The Carlyle Group, a Washington private equity firm, will disclose today that it has inked an agreement to acquire Philosophy Inc., a prestige beauty company with a tell-it-like-it-is, feel-good bent.
The brand, which was founded in 1996 by Cristina Carlino, was purchased from a group of owners, including Carlino, its current chief executive officer. Under the terms of the deal, Carlino will take on the role of executive chairman and remain a significant equity owner in the company. The terms of the deal were not disclosed.
Market sources estimated, however, that the Carlyle Group paid more than $450 million for Philosophy.
The firm is searching for a new ceo and has attracted interest from “strong talent within the beauty industry,” noted Sandra Horbach, managing director of the Carlyle Group and head of its Consumer & Retail team.
“This is an opportunity to back a brilliant visionary,” said Horbach, referring to Carlino. “Philosophy is a 10-year-old business, unlike many niche brands in this sector, with a strong and loyal customer base” across multiple distribution channels. She added that while Philosophy’s product portfolio leaned heavily on skin care, there was an opportunity to round out its beauty offerings and to add lifestyle categories.
Philosophy — which is sold in Sephora, Macy’s, Bloomingdale’s and Nordstrom — struck a partnership with QVC eight years ago, and is now the home shopping network’s top beauty brand, edging out Bare Escentuals. According to industry sources, QVC accounted for 48 percent of Philosophy’s net wholesale volume of $120 million to $150 million for 2006.
It launched an infomercial several years ago, and plans to resume that effort shortly, said Carlino. Now that it has linked arms with the Carlyle Group, Carlino said, “we are a stronger partner for QVC. We can do so much better together than apart.” According to sources, the infomercial and Web site each generated 7 percent of total volume last year.
Michael George, QVC’s ceo, said, “We’ve had a fabulous history with Philosophy,” adding that he expected the deal to usher in global expansion and more product opportunities. Referring to international growth, George said, “When Philosophy is ready, QVC will be a flagship partner with the company.” He acknowledged that QVC worked closely with the Carlyle Group and Philosophy to “ensure our goals were aligned and to make sure the integrity of the brand would not be tarnished.” Neither QVC nor the Carlyle Group would comment as to whether the television network will have an equity stake in Philosophy.
Carlino — who has been running the day-to-day operations of Philosophy for the last decade — said a buyer was needed to manage the size and complexity of the business. With the hunt for a new ceo under way, Carlino said she would focus on brand development and product innovation. “I feel like I’ve been given a blank chalkboard and there’s nothing I’m better with,” she said. “Carlyle understood the business I had built,” she said. “The firm understood me, the brand and the vision.” She added that were plans to increase the brand’s retail penetration on the ground, now that Philosophy has successfully entrenched itself in the electronic selling space. Philosophy has one company-owned store in Chandler, Ariz., near its headquarters. Carlino said that while branded stores might be important in the future, there are plans to increase distribution across department stores and specialty chains. The company has a small presence in the U.K. and Asia, so international remains an “untapped market,” said Horbach. She noted, however, the current focus was on the U.S. Referring to the firm’s consumer research, she said, “Customers would like to see this brand in more places.”