Business Of Fashion : Beauty’s Top M&A Targets

Beauty’s Top M&A Targets
A flurry of deals just weeks into the new year are a sign of things to come. The Business of Beauty identifies the top targets of the year.
The beauty industry has already seen a wave of acquisitions and investments in 2023, and dealmakers say they’re just getting started.


KEY INSIGHTS
  • Augustinus Bader, K18 and Naturium are among fast growing beauty brands that financial backers are targeting.
  • “This economic backdrop is not encouraging, but there are deals to be done for great companies and growth capital to be deployed,” said Venette Ho, managing director, global head of beauty and personal care, at Financo Raymond James.
  • Beauty brands will need to have strong identities, fast growth and profitability to find a home.

The beauty industry has already seen a wave of acquisitions and investments in 2023, and dealmakers say they’re just getting started.

So far in January, Procter & Gamble purchased textured hair care brand Mielle Organics, AS Beauty, parent company of Laura Geller Beauty and Cover FX, acquired skin care brand Bliss, and Mario Dedivanovic’s cosmetics line Makeup by Mario landed a $40 million minority investment, valuing the brand at over $200 million.

The flurry of deals is reminiscent of the heady days of 2019, when an earlier wave of start-up skin care and makeup brands were snapped up by conglomerates and private equity firms; Shiseido bought Drunk Elephant for $845 million and Unilever acquired Tatcha for an estimated $500 million.

The economy isn’t as healthy as it was then, and over the last three years buyers have learned the hard way that fast-growing start-ups can struggle to maintain momentum, and find it even harder to scale and turn a profit at the same time.

This time around, buyers are being more cautious, looking for brands with strong balance sheets, and an even stronger grip on their customers’ loyalty. Lines that target wealthier consumers, who are most likely to keep spending even in a recession, are particularly in demand (though there are trendy products at lower price points that have attracted buyers’ attention). As potential acquirers are being more selective, the buzziest brands in hot categories like hair care are getting the lion’s share of interest.

“This economic backdrop is not encouraging, but there are deals to be done for great companies and growth capital to be deployed,” said Venette Ho, managing director, global head of beauty and personal care, at Financo Raymond James. “Brands need to prove strong, steady growth and real profitability.”
Others see the biggest wave of deals coming later in the year, as brands prove they can navigate the current economic turbulence.

“‘A’ assets will have the luxury to wait it out, and make sure they get credit for what they can do in the first quarter in order to ensure they get the ... optimal valuation,” said Ashleigh Barker, director of Lincoln International’s Consumer Group.

The Business of Beauty spoke with industry executives, financial advisors, investors and market sources to identify seven beauty lines with strong identities, innovative products, and sound financials that have put them on buyers’ radars.

The Ultra-Lux Superstar: Augustinus Bader
2023 Estimated Retail Sales: $280 million
2022 Estimated Retail Sales: $180 million
Co-founded in 2018 by Augustinus Bader, a German doctor who specializes in stem cell research, and Charles Rosier, the brand positioned itself early as a miracle skin care line, taking on La Mer and other established luxury lines. Bader’s hero products, the Rich Cream and the Cream, each retailing for $290 for a 50ml bottle, were championed by the retailer Violet Grey and actress Melanie Griffith, with sales hitting $70 million in 2020. The brand has since launched equally luxurious – and expensive – body creams, lip balms, lash serums, shampoos and conditioners. Today, Augustinus Bader products are also sold at Sephora, Nordstrom and on its e-commerce website, among others.

The brand itself checks many of the boxes strategics are eyeing. Following reported interest from big beauty strategics like LVMH, The Estée Lauder Companies and L’Oréal in 2022 – as well as reported outbounds to garner even more interest – Augustinus Bader raised $25 million in a funding round from Antoine Arnault, Natalia Vodianova and Javier Ferrán in November, valuing the brand at $1 billion. Sources say any company willing to spend well over that amount could be a winner.

Haircare’s Hottest Brand: K18 Biomimetic Hairscience
2023 Estimated Retail Sales: $250 million
2022 Estimated Retail Sales: $150 million
In just two years, K18, the prestige hair brand founded by Aquis co-founders Suveen Sahib and Britta Cox, has developed a fervent following. Dramatic before and afters and fanatical testimonials from TikTokers and stylists, helped the brand cross the $150 million sales mark in 2022. It’s frequently cast as a rival to Olaplex, which leveraged a similarly devoted following to a 2021 initial public offering.
The brand has plenty of room to grow – it only launched two shampoos in late 2022 to supplement its popular $75 Leave-In Molecular Repair Hair Mask. Strategic buyers seem just as interested in K18′s technology. The brand patented its peptide technology, which changes and repairs the hair’s polypeptide chains that have been broken, and has an exclusive license for the keratin genome. According to multiple sources, the brand has done no buyer outreach but is receiving inbounds at a pace reminiscent of the busiest dealmaking periods in 2019.
The Olaplex comparisons may be wearing thin – that brand’s stock is down 70 percent from its IPO price. Still, as one investor said, “everyone wants the next Olaplex and this is it. If you look at the list of biggest hair brands, K18 is the only one that hasn’t been acquired.”
Others to watch: Colorwow, Vegamour

The ‘Masstige’ Champion: Naturium
2023 Estimated Retail Sales: $80 million
2022 Estimated Retail Sales: $55 million
Masstige skin care line Naturium, cofounded by influencer Susan Yara, is the first brand spun out of Ben Bennett’s brand incubator The Center.
Naturium has a strong foothold at Amazon, where it smartly focused on use-case and ingredients, versus brand name at launch. It’s also sold at Target, where it ranks in the top three best-selling premium skin care brands, people familiar with Naturium’s performance said. The brand’s 2022 move into body care from facial skin care has also been well received.
Mass beauty has long needed a refresh. While a private equity shop might seem like a temporary home for Naturium, strategics that have an eye on growing that area of the business have identified it as a target, sources said.
Others to watch: Versed

An Independent Taking On Giants: Westman Atelier
2023 Estimated Retail Sales: $100 million
2022 Estimated Retail Sales: $60 million
Luxury colour cosmetics is the domain of beauty conglomerates and global fashion brands – think Chanel, Gucci and Tom Ford. Co-founders Gucci Westman and her husband David Neville have managed to carve out a unique niche within the category: founder-led, luxury, and clean.
Westman, a makeup artist with deep runway expertise and ties to strategics like L’Oréal (she previously served as Lancôme’s International Artistic Director), is likely to have her pick of partners. Westman Atelier has raised just $10 million since December 2020. According to sources, The Estée Lauder Companies reportedly showed interest in the brand in 2022.
Westman Atelier has a diversified distribution network in the US (it is sold at Sephora, Bergdorf Goodman and Credo), and has proven it can travel with its partnerships with Selfridge’s and Harrod’s in the UK, Mecca in Australia and Le Bon Marche in France. But as the luxury brand plots its next expansion, likely into Asia, it will need a backer with deep pockets.
Others to watch: Kosas

Cashing in on the Indie Fragrance Craze: Parfums de Marly
2023 Estimated Retail Sales: $300 million
2022 Estimated Retail Sales: $250 million
Rather than developing a designer or celebrity fragrance license or joint venture with a partner, buyers are looking for artisanal businesses that develop their scents in house. Parfums de Marly is one of the few standalone businesses to fit that criteria. Founded in 2009, the luxury French brand, inspired by Louis the XV’s Chateau de Marly, has carved out a substantial business. But with so many buyers coming to the table for Byredo in 2022, Parfums de Marly is sought after but needs to hit the right timing (other equally desirable fragrance brands are expected to be in market soon). Selling to a private equity firm versus a strategic buyer, could be an outcome here.
Others to watch: Creed

A Brand at a Crossroads: Glow Recipe
2023 Estimated Retail Sales: $140 million
2022 Estimated Retail Sales: $125 million
Sarah Lee and Christine Chang, co-founders of Korean beauty brand Glow Recipe, were said to be shopping the line in 2022, people familiar with the matter told The Business of Beauty. At the time, the brand was reportedly valued at $400-500 million. The “fruit-forward” brand hit $100 million in retail sales in 2021 and around $125 million in sales in 2022, according to a person with knowledge of the business. Although the brand has seen year-on-year growth, sources say that Glow Recipe needs to find an audience beyond its young customers, and at other retailers in addition to Sephora.
Others to watch: Osea

The Influencer Brand That’s Grown Up: Summer Fridays
2023 Estimated Retail Sales: $70 million
2022 Estimated Retail Sales: $50 million
Since launching in 2018, Marianna Hewitt and Lauren Gores’ Summer Fridays has expanded from its Instagrammable Jet Lag mask to an assortment that spans skincare, clean colour, body and even merch. Hewitt and Gores have also assembled a dream team around them: John Heffner, CEO and Chairman, and Kimberley Natale, President, have been in the business of taking brands to market before (see Helen of Troy’s purchase of Drybar in 2020). This is expected to be an ambitious year for Summer Fridays as it hopes to achieve a 40 percent increase in retail sales. While some sources say the buzzy brand is more likely to be on a 2024 timeline, the pieces are in place for an exit.

Business Of Fashion : LVMH Backs Marquis, a New Communications Agency in Paris

LVMH Backs Marquis, a New Communications Agency in Paris
Youssef Marquis, a longtime PR executive and celebrity wrangler for the group’s Givenchy and Louis Vuitton brands, is launching a namesake consultancy with support from the French group.

Youssef Marquis, a longtime communications executive for LVMH’s Givenchy and Louis Vuitton labels, is set to open a new Paris-based agency with support from the French luxury conglomerate.

The namesake agency Marquis has partnered with LVMH to consult for brands across the group, as well as taking on external clients, working on celebrity marketing, image and strategic communications.

Working closely with stylists, agents and talent, Marquis has played a key role connecting LVMH with pop singers, influencers and Hollywood stars as celebrity marketing gained importance in the fashion industry.

During 12 years at Givenchy alongside designers Riccardo Tisci and then Clare Waight Keller, Marquis helped the couture house to renew its cultural relevance by dressing stars like Beyoncé, Madonna and Kim Kardashian (becoming the first European luxury brand to embrace the American reality-TV star). The executive remains close with both Tisci and Kardashian.

In 2018, Marquis helped Givenchy score one of the biggest celebrity placements in recent memory: designing the dress for actress Meghan Markle’s wedding to Prince Harry.

As fashion communications director at Louis Vuitton since last year, Marquis has assisted the brand in cutting deals with a fresh crop of A-list ambassadors including Cate Blanchett for jewellery and Bradley Cooper for watches. He also helped the brand to secure talent for a recent campaign featuring rival football superstars Lionel Messi and Cristiano Ronaldo, timed to coincide with the FIFA World Cup.

FT : Dignity agrees £281mn takeover offer

Dignity agrees £281mn takeover offer
Deal comes as UK funeral provider warns rising costs will hit profit

The UK’s biggest funeral provider Dignity has agreed a takeover that values its equity at about £280mn.

Dignity agreed the cash offer from a group led by its former chief executive Gary Channon and Sir Peter Wood, founder of insurer Direct Line, as it warned that rising costs would hit its full-year profit.

The group, which operates more than 700 funeral locations across the UK, has struggled in recent months, despite higher than average death rates, as customers have shifted towards cheaper products.

It expected underlying revenue for the 52 weeks to December 30 2022 to be £275mn, compared with £312mn in the previous year. Its operating profit for the year “will be no more than” £20mn, from £55.8mn over the previous year, it said in a trading update.

The company’s share price rose more than 8 per cent in early London trading on Monday, helping to ease a 22 per cent fall over the past 12 months.

The buyer consortium, which also includes investment firm Phoenix Asset Management Partners, already owns 29 per cent of Dignity. It will buy the remaining stake for 550p a share in cash, a near 30 per cent premium on the closing share price on January 3, the day before the company revealed it was in talks with a buyer. Including debt, that values the business at £790mn.

The consortium said Dignity would benefit from significant investment in modernising its infrastructure, increasing marketing and expanding its crematoria business.

The funeral sector has been criticised by the Competition and Markets Authority in recent years for high pricing. In 2021, the regulator intervened to force funeral directors to display standardised price lists and prevent them from soliciting business through places such as care homes.

Dignity said its costs had increased over the past year as it invested in its facilities and estate, and regulatory and operational expenses rose. Higher energy prices since Russia’s invasion of Ukraine have brought about a “cost of dying” crisis in the funeral sector, as crematoria are heavy users of gas.

The problems for the company, which operates 46 crematoria and has 725 branches, were exacerbated by cost inflation, especially for materials used to make coffins, and staff shortages. Strict social distancing guidelines during the pandemic meant that although there were more funerals, they were not as profitable.

Analysts at Peel Hunt noted this month that the company’s performance had been under pressure in previous years “despite a high death rate given the lingering effects of Covid”.

In September, the company posted a pre-tax loss of £156mn in the six months to June, down from a profit of £50.5mn the previous year.

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WSJ : Ritchie Bros. Sweetens Deal for IAA, With Starboard’s Jeff Smith Set to Jo

Ritchie Bros. Sweetens Deal for IAA, With Starboard’s Jeff Smith Set to Join Board
Canadian company increases cash payout for IAA shareholders to $12.80 per share, from $10

Canada’s Ritchie Bros. RBA 0.82% Auctioneers Inc. agreed to amend the terms of its proposed acquisition of U.S. auto retailer IAA Inc., IAA 1.78% as activist investor Starboard Value LP plans to make a $500 million investment in Ritchie Bros.

Under the terms of the amended agreement, IAA stockholders would receive $12.80 in cash, up from $10, and 0.5252 Ritchie Bros. share for each IAA share. That implies a combined value to IAA stockholders of $44.40 based on Ritchie Bros.’ closing price of $60.17 on Friday. (Previously, the stock component was 0.5804.)

As part of the agreement with Starboard, Ritchie Bros., a heavy-equipment and truck auctioneer, agreed to add the investment firm’s chief executive officer, Jeffrey Smith, to its board, executives at the firms said.

The investment and Mr. Smith’s appointment are contingent on Ritchie Bros. receiving investor approval for the IAA deal, which has received pushback from shareholders on both sides.

Ritchie Bros. Chief Executive Officer Ann Fandozzi said in an interview Sunday that the amended merger agreement along with Mr. Smith’s involvement should be seen as a “better answer” for both sets of shareholders based on all of the feedback she has received.

In November, Ritchie Bros. said it had agreed to acquire IAA, a marketplace for car parts and damaged vehicles, in a cash-and-stock deal valued at about $7.3 billion including debt. The announcement was met by a record selloff in Ritchie Bros. shares.

Luxor Capital Group LP, which holds about 3.6% of Ritchie Bros. shares, said recently that it filed a preliminary proxy statement with the Securities and Exchange Commission in connection with its opposition to the proposed deal. Among its concerns, Luxor said the transaction would require Ritchie Bros. to shift its attention away from core initiatives.

Meanwhile, Ancora Holdings Group, which owns about 4% of IAA, said in a letter to the company’s board that although it believed Ritchie Bros. was a logical buyer, the firm held concerns including about the purchase price. Ancora built a position in IAA in 2021 and called on the board to either fire CEO John Kett or sell the company.

Starboard’s Mr. Smith said Sunday that he was surprised that the market initially soured on the deal. He said, however, that provided a chance for him to get involved and sweeten the pot for everyone involved. “There are a lot of reasons why these two companies should be together, and we’re very excited about the plan to improve revenue growth and the opportunity to have margin expansion,” Mr. Smith said.

He also noted that Starboard was an investor in IAA’s parent company, KAR Auction Services Inc., prior to its spinout.

According to Ms. Fandozzi, Ritchie Bros. is aiming to create a successful marketplace with more offerings, building on Ritchie Bros. success in the auction business. She said that combining the companies and their real-estate portfolios should yield revenue growth and opportunities for cost savings.

Ritchie Bros. expects roughly $350 million to $900 million in incremental adjusted earnings before interest, taxes, depreciation and amortization annually from combining with IAA, which it hasn’t previously disclosed. The company continues to expect $100 million to $120 million in annual cost synergies, according to Ms. Fandozzi.

Additionally, Ritchie Bros.’ board plans to approve a special dividend payout to its shareholders of $1.08 per share, contingent on the close of the IAA transaction. This wasn’t part of the previous deal structure.

Starboard’s investment in Ritchie Bros. would take the form of $485 million in convertible-preferred equity, with an initial conversion price of $73 a share, and $15 million in common stock for roughly $59.72 per share.

Ritchie Bros. shares closed Friday at $60.17, bringing the company’s market value to $6.7 billion. IAA stock ended at $40.65, giving the company a market capitalization of $5.4 billion.

WSJ : Arm-Based Chips Make Inroads With Apple, Amazon

Arm-Based Chips Make Inroads With Apple, Amazon
British chip-design company puts pressure on Intel while preparing for IPO

A new generation of chips using Arm Ltd. technology is heaping pressure on Intel Corp. INTC 2.81% as the British chip-design specialist prepares for what could be one of the year’s highest-profile public listings.

Arm-based chips have been winning market share in PCs and have become a more formidable rival in the increasingly important data-center market where Intel has long been the undisputed leader. Amazon. AMZN 3.81% com Inc. has embraced the technology for its self-made server chips, and Microsoft Corp. MSFT 3.57% and Google are working on processors using building blocks licensed from Arm, according to people familiar with their efforts.

The Cambridge, England-based company demonstrated some of its popularity this past week when Apple Inc. AAPL 1.92% expanded its bet on Arm-based chips. On Tuesday, Apple, an early adopter of Arm, introduced two new versions of its in-house-designed Arm chips for MacBooks, leaving Intel—long Apple’s preferred supplier for core processors—only furnishing those for its highest-end desktop computers.

Intel, which reports quarterly results Thursday, is expected to post a 23% decline in revenue in its PC-focused business, according to analysts surveyed by FactSet. Intel’s server business sales are forecast to retreat 40% from the year-prior, reflecting a weakening economy and loss of market share to its rival Advanced Micro Devices Inc. and to Arm-based chips.

The inroads Arm-based chips have made recently with cloud-computing operators have become particularly meaningful because the data centers operated by Amazon, Microsoft, Google and others consume a vast number of chips. Arm earns royalty payments on every chip made or sold using its design.

“It’s a massive opportunity for us,” Arm Chief Executive Rene Haas said.

Arm, which is owned by Japan’s SoftBank Group Corp. , is gearing up for an initial public offering this year. The company’s IPO plans have shifted to later in the year because of market turmoil that has depressed appetite for new listings, an Arm official said last year. Arm also is still deciding where to list its shares, with political pressure in the U.K. to pick London.

Arm made its name devising the basic building blocks of circuits at the heart of smartphones, aiming to minimize power consumption to extend battery life. Arm-based chips are the digital brains in more than 95% of smartphones, including all Apple iPhones.

Because Arm makes money largely by licensing chip building blocks rather than making the devices, it generates relatively modest sales figures given its reach. It generated $2.7 billion in revenue in 2021—up by more than a third from the prior year, but still only about 3% the size of Intel.

It has transplanted its smartphone success into other markets. Processors using its chip format now feature in more than 10% of all PCs sold as of the third quarter of last year, according to Mercury Research. While global shipments in laptops are expected to decline this year by a high single-digit percentage, those for Arm-based laptops could grow, according to Counterpoint Research.

The share of processors shipped to cloud-computing companies that aren’t based on Intel’s chip architecture—largely reflecting Arm’s use—reached 16% last year and is predicted to rise to 53% in 2026, according to Canalys, a research firm. Estimates of Arm-based chips’ market share vary widely, however, because in-house applications like those developed by Amazon aren’t easy to track. Arm chips are now also found in virtual-reality headsets and autonomous vehicles.

Intel is fighting back. This month, it released a long-delayed new generation of its server chips promising high performance and power-saving capabilities. “We know what we need to do in order to be the preferred supplier for these products, and we’ve been working hard to put that foundation back together and ensure that we do win,” said Lisa Spelman, an Intel vice president in charge of its server processor products.

Arm-based server chips are benefiting from a focus at cloud companies on environmental stewardship. The three biggest American cloud providers are pledging to cut their carbon footprints by 2030 or earlier.

Each data center can house hundreds of thousands of servers and require as much power to run a day as about 30,000 residential households. Having server farms that consume less power is critical to meeting those targets, officials from the cloud providers have said.

“Power is going to be a problem for us and for everybody,” said Amazon’s Dave Brown, a vice president at Amazon who handles the company’s cloud-computing server farms and represents one of the single largest chip customers. Amazon’s latest Graviton chips—based on Arm and released late last year—are up to 60% more efficient than its other CPUs, he said. Those consist of Intel and AMD chips.

Intel wouldn’t respond directly to Amazon’s performance claims, but CEO Pat Gelsinger suggested last year that a generation of its server chips set to debut in 2024 would outclass Arm alternatives on key efficiency and performance metrics.

Arm’s success made it the target of multiple high-value deals. SoftBank in 2016 splashed out $32 billion, which, Arm executives have said, freed them to boost research spending by 10% to 15% and sharpen the company’s attack on rivals without the pressure of having to post its own quarterly financial results.

“SoftBank came along and gave us the freedom to go and invest all of our profits back into R&D,” former CEO Simon Segars said, helping it develop circuit designs catered directly to servers.

Then Nvidia Corp. , America’s largest chip company by value, tried to acquire Arm from SoftBank in 2020 for $40 billion. Many customers objected that Arm, which has a reputation as the Switzerland of tech, would be owned by a rival and pressured regulators to block the transaction. Nvidia and SoftBank called off the deal a year ago.

Also trying to ride the Arm wave is Ampere Computing LLC, a startup that has raised more than $850 million from investors and has filed to go public. The server-chip company is designing its own Arm-compatible chips from scratch and counts Microsoft and Hewlett Packard Enterprise Co. among its clients. Its chips offer new choices in a server market long dominated by Intel and AMD.

“We’re talking about upsetting a 30-year order,” said Ampere CEO Renee James, a former Intel president who left in 2016 after being passed over for the top job there.

Meanwhile, Arm’s customers are opening new fronts to win PC business. Mobile-phone chip giant Qualcomm Inc. is working on Arm-based chips for Windows laptops. Those devices could land with customers this year and help drive the growth in Arm-based laptop shipments, Counterpoint Research said.

Lisa Su, chief executive of Intel rival AMD, said last year that her company was in the early phases of working on Arm-based chips that could potentially go into videogaming consoles.

FT : BoE warns insurers over ability to sell down assets in a crisis

BoE warns insurers over ability to sell down assets in a crisis
Prudential Regulation Authority’s stress test of 16 insurers finds their assumptions ‘too optimistic’

Life insurers could be overly optimistic about their ability to sell down assets in a crisis, the Bank of England has warned.

The BoE’s Prudential Regulation Authority, which supervises the sector, put 16 life insurers through a stress test of credit downgrades and increased longevity. In results published on Monday, it found them resilient, but it said their assumptions for how quickly they could sell down assets following a crisis “could be optimistic”. 

Several relied on their ability to sell bonds that had been downgraded to junk, with £8bn to £9bn of such assets expected to be offloaded. Most assumed this could be done within six to 12 months of the event.

“In light of the aggregate finding, this could be optimistic, especially as other investors would also be taking similar actions,” the PRA said. “It is important that, when firms plan for the management actions that they could take in stress, they allow for market liquidity and potential stress amplification arising from actions taken by other investors.”

An example of such a rush for the exit was provided in last year’s gilts market crisis, when pension funds struggled to offload government debt quickly enough to meet collateral calls and the BoE was forced to intervene.

For general insurers, the regulator identified areas for improvement in how they quantify losses such as so-called secondary perils — events such as floods that have historically been less costly, but are growing in frequency.

For cyber risks, it found that insurers’ assessment of the likelihood of tail risks were “highly variable” and that there were “challenges and sensitivities” in the use of exclusions for state-sponsored attacks. Such exclusions have sparked fierce debate in the sector and a flurry of legal cases.