes, depreciation and amortization.

With the influx of capital, the team at Morphe is planning to build out the company into a multibrand beauty business by acquiring, incubating and investing in other beauty brands. The strategy is being executed with the public markets in mind.

WWD reported that Morphe had hired investment bank Jefferies to raise additional capital back in April. In July, industry sources said General Atlantic was closing in on a deal.

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Morphe’s founding siblings, Linda and Chris Tawil, will remain invested and involved with the business. The duo bought the company in 2008 when it was a trade show-based brush operation, and gradually built it out into a full-fledged makeup company. It was at those trade shows that the Tawils started cultivating their relationships with the influencer community, which have proven instrumental to the brand’s growth.

According to Myles McCormick, who has been serving as chief executive officer of the company since his business, Elevate Brand Partners (which is backed by private equity firm Summit Partners) invested in 2017, the plan is to use the operational capabilities the team has built into Morphe and plug them into other companies. Summit remains invested in the business, alongside General Atlantic.

“The capabilities we’ve established here and the significant levels of investments we’ve built around this brand, we did it with the intent of building a much more significant portfolio of brands,” McCormick said. “In order to do that, we needed to bring in another partner that had not only deep resources within the category in working with founder-led brands, but also somebody who brought a more global footprint as a resource to us.” McCormick noted that General Atlantic has resources in Asia that could help Morphe and future brands grow in the region.

McCormick said there is not a specific number of brands Morphe is looking to buy, nor are there specific dollar-size parameters to future acquisitions. But he did say the company has been and is actively evaluating deal opportunities, and that acquisitions are likely in the near future.

“There [are] a combination of opportunities to incubate brands in partnership with individuals of celebrity and authority [in] the space, as well as acquire young brands — brands similar in nature to when we first built our partnership with Chris and Linda,” McCormick said.

The company is looking for digitally native, socially relevant brands that resonate with Gen Z and Millennial consumers that have the potential to grow into multicategory, multichannel and multiregional businesses, he added. Anything in makeup, skin care, body or hair could potentially be on the table, and influencer brands are certainly not out of the question. “There obviously are influencer brands out there that are very interesting and very successful,” McCormick said.

Over the past few years, influencers have been integral to Morphe’s strategy. The brand partners with many content creators in the beauty space, who provide affiliate discount codes for Morphe products to their followers. For some, like Jeffree Star, James Charles and Jaclyn Hill, Morphe has worked on product collaborations that reach both Morphe’s core shoppers and the individual influencer’s fans. Charles’ eye shadow palette, released earlier this year, sold out several times.

“It starts with an understanding of what and who is relevant to our target consumer base,” McCormick said. “As we consider other brands, the target consumer base might be a little different…[but] the influence of influencers is growing, and in large part, we believe that’s because you’ve got a very significant generational cohort in Gen Z who has grown up digital.”

Beyond bumping up product development and influencer collaborations, Morphe has broadened its distribution strategy to include Ulta Beauty and its own freestanding stores, over the past few years. That strategy will also be rolled out for future brands, McCormick noted.

General Atlantic and Summit aren’t the first to try building a private-equity backed beauty platform.

A few years ago, Warburg Pincus backed a company called Glansaol that meant to executive a similar plan, sans influencers. That business, which started with the acquisitions of Laura Geller, Julep and Clark’s Botanicals, ultimately failed and went into bankruptcy.

But Morphe’s new private equity backers have experience in beauty. General Atlantic acquired Too Faced at a $500 million valuation 18 months before selling it to the Estée Lauder Cos. Inc. for $1.45 billion.

The private equity firm is a big believer in the beauty category, General Atlantic managing director Andrew Ferrer said. “We’re big believers in the category and the ability to really build passion-driven authentic brands in the space. The category also lines up with for General Atlantic given that it’s global, it’s a category that’s driven by innovation, and it’s highly digital,” Ferrer said.

“We always want to be backing the folks that are helping redefine the industry, and we think Morphe is definitely one of those brands, given its partnerships with influencers, its tremendous price-value offering, its rapid innovation cycle — we really think it’s one of the future leaders of beauty,” Ferrer said.

That enthusiasm for beauty hasn’t necessarily been echoed in all parts of the financial world. Some financial types, especially those in the lending community, are said to be wary of the beauty category because of prestige makeup’s slowdown in the U.S. Industry sources noted that Jefferies is financing a $650 million term loan, and that some other lenders were hesitant to participate because the loan for Anastasia Beverly Hills is trading at around 80 cents on the dollar. One source said Jefferies plans to syndicate the loan in September.

Ferrer noted that part of the reason General Atlantic was so interested in this deal was the management team — both he and McCormick stressed that they’d known each other for about 15 years, and Ferrer called out McCormick’s ability to build a loyal and talented leadership team, which he has done with Morphe.

Since McCormick got involved, rumors that Morphe will one day hit the public markets have been swirling around the beauty world. Asked about the long-term vision for the company, McCormick noted that an initial public offering is certainly possible, though he did not explicitly say that was the ultimate plan.

“The team we have assembled here has taken companies public, in particular has taken companies public in this particular space. We understand how to navigate that process, how to navigate the markets as a public company. We know there’s a big opportunity in the public markets for a next-generation beauty platform, so that is a very real alternative for us,” McCormick said. “We’re building a business that’s capable of being a public company.”

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