It’s not just holiday shoppers that are looking to spend — the beauty M&A markets are busier than ever this holiday season.
Recent deals, including Eurazeo Brands’ $70 million majority investment in Nest Fragrances and Beauty Partners’ purchase of Coastal Salt & Soul, which were both revealed Thursday, underscore investors’ continued appetite for beauty companies. The demand has lasted several years.
The Nest transaction was the first deal from Eurazeo Brands, the New York-based consumer and retail fund of the Paris private-equity firm. The deal is also Eurazeo’s first investment in a beauty brand. Eurazeo Brands is headed by chief executive officer Jill Granoff, a beauty and fashion veteran.
Founded in 2008 by Laura Slatkin, who is reinvesting in the business as part of the Eurazeo deal, Nest makes home scents and fine fragrances. The company is best-known for its candles, but also makes reed diffusers and launched a Liquidless Diffuser, which has scented sticks instead of reeds dipped in liquid, earlier in 2017. Industry sources said the brand will do between $70 million and $80 million in retail sales for 2017, up from between $60 million and $70 million for 2016. WWD previously reported Nest hired Moelis & Co. to conduct a sales process.
McKay, who joined Nest after a 28-year stint at the Estée Lauder Cos., also sees room to deepen and expand Nest’s product categories, she said. “We have quite a bit of opportunity within product offering and product categories to continue to be innovative within the home fragrance space, as well as disruptive…within the fine fragrance space,” McKay said. Nest’s fine fragrances portfolio includes 10 fragrances in eau de parfum, rollerballs and body creams.
“The home fragrance category has been large, it’s growing and the area that’s growing the most is the premium sector…it’s really accessible luxury,” Granoff said. Nest’s candles are priced at $40 — less than those of brands like Diptyque, with candles that cost around $64, and Cire Trudon, priced around $105. Prestige home fragrance sales were up 19 percent year-over-year in February, according to data from the NPD Group.
McKay compared the home fragrance category to other small but growing segments in the beauty market, like brow products or face masks. “It is a part of the Millennial lifestyle, and it goes beyond Millennials to Gen Z,” McKay said. “The diffuser pice is such a growing part of the segment…Millennials are learning toward having scent all the time, which is what a diffuser allows you to do.”
While Eurazeo has previously made investments on the supply side with beauty manufacturer Intercos (sold to L Catterton) and Iberchem, a fragrance and flavors supplier, Nest is the firm’s first branded beauty deal. With $800 million to invest at Eurazeo Brands, Granoff remains on a quest for more beauty, as well as fashion, home, wellness, leisure and food investments. As she tells it, that hunt is how the firm found Nest, which had been backed by private equity firm Tengram Capital Partners since 2012.
“What we loved about Nest is that it actually checked numerous boxes,” Granoff said, ticking off home, wellness and beauty. “We have looked at over 100 deals in five months,” Granoff said. “We are proactive, not just reactive. We see deals from certain bankers but we also talk to private equity funds, that’s how this transaction [came about] — we approached Tengram.”
The management team, McKay in particularly, was another selling point, Granoff said.
“[McKay] has a 28-year history with Estée Lauder — I thought I was there a long time,” Granoff said, referencing her own decade-long tenure at the Estée Lauder Cos. “She built incredible brands — she was involved with Estée Lauder, she was involved with Tom Ford, she was involved with Aerin…She brings all of that experience we both learned at Estée Lauder on Leonard [Lauder]’s heels — merchandising in a compelling way, being consistent over time but also delighting and surprising [the consumer].”
Under Tengram, which brought in McKay in 2015, Nest refocused the business on the brand, rather than private-label work, according to Tengram managing director Matt Eby. “We recognized the value of the Nest brand and really invested behind that and focused on getting the organization focused on the Nest brand,” Eby said. “The team did an amazing job of building distribution, expanding the product lines, strengthening the brands and building a digital presence.”
“Laura has created an incredibly beautiful brand,” McKay said. “She is at the heart and essence of the brand, and what Tengram enabled us to do is really create a strong infrastructure and amazing team that can help us expand and highlight and innovate within the framework of what Laura created.”
“The chemistry and shared vision with Eurazeo was undeniable,” said Slatkin.“Our new partnership brings together seasoned experts, many with over 25 years of experience in developing global luxury brands. I have tremendous respect for Jill Granoff and Virginie Morgon, Eurazeo’s deputy ceo, and we are excited to tap into their expertise for our next chapter of growth.”
For Beauty Partners, the acquisition of bath and body care brand Coastal Salt & Soul allows it to branch beyond nails. Terms of the deal were not disclosed.
Coastal Salt & Soul was created by Alisa Marie Beyer who remains with the company as chief innovation officer. Beyer will also stay on as a minority owner, as well as early investors Fredrick Fogelman and Teresa Shultz Fogelman.
This marks Beauty Partners’ first acquisition. Its founders, Barry Shields and Bruce Kowalsky, have big plans for the brand of beach-inspired bath and body products. Shields and Kowalsky, former Coty executives, have built a healthy business with their Red Carpet Manicure at-home gel collection, Red Carpet lacquers, a nail powder dip and the exclusive nail color Defy & Inspire at Target. Coastal Salt & Soul will be operated under a newly formed subsidiary of Beauty Partners called Celebrate Beauty Brands.
“With Coastal’s existing portfolio of hugely popular butters, hand creams and scrubs, as well as the development of new products and scents, we anticipate 2018 revenues between $15 million to $20 million” Kowalsky observed. “Together with Alisa and the rest of the team, we’re ready to start product development and innovation on new stock keeping units and consumer offerings.”
Shields told WWD the company plans to leverage its existing contacts in the industry and experience in beauty to build out Coastal Salt & Soul in North American and abroad. “It is a great fit with our existing business,” Shields said. Red Carpet’s distribution includes Nordstrom and Ulta Beauty. “Alisa has created a superstar brand —regularly selling out of top-performing [stockkeeping units] and obtaining numerous consumer and industry awards. Coastal is the exact opportunity we were looking for in the luxury beauty space.”
The product portfolio is inspired by Beyer’s love of the beach and includes sugar scrubs, hand creams, body butters, bubble bath, body wash, candles and gift sets. The brand is sold on QVC, online and through more than 300 spas and boutiques. Sales are estimated at $2 million.
“I’m confident that this sale is the single best path to provide Coastal Salt & Soul with the necessary resources to continue to fund and scale the business as it enters its next phase of growth,” stated Beyer, who has started up several beauty businesses over the years. “Celebrate Beauty Brands is extremely well positioned to build on our already strong momentum and incredible consumer loyalty through increased customer wins and new retailer partnerships.”
Before the Nest and Coastal Salt & Soul deals, 2017 had hosted a slew of other transactions. Recently, Tengram Capital Partners scooped up ReVive, Castanea Partners invested in Tatcha, The Estée Lauder Cos. invested in Deciem — The Abnormal Beauty Company and Henkel bought Zotos. Earlier in the year, Unilever acquired Living Proof and Hourglass, and in November, made a deal for Sundial. In another candle-related transaction, Newell Brands picked up Chesapeake Bay Candle.