The robust pace of deal-making in the beauty space this year has more brands seeing dollar signs and readying for a potential sale. And buyers are now coming from all over the world.
First on the selling block is expected to be Too Faced Cosmetics, said financial observers. The whimsical color line will help kick off what investment bankers forecast will be a flurry of mergers and acquisitions activity in the first half of 2015.
Private equity funds with money to spend, brand founders eyeing the success of recent deals and strategic buyers looking to broaden their portfolio and geographic reach will push the pace of deals forward in the new year. The biggest issue fueling the activity is that “companies need new sources of growth,” said Andrew Shore, a managing director at Moelis & Co., which is piquing their interest in more modest targets.
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“If you are waiting for a big company, there’s just not that many out there. The supply is in the smaller brands,” said Shore, referring to companies with wholesales sales between $20 million and $40 million.
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“There are a lot of strategic [buyers] looking to diversify outside their core,” said Vennette Ho, a managing director at Financo. “The activity should continue through the first half of the year.”
While there are still few large companies — or brands with wholesale sales north of $50 million — to buy, smaller-sized firms are increasingly garnering more attention from both financial and strategic buyers.
“The strong interest to do deals continues,” said Andrew Charbin, a vice president at the investment bank The Sage Group. “The larger companies, which take a long-term strategic perspective, are open to looking at smaller, high-quality assets that will drive growth for years to come. It’s essentially a question of parsing through what’s quality and what’s not.”
As the pace of deals continues to heat up, bankers said potential buyers will span all geographies and major product categories. Asia-based companies, in particular, are interested in U.S. brands. Charbin said, “They don’t necessarily move fast, but they understand the space and want to expand their presence in other markets.”
Ho of Financo added, “It’s a global M&A market.”
Too Faced — one of the last hold outs from the indie-brand era of the Nineties — has tapped Piper Jaffray to explore a sale, said industry sources. Piper Jaffray has attracted attention from potential sellers after advising NYX Cosmetics in its sale to L’Oréal and Butter London, which sold a majority stake to Encore Consumer Capital, earlier this year.
Both Too Faced and Piper Jaffray declined to comment.
The color line — founded in 1998 by Jerrod Blandino and Jeremy Johnson as a feminine, flirty and fun antidote to serious makeup artist brands — sold a majority stake to the private equity firm Weston Presidio in 2012. But over the years, the founders have insisted there are no plans to sell the brand, which generates an estimated $100 million in wholesale sales. Too Faced is sold in Ulta and in Sephora both domestically and aboard, and hero products include Better Than Sex Mascara and Sun Bunny Natural Bronzer.
But perhaps the success of recent acquisitions is getting difficult to ignore.
Industry sources estimate that L’Oréal may have paid nearly $500 million for the mass-market cosmetics brand NYX.