Coty Inc. may be moving plans for an initial public offering to the front burner again.
This story first appeared in the January 26, 2011 issue of WWD. Subscribe Today.
Speculation about a possible IPO by the beauty firm whirled Tuesday in light of a cash infusion made into the company by two private equity firms.
Berkshire Partners, based in Boston, and Rhône, which has offices in New York, London and Paris, made minority equity investments in the $3.6 billion Coty. Each of the investors will be represented on its board. Details of the transaction were not disclosed.
The investments could fuel further acquisitions by Coty, which in late 2010 alone acquired OPI Products Inc., Philosophy Inc., Chinese skin care company TJoy and the German beauty brand Dr. Scheller Cosmetics. The deal could also help finance the purchases Coty made last year. Industry sources estimate the acquisitions had a combined price tag of more than $2 billion. Coty is estimated to have paid roughly $1 billion each for OPI and Philosophy.
Shortly after the acquisitions, chief executive officer Bernd Beetz told WWD, “It is important that we broaden our footprint and build strength in color cosmetics and skin care.”
One industry source suggested the private equity investments come in anticipation of the beauty firm aiming for an IPO, a move that may have been delayed by the recession, and presumes an IPO could be a year away. It has been believed that, for more than a decade, Coty’s owner, the Ludwigshafen, Germany-based Joh. A. Benckiser GmbH, a private holding company, had ambitions to take Coty public, despite denials. A future IPO could provide a logical exit strategy for Rhône and Berkshire, which counts Bare Escentuals among its former investments.
Before it can pursue such a strategy in earnest, Coty will have to continue to round out its product portfolio. The firm has worked to decrease its dependence on fragrances, which accounted for 62 percent of its product portfolio for the fiscal year ended June 30. Color cosmetics made up 23 percent, with sun care accounting for the balance of 15 percent.
Of course, the company’s spate of recent acquisitions have helped to pad its skin care and makeup offering. As previously reported by WWD, the acquisitions mentioned above shrank Coty’s share of fragrance by 7 percent to 55 percent, color cosmetics swelled by 3 percent to 26 percent of Coty volume, skin care jumped from 4 percent to 10 percent and the share of toiletries was reduced by 2 percent to 9 percent.
But several industry observers suggested larger, more established skin care and makeup brands are still needed to meaningfully unhinge Coty’s reliance on fragrance, a market that saw sales tick up a meager 1 percent in 2010, according to The NPD Group.
Referring to the investments by Berkshire and Rhône, Beetz stated, “This mutually beneficial agreement allows Coty to continue its accelerated growth path organically and externally around the globe. By bringing these partners on board, Coty will be in a stronger position to prepare for future and larger acquisitions while maintaining the culture that makes Coty such a unique place in the beauty industry.”
Bank of America Merrill Lynch represented Berkshire Partners, and Morgan Stanley represented Rhône in connection to the transaction.