CeraVe products


PARIS — L’Oréal is bolstering its U.S. business in the dynamic active cosmetics segment.

The world’s largest beauty company said on Tuesday that it has signed a definitive agreement with Valeant Pharmaceuticals International Inc. to acquire the CeraVe, AcneFree and Ambi skin-care brands for $1.3 billion in cash.

The trio of labels – with their respective focuses on dry skin, acne, and dark spots and brightening – generates yearly revenue of about $168 million combined and puts L’Oréal head-to-head with Nestlé’s blockbuster Cetaphil brand.

Analysts deem the new labels make a propitious fit.

“The acquisition will almost double the size of L’Oréal’s Active Cosmetics Division in the U.S. – a market where the group is still relatively under-represented, given the lack of its natural distribution platform – pharmacies, for instance,” said Eva Quiroga, an analyst at Deutsche Bank.

“These will compliment L’Oréal’s active skin-care portfolio with brands that are positioned more in the ‘accessible price segments,’ distributed in mass channels, drugstores, beauty stores and online,” wrote Céline Pannuti, an analyst at J.P. Morgan Cazenove, in a research note.

“The acquisitions also broaden L’Oréal’s presence in baby care and sun care in the U.S. market, where for example, CeraVe witnessed a nearly threefold growth in sun care over 2010 to 2015, reaching $27 million,” continued Nicholas Micallef, senior beauty and personal care analyst at Euromonitor International. “With such performance, this is a double win for L’Oréal, as it reinforces its position in these categories with targeted products.”

CeraVe, founded in 2005, was developed with dermatologists. It comprises a line of skin-care products, including cleansers, moisturizers, sunscreens, healing ointments and a range for babies, with medium retail price points between $7 to $22, and estimated annual sales of $140 million, according to J.P. Morgan Cazenove.

L’Oréal considers CeraVe to be among the fastest-growing skin-care brands in the U.S., with average gains over the past two years of more than 20 percent.

AcneFree, with medium product prices ranging from $6 to $33, markets and distributes a collection of over-the-counter cleansers and acne treatments in the country, while Ambi, at $6 to $13, includes skin care created for multicultural consumers.

All three brands are built on strong relationships with health professionals and are widely distributed, highlighted Frédéric Rozé, president and chief executive officer of L’Oréal USA.

“Expanding the business globally will be a big part of the longer-term growth opportunity,” noted Quiroga.

“We believe CeraVe has great potential for international growth in the years to come,” specified Brigitte Liberman, president of L’Oréal Active Cosmetics Division, in a statement.

CeraVe, AcneFree and Ambi are to become part of L’Oréal’s powerhouse Active Cosmetics Division, which includes brands such as La Roche-Posay, Vichy and SkinCeuticals that are created with and endorsed by dermatologists, pediatricians and other physicians.

As reported, in the third quarter, the Active Cosmetics Division registered sales of 425.7 million euros, or $475.3 million at average exchange for the period, up 4 percent in reported terms versus the third quarter of 2015. On a like-for-like basis, revenues grew 6.5 percent.

In the first nine months of this year, the division posted sales of 1.45 billion euros, or $1.62 billion, a 1.3 percent rise in reported terms and 5.4 percent on a like-for-like basis. L’Oréal said the branch’s performance was accelerating and particularly strong in North America and Latin America, while it slowed in the European and Asian markets.

In the period ended Sept. 30, North America rang up 27.4 percent of L’Oréal’s overall sales.

Mergers-and-acquisitions activity in the beauty space, which was rife in 2016, keeps percolating this year, with purchase prices on the rise. L’Oréal is paying 7.7-times sales for the three U.S. skin-care labels, which is a higher multiple than the 6.1-times sales it offered to buy IT Cosmetics – for $1.2 billion – last year. The Estée Lauder Cos., meantime, paid a 5.5-times multiple when it shelled out $1.45 billion for Too Faced.

“Although the price is very high, it is supported by the strong growth the business will likely achieve, initially in the U.S., where there is still a lot of white space to be covered and eventually on a more global basis,” said Quiroga, of the latest acquisition. “It is this kind of global expansion that L’Oréal has historically excelled at – think Kiehl’s, Maybelline and now NYX.”

Pannuti estimated the transaction will be neutral to slightly accretive in its first year.

Dermocosmetics brands are a hot commodity today and make up one of the fastest-growing categories in beauty, spurred largely by Millennials. Such labels not only benefit from their treatment solutions but also from how they are positioned – promoted not for their cosmetics benefits but for skin health, which is increasingly a key driver for consumers, according to Euromonitor’s Micallef.

“Skin care, as well as categories such as hair care and sun care, is evolving with the quest for prevention among consumers,” he continued, adding that seeps into the baby care space, as well, which Euromonitor estimates generated $2.92 billion in the U.S. alone in 2015, representing a 3.3 percent on-year increase.

“”Expert brands’ are the real outperformers at the moment, whether makeup artist brands in makeup or dermatologist/doctors brands in skin care, especially in the U.S. and U.K.,” added Quiroga.

L’Oréal had been acquisitive throughout 2016. Beside IT Cosmetics, the company in July also said that it had made an offer to buy Société des Thermes de Saint-Gervais-les-Bains and the license to use the Saint-Gervais Mont-Blanc beauty brand. In June, L’Oréal signed an agreement to purchase Atelier Cologne.

Valeant, based in Laval, Canada, said Tuesday that it was selling its Dendreon cancer business for $819.9 million, as well. The beleaguered drugmaker is working to pay down its debt of more than $30 billion.

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