The Estée Lauder Cos. has emerged as a surprise front-runner to acquire Tom Ford International, according to industry sources.
While it’s far from a done deal, and banking sources said there are still other players in the picture, the owner of Clinique, Bobbi Brown and Jo Malone is said to be in talks to acquire the luxury fashion label.
As first reported by The Wall Street Journal, the beauty giant has been in negotiations over the past few weeks with Tom Ford, which has actively been searching for a buyer with the help of investment bank Goldman Sachs, and the number on the table is said to be around $3 billion, industry sources confirmed.
For now, both parties are remaining quiet publicly, with a rep for Lauder declining to comment on the matter, while a spokeswoman for Tom Ford did not respond to request for comment. Goldman Sachs also did not respond to a query.
While such a deal would mark the cosmetics giant’s first foray into fashion, it has held a longtime licensing partnership with Tom Ford Beauty and the so-called ultra prestige brand has been performing well, especially in the fragrance category.
At a recent Deutsche Bank conference in Paris, Lauder’s chief financial officer Tracey Thomas Travis said that “Tom Ford and Jo Malone are two of our largest midsized brands that are knocking on the door of being over that $1 billion threshold to be large brands over the next couple of years.”
She said that while much of Lauder’s M&A has been focused on skin care and makeup, “fragrance is an M&A opportunity for us as well given the success that we’ve had with the shift in strategy that we’ve executed against.”
And while there are questions over how Lauder would handle the ready-to-wear business, Lauder’s recent quarterly filing for the three months ended March 31, detailed how much Tom Ford is already a contributor on the beauty side.
It reported that fragrance net sales increased for the three months, primarily driven by Jo Malone London, Tom Ford Beauty, Le Labo and Estée Lauder, came in at approximately $107 million, combined. Lauder’s total fragrance sales for the quarter tallied $579 million. The increase at Tom Ford Beauty was “benefiting from the continued success of Private Blend and Signature fragrances and the fiscal 2022 third-quarter product launches of Costa Azzurra parfum, Rose de Chine and Rose d’Amalfi,” the firm said.
One banking source told WWD that such a move could be the beginning of it positioning itself into a luxury brand like LVMH Moët Hennessy Louis Vuitton and Kering.
Noting that most of the value in the deal would come from cosmetics and fragrance, with eyewear produced under license, another financial source said: “It doesn’t surprise me at all that Estée Lauder would want something like this.”
The source said the Tom Ford fragrance sales were pegged at around $275 million, but cautioned that, even if makeup and eyewear were as big, “$3 billion seems like a huge number for valuation.”
It’s relatively common that hefty buyout prices leak out to the press in hopes that a little public exposure will help as negotiators work to establish the terms of the final deal. Nevertheless, if this price is realized, it will be Lauder’s biggest acquisition to date, following the company’s agreement to pay $2.2 billion for a majority position in Deciem in 2021.
But, according to banking sources, there are other players interested, too.
Recently, Kering, the owner of Gucci, said it was looking at entering the beauty segment during its first-half results, although it did not specify whether it might follow in the footsteps of Hermès International by launching its own beauty lines, or whether it was on the hunt for acquisitions.
“Beauty is definitely an area where we could contemplate some initiatives in the future and all options are open,” said group managing director Jean-François Palus.