The Estée Lauder Cos. is betting big on makeup.
And it’s costing them plenty. Upwards of $230 million, according to industry sources, for the acquisition of Becca Cosmetics, which is expecting $80 million in net sales for 2016, according to sources. One estimate, from Barclays analyst Lauren Lieberman, estimated the price tag at $300 million. For comparison, IT Cosmetics, which had $182 million in sales for the year ended June 30, was acquired for $1.2 billion by L’Oréal.
While certain reports suggested the price of Lauder’s acquisition of Becca was around $200 million, sources have indicated that was the original number that private equity firms Castanea Partners and Main Post Partners signed on to pay as they readied to close a deal for Becca in August. Lauder looked at Becca before the private equity deal materialized, sources said, but dropped out of the process without making an offer before later making its way back to the brand. The private equity acquisition never closed because the due diligence process went slowly, industry sources said. Then, the exclusivity period expired.
When that happened, Lauder swooped back in — but to nix the private equity deal, Lauder would need to pay much more than the private equity firms’ $200 million offer, sources said, estimating the price at between $230 million to $240 million.
It’s an expensive acquisition for Lauder, which lately has been focused on smaller brands. The company is said to be interested in buying two-year old skin-care brand Drunk Elephant, which should have about $20 million in sales for 2016, and has a 10-piece line. Previous Lauder deals include By Kilian, a luxury fragrance business said to have $25 million in net sales, which sources said the company bought for $80 million. In addition, Editions de Parfums de Frédéric Malle did an estimated $35 million in sales when it was acquired in 2014. Lauder paid somewhere between $200 million and $300 million, sources estimated, for its last color cosmetics acquisition, Smashbox Cosmetics, in 2010. Back then, sources said Smashbox generated about $80 million in wholesale revenue.
When Lauder did the Smashbox deal, chief executive officer Fabrizio Freda said that the purchase was meant to help Lauder grow in specialty retail, a move that six years later, Lauder continues to push for, and one where Becca — stationed next to Lauder’s Estée Edit in certain Sephora locations — might be able to help.
“Their department store base is dying,” said one financial source, referring to Lauder’s struggling Estée Lauder and Clinique lines. “There’s a whole changing of the guard, and they have to buy their way out of the problem. It’s no different than what Coty’s doing.”
Becca is also distributed in Ulta Beauty, and is in the midst of rolling out an extensive international expansion plan that includes Sephora in Southeast Asia with all doors in 2017, half of Sephora’s Middle Eastern doors with the potential for a full rollout in 2017, and 300 Sephora Europe doors opening in 2017, according to Becca chief executive officer Bob DeBaker. The brand also just launched in Mexico. “We’re launching in global markets and immediately launching in the top 10,” DeBaker said of the brand’s sales overseas. “We’ve already got some really great plans for what’s in the product pipeline for 2017, and already locked in some really strong marketing [plans] to drive those products as we go into 2017,” he said. “I think that’s part of what makes Lauder excited, is there’s a business that’s already built here.”
DeBaker, along with Becca chief financial officer James MacPherson, have both worked at Lauder before. DeBaker was with Bobbi Brown, Clinique and Prescriptives and MacPherson with Clinique.
Becca was sold by Luxury Brand Partners, which now has a portfolio that includes Oribe, R + Co. and V76. LBP invested in 2012, when Becca was only doing about $3 million in sales, said chief executive officer Tev Finger. The company ended up investing $7.5 million to turn Becca around, he said.
And while LBP’s remaining portfolio skews heavily in the hair category without Becca, that’s not necessarily the business’s only focus going forward. “We have quite a few brands, there are quite a few in production, which are not just hair…there are two different lifestyle brands that we’re building…one of them in fashion,” Finger said. “We have IGK, which we just launched in Sephora, and it’s just blowing up. It’s not traditional for us in our normal channel, which has been salons and department stores.”
LBP’s Smith & Cult nail brand is also about to launch in Sephora, Finger said. And while the company is seen as more of an incubator, acquisitions aren’t out of the question. “”We’ve had a lot of people recently come to us with small companies doing really well — doing really well building a great brand, I don’t mean making money — there’s quite a few of those we’ve seen. We’re actually thinking about acquiring a couple of those…and growing them.”