21 November 2016

Estée Lauder seeks to court millennials

Having missed sales estimates, makeup group Estée Lauder is spicing up its portfolio by acquiring Too Faced Cosmetics, whose quirkily-named products, such as Better Than Sex mascara and Chocolate Bar eye shadow palettes, are popular with youngsters. Private equity firm General Atlantic and married co-founders Jeremy Johnson and Jerrod Blandino are expected to exit by the end of the year. Valued at around USD 1,450 million, the acquisition is by far Estée Lauder’s largest-ever, according to Zephyr, the M&A database published by Bureau van Dijk.

The announcement came shortly after General Atlantic paid around USD 500 million last year to purchase Too Faced from Weston Presidio, which invested in the target back in 2012. It was the Californian makeup company’s ability to create industry-leading products, coupled with its strong business ties with cosmetics retailers such as Sephora and Ultra Beauty, that attracted General Atlantic in 2015, as reported by Forbes. With the Connecticut investment firm’s support, Too Faced has almost tripled its value in less than two years. 

As disclosed in Estée Lauder’s press release, Too Faced’s net sales have grown by an astounding 60 per cent annually in the past three years. The figure is expected to increase by another 70 per cent in 2016. Commenting on the target, Estée Lauder’s chief executive said: “It has tremendous growth momentum in specialty-multi and online – important, strategic and fast-growing channels,” adding that his company will seek to expand its business both locally and internationally with the new brands.

Listed on the New York Stock Exchange, Estée Lauder this month reported lower-than-expected quarterly sales, causing its shares to tumble 5.4 per cent to USD 86.30 on 2nd November. The Clinique creator, which typically sets up counters at department stores, faces difficulty as an increasing number of shoppers are choosing to purchase online, the Wall Street Journal reported. In a statement, Estée Lauder also attributed its lacklustre sales to declining tourism in locations such as France, the US and Hong Kong.

The acquiror has appointed Evercore Partners and BNP Paribas as advisors to the deal, while Goldman Sachs and Jefferies are assisting the target.

Other major transactions within the cosmetics industry completed this year include the takeover of Galleria. Beauty firm Coty acquired the Procter and Gamble subsidiary last month in an all-scrip deal worth around USD 11,173 million. In a similar transaction in July, baby toiletries maker Johnson and Johnson spent USD 3,300 million to purchase haircare company Vogue International, providing an exit for private equity behemoth Carlyle.

© Zephyr