Personal Care and Beauty Products Industry Insights – April 2015

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Personal Care and Beauty Products Industry Insights – April 2015 Industry Insights: April 2015 Personal Care and Beauty Products Inside 2 – Executive Summary Key Highlights 3 – Top Three Sector Themes yy Strategicyacquisitionsyinytheybeautyysectoryareymotivatedybyydesiresytoyincreasey marketyposition,yexpandyproductyportfoliosyandystrengthenydistributionychannels. 4 – Public Companies Trading Analysis yy ImprovedyeconomicyconditionsyareycreatingyaystrongytailwindyforyM&Ayactivityyandy 5 – Selected M&A Transactions causingyconsumersytoyincreaseyspendingyonypremiumyandyvalue-addedyproducts. yy Topypersonalycareyandybeautyyproductythemesyinclude: 9 – Contacts >y Productyinnovationyandynewymarkets >y Shiftytowardsyanyomni-channelystrategy,ywithyemphasisyonysocialymedia >y Large,ydiversifiedybuyersystreamliningytheirybrandyportfoliosyandyacquiringy differentiatedyassetsytoyenhanceyvaluey y Personal Care and Beauty Products Industry Insights – April 2015 Executive Summary Improved economic conditions are creating a strong tailwind for M&A in the beauty sector Companies with a highly scalable platform and brand equity strength are often the key participants in M&A deals. From a strategic perspective, buyer activity is driven by compelling opportunities that offer complementary brands and synergies. Theybeautyyandypersonalycareyindustryy andybroadenyandydeepenydistributiony ChanelyinyOctobery2014,yaccordingytoy landscapeyisycharacterizedybyynumerousy channels.yyForyexample,ybeautyycompaniesy theypressyrelease.yTheyrationaleybehindy participantsyatydifferentystagesyofyevolutiony likeyPDC Brandsy(formerlyyknownyasy theyacquisitionywasytoycomplementyCoty’sy rangingyfromymatureycompaniesytoynascenty ParfumsydeyCoeur,yLtd)yacquiredyDr. Teal’sy existingycosmeticsyportfolio,ybolsteryCoty’sy differentiatedybrandsywithysubstantialy inyFebruaryy2014yandyhasysinceypositionedy footprintyinytheyEuropeanymarket,yandyfurthery growthypotential.yM&Ayactivityyreflects:y theybrandyforyfasterygrowth,yincreasingy strengthenyitsypositionyinytheylargeyandy buyersyseekingyproductylines;ystrongybrandy revenuesyatyayrateyofymoreythany50%yfromy growingycolorycosmeticsycategory.y awareness;yappealingygrowthyprofiles;y theydateyofyacquisition. Theybeautyysectoryhasyalsoypiquedythey formulayinnovation;ydiversifiedydistributiony Improvedyeconomicyconditionsyareyalsoy interestyofyprivateyequityyfirmsywhoyhavey channels;ycreativeypositioningyandymarketingy drivingyyM&Ayactivity.yTheyU.S.yeconomyy substantialydryypowderytoyallocateytoy strategies;yandygeographicyexpansionyintoy isyexpectedytoycontinueytoyexpandyovery thisyconsumeryvertical.yInyMarchy2015,y newymarkets.yDespiteytheypressureyfory theymediumyterm,ypotentiallyyleadingytoy SanyFranciscoyEquityyPartnersy(SFEP),yay strategicyplayersytoyexpandyviayacquisitiony loweryunemploymentyandyanyincreaseyiny privateyequityyfirmyexclusivelyyfocusedyony andytheyneedyforyprivateyequityyfirmsytoy disposableyincome,yallowingyconsumersy expansion-stageycompaniesyinytheyconsumery deployycapital,ytheynumberyofytransactionsy toyincreaseydiscretionaryyspendingyony industry,yannouncedytheyacquisitionyofy inytheybeauty/personalycareysegmentywasy personalycareyproductsyandypremiumy aymajorityystakeyinyJaponesque,yayfasty relativelyyflatycomparedytoy2013ylevelsywithy andyvalue-addedyproducts.yAlso,ysincey growingyCaliforniaybasedybeautyycompany.y 57ytransactionsyiny2014yversusy59yiny2013. theylastyrecession,ychangingyconsumery Also,yinyAugusty2014,yRhôneyCapitaly Companiesywithyayhighlyyscalableyplatformy shoppingypreferencesyareytransformingy madeyayminorityyinvestmentyinyElizabeth andybrandyequityystrengthyareyoftenythey theyretailyindustryyasyconsumersyhaveyay Arden,yagreeingytoypurchasey$50ymilliony keyytargetsyinyM&Aydeals.yFromyaystrategicy heightenedyfocusyonyvalueyandyareydrawnytoy ofyredeemableypreferredystockyandyalsoy perspective,ybuyeryactivityymayybeydriveny inexpensive,ybutyefficaciousyproductsysoldyiny warrantsytoypurchasey2.5ymillionysharesyofy byycompellingyopportunitiesythatyoffery massychannels.y theycompany’sycommonystock,yaccordingy complementaryybrandsyandysynergies.yToy Keyyplayersyinytheyspaceyhaveycontinuedytoy toytheypressyrelease.yConversely,yprivatey thisypoint,ythereywereyayvarietyyofynotabley takeyadvantageyofytheyfragmentedylandscapey equityyfirmsyhaveyalsoydivestedyinvestmentsy strategicydealsyiny2014,yandyrobustyM&Ay andyhaveybecomeymoreyacquisitiveyiny inybeautyyandypersonalycareycompaniesy activityyisyforecastedytoycontinueythroughy termsyofyconsolidatingybrandsyintoyexistingy toyrealizeytheyescalatedyvalueyofythesey 2015yasylargeyplayersyfocusyonyacquiringy portfolios.yInyMarchy2015,yUnileverysignedy companies.yForyexample,yTSGyConsumery newerybrandsythatyhaveyrapidymomentumy anyagreementytoyacquireyREN Skincare,y Partners’ysoldythreeyprofessionalyhairycarey andyincreasingymarketyshare.yAnyexampley ayBritishyskincareybrandytoycomplementyitsy brands,ySexy Hair,yAlterna,yandyKenraytoy L’Oreal’s NYX includesy yacquisitionyofy otheryproducts.yyIny2014,yEstee Laudery HenkelyAG,yandyPerricone M.D.ytoyLiony Cosmetics ytoytargetyayyoungerycustomery acquiredyGlamglow,yLe Labo,yEditionsy Capital.yInyFebruaryy2014,yTPGyGrowthy demographicyandyparticipateymoreyactivelyyiny de ParfumsyFrederic MalleyandyL Rodiny acquiredye.l.f. CosmeticsyfromyTSGy theysocialymediayphenomenon. brandsyandyisyworkingyonyintegratingythesey Consumersywithyplansyofyexpandingythey Theybeautyysectoryhasyalsoyseenystrategicy brands.yCoty Inc.yofferedy15ymillionyClassy brandydomesticallyyandyinternationally.y acquisitionsydrivenybyydesiresytoystrengtheny AyCotyysharesy(approximatelyy$240ymillion)y marketyposition,yexpandyproductyportfolios,y inyitsyofferytoybuyytheyBurjois brandyfromy Duff & Phelps 2 Duff & Phelps 2 Personal Care and Beauty Products Industry Insights – April 2015 Three Key Themes Driving the Personal Care and Beauty Products Sector Product innovation and new markets Shift towards an omni-channel strategy Large, diversified buyers streamlining spurring industry growth Specialtyyretailersyhaveyrecognizedythey their brand portfolios and acquiring Consumersyareydemandingynew,y importanceyofyaymulti-channelystrategyy differentiated assets to enhance value specializedyandyeffectiveyproducts.y inybolsteringyprofitabilityyandyaybroadery Majorystrategicyplayersyflushywithycashy Companiesyareyrespondingythroughy consumeryaudience.yOmni-channely onytheirybalanceysheetsycontinueytoyseeky productyinnovation,ywhichyservesyasyay migrationyisyrapidlyypickingyupysteamyandy growthyinyaymodestlyygrowingymarkety differentiatoryandypropelleryforytopyliney isybecomingycriticalyforymanyyretailersy viayacquisitions.yAtyayrecentyindustryy growthyandymarginyexpansion.yAdditionally,y seekingygrowth,yprofitabilityyandymarkety conference,yHainyCelestialyCEOyIrwiny largeyplayersyhaveyproactivelyystartedy share.yAywell-executedyomni-channely Simonynotedyinypublicystatementsythatythey identifyingyopportunitiesyinyemergingyandy strategyycrossesytheylinesybetweeny Companyyisylookingytoydoubleytheysalesy internationalymarketsyasythisyrepresentsy e-commerceyandybrick-and-mortarysales.y contributedybyyitsypersonalycareyunitytoy anotheryavenueyforysubstantialygrowth.y Beauty/personalycareybrandsythatycany $300-$400ymillion. transcendyallychannelsyareylikelyyamongy Coty’syCEOyMicheleyScannaviniynotedyiny theymostysuccessfulyandymostydesirabley theycompany’syQ3’14yearningsyreleaseythaty acquisitionytargets.y Cotyyisyfocusedyonytargetsyinyemergingy marketsythatycanymakeyaysignificanty contributionyandyhelpystrengthenythey company’syglobalyposition.yAccordingytoy companyystatements,yamongstyCoty’sytopy strategiesyisyexpandingyitsypresenceyiny newymarketsyoutsideyofyNorthyAmerica.y InyL’Oreal’syacquisitionyofyChinaybasedy Magic Holdings,yayleadingyskincareymasky brand,yL’Oreal’symanagementynotedythey complementaryynatureytoyL’Oreal’sybrandy portfolioyandyMagic’systrongypositiony includingyitsyuniqueyknowledgeyofythey Chineseyskincareymarket. Similarly,yforeignyplayersyareyalsoymakingy aypushyintoytheyU.S.ymarketyseekingytoy accessytheyhighlyyfragmentedyspacey inyanyeffortytoyexpandytheiryglobaly footprint.yInyMarchy2014,yKose,ythey listedyJapan-basedycosmeticsycompanyy withy$1.7ybillionyinyrevenue,yacquiredy 93.5%yofyNewyYorkybasedyskinycareyandy make-upycompanyyTarteyinyaydealyworthy approximatelyy$135ymillion,yaccordingytoy theypressyrelease. Duff & Phelps 3 Personal Care and Beauty Products Industry Insights – April 2015 Public Companies Trading Analysis ($yinymillionsyexceptyshareypriceydata) Enterprise Value as a Multiple of Revenue EBITDA LTM % of Price as of 52 Wk Market Enterprise EBITDA Revenue Company 3/20/15 High Value Value LTM 2015E 2016E LTM 2015E 2016E Margin Growth PersonalyCare Johnsony&yJohnson y$102.80y 93.9% y$285,834y y$271,505y 3.65x 3.79x 3.64x 10.9x 10.9x 10.3x 33.7% (0.1%) TheyProctery&yGambleyCompany y$85.17y 90.7% y$230,002y y$253,977y 3.09x 3.28x 3.16x 13.4x 13.6x 12.8x 23.1% (1.1%) UnileveryNV y$43.44y 99.8% y$123,074y y$134,866y 2.30x 2.32x 2.22x 13.8x 13.5x 12.7x 16.6% (4.1%) L'OrealySA y$180.83y 99.1% y$99,815y y$100,572y 3.69x 3.64x 3.46x 18.7x 17.3x 16.3x 19.7% (5.5%) Colgate-PalmoliveyCo. y$71.11y 99.7% y$64,503y y$69,603y 4.03x 4.12x 3.92x 15.0x 14.6x 13.7x 26.9% (0.8%) Kimberly-ClarkyCorporation y$109.91y 92.4% y$40,169y y$46,678y 2.37x 2.47x 2.39x 11.1x 11.3x 10.7x 21.4% (7.7%) PrestigeyBrandsyHoldings,yInc. y$38.82y 95.0% y$2,029y y$3,645y 5.42x 4.60x 4.70x 16.5x 12.8x 13.1x 32.9% 8.5% Median 95.0% 3.65x 3.64x 3.46x 13.8x 13.5x 12.8x 23.1% (1.1%) Mean 95.8% 3.51x 3.46x 3.36x 14.2x
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