Procter & Gamble is in deal mode again.
The business is buying Native Deodorant, a direct-to-consumer operation that makes aluminum- and paraben-free deodorants. Terms of the transaction were not disclosed, but industry sources said Native has between $25 million and $30 million in annual sales.
“We’ve really been focused on this fast-growing segment of the category with consumers that are really discerning and deliberate about the ingredients that are in or not in their products,” said Bill Brace, vice president and general manager of North America Beauty Care at P&G. “We really started to focus in on making a play in that segment.”
Lately, P&G’s beauty M&A activity has been primarily on the sell-side. The business sold off most of its beauty portfolio to Coty Inc. in 2016. Before that, P&G acquired Fekkai in 2008 and Zirh in 2009. P&G chief executive officer David Taylor said on a call with Wall Street in July that the company was ready to consider M&A again, and chief financial officer Jon Moeller elaborated: “Products consumed daily, or more than one time per day, those are categories we really like,” Moeller said.
For P&G, Native adds a natural option to the deodorant portfolio, which also includes P&G-developed Secret (created in 1954) and Old Spice, which the company bought in 1990. It also gives the company a brand in the fast-growing direct-to-consumer category — something competitor Unilever bought into in 2016 with the acquisition of Dollar Shave Club.
P&G faced pressure earlier in 2017 from activist investor Nelson Peltz of Trian Fund Management, which has a $3.5 billion position in P&G, to acquire and grow smaller brands. As it worked to fight off Peltz in his quest for a board seat, P&G executives made it a point to talk about its ability to grow larger brands — like Head & Shoulders — or develop subbrands to the larger ones, like Downy Unstoppables and Always Discreet.
“We have always been active with our process of evaluating opportunities and potential acquisition candidates,” Brace said. “This is not a reactive strategy, it’s a proactive strategy and about winning in a core category for P&G.”
“[Native] is at least a step in the right direction that they’re seemingly willing to do more deals in on-trend categories,” said Stifel analyst Mark Astrachan. “They should do more of these and hopefully grow some of them into bigger businesses that can hopefully move the needle.”
Global deodorant sales were $20.2 billion in 2016, according to Euromonitor, which forecasted sales would climb to $23.4 billion by 2021. For the U.S. market, deodorant sales for 2016 were about $4.5 billion for 2016, and are projected to climb to almost $5.3 billion for 2021, according to Euromonitor. Natural deodorant has been gradually gliding into the U.S. market. Outside of Native, brands like Schmidt’s Deodorant — which recently entered Kroger stores — and Ursa Major — which has two natural deodorants and has expanded through Madewell’s beauty offering and pop-ups — are growing in the market.
Native was launched by Moiz Ali in 2015 and makes men’s and women’s deodorants in scents like eucalyptus and mint, sandalwood and lemon, lavender and rose, coconut and vanilla and others. Each stick sells for $12, or customers can buy a trial set of three different fragrances for $30 from the company’s web site.
Ali describes the company as one primarily focused on product quality — “making the best deodorant possible” — but also as a business that focuses on “making customers feel special at scale.” That process includes getting and incorporating customer feedback and sending out reminder e-mails when someone is about to run out of deodorant, he noted. Native has more than 4,000 product reviews on its web site.
Ali would not comment on sales figures, but did say that more than 1 million people use Native deodorant every day, and that the business is more than tripling year-over-year. Ali has previously noted that the company will look to expand to categories beyond deodorant.
For Native, selling to P&G wasn’t really part of the plan. “The plan was just grow and build the most successful deodorant business we could, online,” Ali said. But when the time came for a partner, he was looking for one similarly obsessed with delivering quality products to the consumer, he said. Ali expects P&G to help the company catch up with consumer demand and help with things like supply-chain logistics.
Native will remain based in San Francisco, and operate independently but with access to P&G, Ali said.
“We are remaining an independent entity within the P&G portfolio,” Ali said. “Our office will remain in San Francisco, and we’ll have the same team. There’s something about what we’re doing that’s working…the culture we have in San Francisco is the right culture for these people to thrive…we don’t want to screw up what’s working.”
Native’s sales are mainly in the U.S., with a small portion in Canada. “We haven’t focused on international operations yet, we’ve been basically catching up with the demand from the U.S.,” Ali said, but noted as the company scales under P&G it will “certainly think more about international opportunities.”
In other company news late Wednesday, it looks like Nelson Peltz could be joining the Procter & Gamble board after all.
After a months-long proxy fight, independent inspector of elections IVS Associates Inc. has found Peltz has enough votes to join the P&G board, according to preliminary voting tabulation. The results are preliminary and subject to review — directly following the vote, P&G said it did not appear Peltz had enough votes to join the board.
P&G issued a statement that said the results showed Peltz was ahead of board member Ernesto Zedillo by 0.0016 percent.
Trian issued a statement Wednesday: “Trian greatly appreciates the support we have received, and we are gratified that the independent inspector’s tabulation shows that shareholders have elected Nelson Peltz to the P&G Board of Directors. The inspector’s report represents an independent, careful tabulation of all proxies and ballots submitted to the inspector by both P&G and Trian. Trian strongly urges P&G to accept the inspector’s tabulation and not waste further time and shareholder money contesting the outcome of the annual meeting. Shareholders have voted, and they have indicated that they want Nelson Peltz to join the board. Nelson Peltz looks forward to working collaboratively in the boardroom with the other members of the board and management team to revitalize P&G. Trian believes Nelson Peltz’s extensive experience and track record of improving performance at consumer companies will bring significant value to the P&G Board and help create the right environment for generating breakthrough ideas. Working together with management and the board, he will help address the challenges P&G is facing. Trian believes strongly in P&G’s potential and our goal is to see it once again grow market share and deliver sustainable long-term value for the benefit of all stakeholders. Nelson Peltz will be a strong voice for shareholders in the boardroom, and we are confident it will lead to a brighter future for P&G.”