Personal Care M&A Overview Canada and US Market Insights

January 2020

All $ values are in USD, unless otherwise stated Sources: S&P Capital IQ, Mergermarket

M&A activity in 2019 was driven by strategic acquisitions by larger players aiming to expand their scale and enhance capabilities to meet changing consumer preferences

The North American personal care M&A market has been Similar to other consumer product segments, the personal historically stable, with 2019 reporting the second highest care market is experiencing a shift in consumer preferences. transaction volume after 2016. The last few years have seen Innovative start-ups are selling on trend natural, organic, clean two distinct approaches to deal making, with large industry- and cruelty-free products, predominantly to millennial defining transactions for scale such as JAB Cosmetics’ consumers, who are more informed and seek transparency in acquisition of an additional 20% stake in Coty for $10 billion, ingredients, packaging, sustainability and ethical sourcing. The and small tuck-in acquisitions for capabilities and brands such effort to adopt a healthy lifestyle is driving demand for as SC Johnson’s acquisition of Oars + Alps, Mimi's Rock’s products made from natural and organic ingredients. Also, the acquisition of Maritime Naturals and Henkel’s acquisition of thirst for fresh ideas in the industry has seen marine eSalon. ingredient cosmetics make a splash.

The industry has been disrupted by the growth of direct-to- Traditional players are evaluating differentiated, emerging consumer channels such as e-commerce platforms and the use brands that could strategically fit within their portfolio. This of social media to engage directly with consumers. This has includes conglomerates such as Unilever and P&G, which are given rise to a considerable number of start-ups, which are aiming to bring these innovative start-ups in-house and expand setting up websites and brand-specific social media accounts their market outreach. Further, there has been significant buy to build their brand and boost their sales. Glossier, a direct-to- and sell-side activity from PE groups, primarily in brands consumer brand that sells exclusively online and mainly relies offering skin and hair care products. Acquisitions made by on Instagram for product promotions, has grown to a $billion+ individual investors as well as PE firms such as Advent company. International, VMG Partners and H.I.G. Capital suggest that investors continue to remain bullish on the market and Furthermore, beauty tutorials on YouTube and influencer enthusiasm isn’t likely to fade in 2020. Buyers are expected to marketing on social media are driving the adoption of new favour brands that focus on sustainability and/or inclusivity trends such as skin care routines and online beauty and assimilate the socio-political scenario prevalent in the subscription services. As a result, mainstream cosmetic market. companies continue to face competition from independent “masstige” brands and celebrity start-ups, which has been one Industry insiders are keeping an eye on the prospective sales of the key drivers for M&A activity in the space. At the same of custom skin care brand Curology and influencer-favourite time, while start-ups are attracting new customers through cosmetics line Dose of Colors. Unicorns such as Glossier might innovative offerings, they are facing the challenge of building look to sell themselves or go public, while established brands brand loyalty. This has been a driver for unique deal such as Revlon are reviewing their strategic options. structures, with the original founder retaining a stake in the company post transaction. Coty’s acquisition of a 51% stake in Kylie Cosmetics is an example of this.

Source: Secondary research 1|Personal Care M&A Overview North America Digital transformation, rising demand for skin care cosmetics, investment in private label and men’s grooming products are some additional trends shaping the personal care industry in North America

Increasing usage of e-commerce platforms, artificial Investment in private label brands intelligence and adoption of augmented reality (AR) A shift toward private label is underway, albeit the North While social media and e-commerce have revolutionized the American penetration of personal care private-label brands is way brands can connect with consumers, digital low compared with other consumer product categories. transformation has been further complemented by the Private label accounts for only 4% of US retail sales in the prevalence of artificial intelligence and AR. beauty and care space, compared to 17% in the packaged good segment. Brands are capitalizing on these trends to market beauty products. YouCam’s makeup and L’Oréal’s ModiFace The changes in shopping habits of millennials and Gen Z are augmented reality app enable consumers to try on products, driving this trend – approximately 67% of shoppers believe that share looks and seek advice from beauty influencers. AR private label offers good value for their money. The growth enables real-time analysis and tracking of facial features using prospects in private label have attracted attention from photographs and videos uploaded by consumers on online retailers aiming to improve their margins. In Canada, Hudson’s platforms such as mobile apps and AR devices at cosmetics Bay launched “Les Essentials”, a line of beauty and skin care stores. products. Specialty beauty retailers such as Sephora and Ulta are investing in private-label products, and drugstores such as Shift in share of wallet from colour cosmetics to skin care CVS and Walgreens are developing their lines of in-house mass and “masstige” brands across product segments. The natural look trend has increased the focus of skin care and aesthetics. Rapidly ageing demographics have created a Growth in demand for men’s grooming products demand for anti-ageing products to prevent wrinkles, age spots, dry skin, uneven skin tone and even hair damage, Men are becoming more health-conscious and fashion-forward, thereby allowing new innovations to boost the industry and the male grooming category is responding positively to growth. online retail platforms and digitally conscious brands.

Skin care requires more R&D than the other sub-categories Companies are expanding their product offering for men and and therefore tends to drive stronger brand loyalty than colour making acquisitions in the space. For example, in May 2019, cosmetics, fragrances or hair care, making consumers more Edgewell Personal Care Company acquired Harry’s Inc., a reluctant to switch brands. manufacturer of shaving products and grooming kits.

M&ADeala overview volume reached its highest level since 2016; skin care continues to attract strategic s buyers, followed by diversified and aesthetics/salon/spa brands

M&A activity over the years Distribution by category (2019)

60 10.0 20 6.0 18 9.0 5.0 50 16 Average 8.0 (volume) 14 7.0 4.0 40 12 6.0 10 3.0 30 5.0 8 4.0 2.0 6 20 3.0 M&A Volume Total Deal Total M&A Volume Total Deal 4 1.0 ($b) M&A ReportedValue Deal

2.0 ($b) M&A ReportedValue Deal 10 2 1.0 0 0.0 0 0.0 Color Skin and Hair care Oral care Aesthetics / Diversified 2014 2015 2016 2017 2018 2019 cosmetics body care salon / spa personal care

Total M&A Deal Volume Reported M&A Deal Value ($b) Total M&A Deal Volume Reported M&A Deal Value ($b)

2019 Deal Value (including $10b JAB Cosmetics – Coty deal) Diversified personal care deal volume (including $10b JAB Cosmetics – Coty deal)

The North American personal care market witnessed a total of JAB Cosmetics acquired an additional 20% stake in Coty for 51 deals in 2019, representing a 30.8% y-o-y increase. Deals $10 billion. The deal is expected to provide Coty the financial within the skin and body care segment continued to dominate backing to make additional bolt-on acquisitions and improve its the market in 2019, accounting for 35% of overall deals, market position. predominantly driven by increased demand from millennials. Volume was also driven by private equity investors targeting Deal value peaked at an all-time high in 2019, primarily due successful beauty and personal care brands and co- to three $billion+ acquisitions made by large, diversified manufacturers. Cornell Capital-backed KDC/ONE, a Quebec- players during the year. based co-manufacturer of beauty, health and personal care products made four acquisitions in 2019. 2|Personal Care M&A Overview North America Source: S&P Capital IQ, Mergermarket, Secondary research Select Transactions in 2019

Deal Value TEV / TEV / Date Target Buyer/Investor Business Description of Target Sub-sector ($m) Revenue EBITDA

Knowlton Development Colour 12/17/19 HCT Group Designs and manufactures cosmetics products - - - Corporation cosmetics

The Mane Choice 11/13/19 MAV Beauty Brands Manufactures and supplies hair care products Hair care 90.8 3.7x 14.2x Hair Solution

Benchmark Cosmetic Knowlton Development Develops personal care products including anti-ageing, hair Hair care / skin 11/05/19 - - - Laboratories Corporation care, and other cosmetic products and body care

Drunk Elephant Shiseido Americas Manufactures, markets and distributes a range of skin care Skin and body 10/08/19 845.0 11.3x - Holdings Corporation products care

Offers a range of skin and body care products including Skin and body 10/06/19 Tatcha The Unilever Group 500.0 - - moisturizers, facial cleansers and cleansing oils care

Offers skin and body care products for men, including Skin and body 09/12/19 Oars + Alps S. C. Johnson & Son 20.0 - - deodorants, eye cream and facial soaps care

Skin and body 09/05/19 Maritime Naturals Mimi's Rock Manufactures and sells skin care products - - - care

Aesthetics / 08/22/19 Eraser Clinic Normanby Capital Provides laser tattoo removal services 10.3 - - salon / spas

Manufactures and distributes hemp-derived CBD infused Skin and body 08/02/19 Redwood Holding Cronos Group - - - skincare and other consumer products care

Provides cannabis-infused oils for skin care Skin and body 07/31/19 Earth Dragon Pasha Brands - - - care

Knowlton Development Skin and body 07/02/19 Alkos Group - Aaxen Manufactures skin care products and cosmetics - - - Corporation care

Manufactures and distributes colour cosmetics, skin care and 05/22/19 Avon Products Natura & Co Diversified 4,298.0 0.7x 7.9x fragrance products, as well as fashion and home products

Relevium Provides dietary supplements, nutraceuticals, sports Skin and body 05/21/19 Aurelio Useche 0.4 4.2x - Technologies nutrition products and cosmeceuticals care

Manufactures and distributes shaving products such as Public Comps Edgewell Personal Care Skin and body 05/09/19 Harry's razors, shaving creams, grooming kits and face care 1,370.0 - - Company care products Produces consumer oral care products including power 05/09/19 Ranir Perrigo Company toothbrushes, replacement brush heads, tooth whiteners, Oral care 750.0 2.6x - sore treatments and dental accessories, among others Offers dermatological products such as antifungal-bacterial Skin and body 05/02/19 Blaine Labs Alternate Health Corp. creams, callus-care moisturizers, silicone gels for scars, pain 19.6 1.4x - care relief gels and skin bleach Provides cosmetic, skin care, fragrance, personal care, LG Household & Health 04/25/19 New Avon Company health and wellness, and beauty products as well as apparel Diversified 125.0 - - Care and accessories

Manufactures beauty products such as facial oil and Skin and body 04/16/19 High Beauty Canopy Rivers 2.5 - - moisturizer from cannabis sativa care

Provides ampoules, tablets, capsules, vials, ointments, Skin and body 03/26/19 Envy Medical Allergan medicinal powders, solutions and suspensions for human or 81.4 - - care veterinary use Offers skin care, nail care, fragrance and hair care products 02/12/19 Coty JAB Cosmetics under its Luxury, Consumer Beauty, and Professional Beauty Diversified 10,059.7 1.8 12.7x segments

MEDIAN 2.6x 12.7x

MEAN 3.7x 11.6x

Source: S&P Capital IQ, MergerMarket, Secondary research 3|Personal Care M&A Overview North America TransactionRevenue and Comps EBITDA trading multiples (2018-2019)

5.0x 30.0x EY personal care index

25.0x The personal care index consists of 4.0x the following publicly traded companies: 20.0x North American personal Ticker care companies symbol 3.0x

15.0x Estée Lauder NYSE:EL

2.0x TEV/EBITDA (x) L'Oréal ENXTPA:OR TEV/Revenue (x) 10.0x Coty NYSE:COTY

L'Occitane SEHK:973 1.0x 5.0x Revlon NYSE:REV

Edgewell Personal Care NYSE:EPC 0.0x 0.0x Colgate-Palmolive NYSE:CL

TEV/Revenue TEV/EBITDA

*Multiples have been calculated with LTM revenue and EBITDA Source: S&P Capital IQ

For more insights into the North American personal care market, please contact:

Chris Hutchinson* Zamira Aliko* Devon MacMurray Senor Vice President Vice President Senior Associate EY Private Consumer Sector M&A Consumer Sector M&A T: +1 416 932 6002 T: +1 416 943 5409 T: +1 416 932 6131 E: [email protected] E: [email protected] E: [email protected]

*A registered exempt market Dealing Representative.

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