Capstone Personal Care Products & Services M&A Report Q3 2016

PERSONAL CARE PRODUCTS & SERVICES Q3 2016

CONTACTS M&A OVERVIEW

Tracy Patch M&A activity in the Personal Care Products & Services industry is poised to exceed last Vice President year’s record volume of 102 transactions. Through Q3 2016, Capstone has already (949) 460-6432 identified 100 transactions that have been announced or closed in this industry, [email protected] compared to 80 deals over the same period last year. Companies with chemical-free, all- natural and organic products continue to be highly attractive targets. Additionally, male David Bench grooming products, skin food (products created with fresh ingredients such as fruits and Managing Director vegetables) and handmade beauty products are growing in popularity. These trends are (949) 460-6431 partly indicative of rising household incomes, which have enabled consumers to purchase premium products containing exotic and holistic ingredients. According to the US Census [email protected] Bureau, the median household income rose 5.2% in 2015, the largest increase since before the recession. Further economic improvement is expected to galvanize industry Daniel Schultz activity and many private equity groups are seizing this opportunity to make acquisitions. Director of Business Of the 48 financial buyers this year-to-date, 17 acquisitions were made by private Development investment firms and 31 were made by portfolio companies. Strategic buyers have also (617) 619-3368 been active, with 33 M&A acquisitions made by private companies and 19 by public [email protected] companies. One strategy growing increasingly popular is for large health and wellness chains to target small individual day-spas and laser centers. As a consortium, these larger businesses achieve better rates on products, offer additional services and build larger clientele with a regional or national presence. One company exemplifying this model is Advanced Dermatology & Cosmetic Surgery, who acquired 12 companies across the US in 2016. As consumer spending increases, IBIS World predicts that deluxe spa treatments (such as manicures, pedicures, facials, keratin treatments, massages and blow-outs) will become increasingly popular.

M&A Transactions: Personal Care Products & Services 120 100 102 100 100 85 81 77 80 80 73 75 BOSTON 67 CHICAGO 60 LONDON 40 LOS ANGELES

NEW YORK Number of Transactions 20 ORANGE COUNTY 0 PHILADELPHIA 2008 2009 2010 2011 2012 2013 2014 2015 2015 2016 SAN DIEGO YTD YTD

SILICON VALLEY YTD ended September 15, 2016 TAMPA Sources: Capital IQ, Capstone Partners LLC research Personal Care Products & Services Q3 2016

NOTABLE TRANSACTONS Several notable transactions have already been announced or completed in the Personal Care Products and Services industry through Q3 2016. Capstone has outlined select transactions below, followed by a more comprehensive list on the following tables.

 L’Oreal acquires IT Cosmetics (July 2016) – In the French company’s largest acquisition in eight years, L’Oreal acquired IT Cosmetics and more than 300 high-performance beauty products. The all-cash transaction closed at $1.2 billion. IT Cosmetics was founded in 2008 by former news anchor Jamie Kern Lima who, suffering from Rosacea, set out to create a beauty line that offered natural, “good-for-you” products that would improve skin conditions. "Our makeup and skincare products are not only game-changing in their innovation, they are also life-changing for real women everywhere,” said IT Cosmetics CEO Lima. “Partnering with L'Oréal and utilizing the power of their global infrastructure will help us scale our mission in an even bigger way and we couldn't be more excited." IT Cosmetics will continue to operate under its current leadership in its New Jersey headquarters while L’Oreal sells the brand through its Luxe Division. "IT Cosmetics will perfectly complement the L'Oréal Luxe's brand portfolio to satisfy the rising demand for make-up as well as hybrid skincare,” said Nicolas Hieronimus, President of L'Oréal Selective Divisions. “We are happy to welcome IT Cosmetics to the L'Oréal dream team which includes other great beauty brands such as Lancôme, Kiehl's, Yves Saint Laurent, Armani and Urban Decay." L’Oreal has been highly acquisitive of late, making 12 transactions over the past three years. The largest of these have been its acquisitions of Coloright ($1.2 billion), Magic Holdings International ($843.7 million) and Yves Saint-Laurent Beaute Holdings ($1.7 billion).

 Unilever acquires Dollar Shave (July 2016) – Only four years after the launch of the Dollar Shave Club (DSC), consumer products behemoth Unilever has agreed to buy the Company for $1.0 billion. “Dollar Shave Club is an innovative and disruptive male grooming brand with incredibly deep connections to its diverse and highly engaged consumers,” said Kees Kruythoff, President of Unilever North America. “In addition to its unique consumer and data insights, Dollar Shave Club is the category leader in its direct-to-consumer space. We plan to leverage the global strength of Unilever to support Dollar Shave Club in achieving its full potential in terms of offering and reach.” The e-commerce startup DSC is based out of Venice, California. The Company sells men’s razor blades on a subscription basis, for as little as three dollars a month, and has added additional men’s grooming products to its offerings including shaving butters and creams, body cleansers, hair styling products, moisturizes and face wipes. DSC now has more than three million members. Unilever will likely use the platform, along with DSC’s knowledge of the industry, to rival the Gillette razors of Procter & Gamble. “DSC couldn’t be happier to have the world’s most innovative and progressive consumer-product company in our corner,” said DSC CEO and founder Michael Dubin. In an interview with the New York Times, Dubin added “We have a mission, which is to help guys take care of themselves. Now we have access to one of the world’s most innovative consumer products companies.”

Capstone Partners LLC 2 Personal Care Products & Services Q3 2016

NOTABLE TRANSACTIONS (CONTINUED)

 Revlon acquires Elizabeth Arden (June 2016) – Revlon has acquired rival cosmetic company Elizabeth Arden for an enterprise value of $864.2 million. The acquisition is expected to create cost synergies of approximately $140.0 million. “This acquisition is strategically and financially compelling,” said Revlon CEO and President Fabian Garcia. “Elizabeth Arden and Revlon are both known for their iconic brands, entrepreneurial spirit and commitment to innovation, quality and excellence. Revlon plans to build upon Elizabeth Arden’s ongoing transformation by further enhancing the brand, with even more vibrant and relevant product development and marketing, while carefully preserving its unique heritage within prestige.” Entrepreneur and suffragette Elizabeth Arden opened her first “red door spa” in 1910 on New York’s Fifth Avenue. By 1922, she had established international salons in Paris, South America and Australia. Today, the line’s extensive portfolio of skin care, color and fragrance products is sold in more than 120 countries. “Combining our brands, talent, and global distribution will give our company a significant presence in all major channels and categories, while accelerating sales growth in existing and new geographic regions.” Garcia added, “We look forward to bringing together our two top-notch teams to form a global leader in beauty.” Annual company sales for Elizabeth Arden fell 28.0% between fiscal year 2013 and 2015, and Elizabeth Arden CEO and President E. Scott Beattie noted that it was “a compelling transaction that delivers certain value to our shareholders.” Beattie also added, "We look forward to working with the Revlon leadership team to create a leading global beauty company, able to provide accelerated growth for the Elizabeth Arden-branded products as well as our prestige licensed fragrance portfolio, and broader opportunities for many of our employees.”

 Johnson & Johnson acquires Vogue International (June 2016) – Johnson & Johnson is expanding its consumer products portfolio through its $3.3 billion acquisition of hair and body care company Vogue International (Vogue). Vogue, whose brands include OGX® and Proganix®, sells an array of hair products infused with coconut water, shea butter, bamboo fibers and other chemical-free natural ingredients. “Our acquisition of Vogue International’s full line of leading advanced hair care products sold in the US and in 38 countries will strengthen our global presence in this important category,” said Jorge Mesquita, Worldwide Chairman, Consumer, Johnson & Johnson. “Vogue International’s commitment to quality, innovation, and consumer preference complement our Consumer portfolio, while also presenting attractive hair care category growth opportunities for Johnson & Johnson.” In 2014, The Carlyle Group, a private-equity firm, bought a 49.0% stake in Vogue. The firm will reportedly make close to $1.6 billion—four times the amount of its original investment—through Vogue’s acquisition. “This is an exciting and important new chapter in the growth and development of Vogue,” said Todd Christopher, Vogue Founder and CEO. “Our commitment to quality and innovation will be magnified by Johnson & Johnson Consumer’s array of marketing, R&D and support resources on a global basis. Many thanks to Sandra Horbach and her team at Carlyle for being true partners as we took Vogue to new levels of innovation and market penetration and created a world-class management team.”

Capstone Partners LLC 3 Personal Care Products & Services Q3 2016

PERSONAL CARE PRODUCTS & SERVICES: SELECT M&A TRANSACTIONS

Enterprise EV / LTM Ann. Date Target Acquirer Target Business Description Value (mm) Revenue EBITDA Offers grape seed supplements, antioxidant skin and 08/12/16 Nature's Pearl Youngevity - - - personal care products, lotions and hair products. Operates a network of airport spas for business and 08/08/16 XpresSpa FORM $28.7 0.7x - leisure travelers. The Grooming 08/05/16 ClassicShaving Supplies wet-shaving and grooming products. - - - Network P&G's TAG 07/26/16 My Import Manufactures body fragrances for men. - - - Brand J&J Rembrandt 07/25/16 Ranir Offers a brand of teeth whitening products. - - - Brand

07/22/16 It Cosmetics L'Oreal Manufactures skincare and makeup products. $1,200.0 6.6x -

American Manufactures cosmetic products under the brand 07/22/16 Regal Beauty - - - International “Model in a Bottle.” Dollar Shave Offers blades, shave butter, after shave solutions and 07/20/16 Unilever $1,000.0 6.6x - Club wipes. NUDE Skincare & 06/27/16 Counter Brands Offers skincare products. - - - NUDE Brands

06/16/16 Elizabeth Arden Revlon Sells fragrances, cosmetics and skin care products. $8,64.2 0.9x -

Vogue Johnson & Distributes salon-heritage hair care and other personal 06/02/16 $3,300.0 - - International Johnson care products. Manhattan Center Schweiger Provides medical and cosmetic dermatology services in 05/18/16 - - - for Dermatology Dermatology New York. Clayton, Dubilier 05/16/16 High Ridge Manufactures hair care and skin cleansing products. $415.0 - - & Rice ReNew Life Offers herbal cleansing products, oil supplements, fiber 05/03/16 Clorox $290.0 2.5x - Formulas supplements and specialty supplements. Aubrey Nutraceutical Offers hair and skin care, bath and spa, makeup, baby 04/28/16 - - - Organics International care, shaving, fragrance and lip balm products. Johnson & Develops and markets therapeutic and cosmetic 04/26/16 NeoStrata - - - Johnson dermatological products. Liquid 04/05/16 Frontenac Manufactures hair and skin care products. - - - Technologies Offers hair, skin, shave, body and massage, and shoe 03/09/16 The Gents Place Massage Heights - - - services to men. P&G's Select Hair Manufactures shampoo under the brands Pert, Shamtu 03/03/16 Henkel AG & Co. - - - Care Brands and Blendax.

02/02/16 DreamDry Hudson BLVD Owns and operates salons in New York. - - -

Manufactures vitamins, minerals, herbs and nutritional 02/02/16 Vitamin World Centre Lane $25.0 - - supplements. Manufactures and sells disposable health and personal 02/01/16 Sage Products Stryker $2,775.0 6.5x - care products. Sells vitamins and supplements, natural health care 01/25/16 Swanson Health Swander Pace - - - products and organic foods. Elizabeth Offers on-demand nail care services for private and 01/19/16 CityMani - - - Arden Spas small group parties. Offers hair care and hair color products, tools and 01/04/16 Raylon L'Oreal - - - appliances, and skin and nail care products.

Capstone Partners LLC 4 Personal Care Products & Services Q3 2016

CAPSTONE PARTNERS: COMPLETED PERSONAL CARE PRODUCTS & SERVICES TRANSACTIONS

has been acquired by has been acquired by has been acquired by has secured financing from

ANAPHORA, LLC

Pierre’s School of Cosmetology

has been acquired by has recapitalized with has been acquired by has been acquired by

CAPSTONE PARTNERS: OTHER CONSUMER PRODUCTS & SERVICES TRANSACTIONS

CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL

corporate sale corporate sale corporate sale (IN PROCESS) (IN PROCESS) (IN PROCESS) strategic joint venture

MANUFACTURES MARKETS SAFE MANUFACTURES TOP QUALITY BABY SLEEP HANDCRAFTED FOOD PRODUCTS PRODUCTS BEERS

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a portfolio company of

Capstone Partners LLC 5 Personal Care Products & Services Q3 2016

THE PERSONAL CARE PRODUCTS & SERVICES TEAM

Tracy Patch, Vice President [email protected] • (949) 460-6432 Tracy is a Vice President in the Los Angeles office, supporting the management of the Western Region. Prior to Capstone, Tracy worked as a senior banking professional in Morgan Stanley Smith Barney’s Capital Strategies Group and its predecessor, Citi Capital Strategies. She possesses over ten years of experience in middle market investment banking, working on both domestic and cross-border transactions. Her previous finance experience includes working in the hedge fund industry with Collins/Bay Island Securities LLC and Talisman Capital Partners. Prior to that, Mrs. Patch worked with institutional fixed income sales at Vining Sparks IBG, LP and Robert Thomas Securities, Inc. She also was a manager at The Disney Company. Mrs. Patch holds an MBA from Pepperdine University and a BS in Finance from Miami University of Ohio. She is a Series 7 and 63 Registered Securities Representative.

David Bench, Managing Director [email protected] • (949) 460-6431 David is a Managing Director in charge of the Western Region, based out of Los Angeles. Prior to Capstone, David managed the Western region for Morgan Stanley Smith Barney’s Capital Strategies Group and its predecessor, Citi Capital Strategies. David has focused on middle market investment banking for nearly 30 years and has been the lead banker in over 250 M&A transactions involving both domestic and foreign corporate buyers, as well as leveraged recaps with private equity sponsors. David’s achievements in investment banking have gained national recognition by The M&A Advisor: one of his transactions was awarded the “Private Equity Deal of the Year,” while another was recognized as the “Energy Deal of the Year.” Mr. Bench has also been awarded “Middle Market Financing Professional of the Year,” an award recognizing M&A’s most accomplished professionals. Mr. Bench holds a BS and an MBA in Finance from Brigham Young University. He is a Series 7 and 63 Registered Securities Representative and a Series 24 Registered Securities Principal.

Daniel Schultz, Director of Business Development [email protected] • (617) 619-3368 Dan oversees Capstone’s national business development and industry coverage activities, working closely with current and prospective clients of the firm on matters related to corporate sales, recapitalizations, mergers & acquisitions and growth financings. In his role, Dan is able to deliver specific market intelligence to clients regarding M&A, financing, strategic, industry and competitive trends. Prior to spearheading the firm’s business development and market initiatives, he was a Vice President in Capstone’s M&A group, managing numerous successful transactions across a variety of industries. Dan also gained hands-on transaction experience as an investment banker at Headwaters MB. He started his career with Ernst & Young’s National Professional AABS practice and later worked in Assurance and Advisory Business Services in the Denver office. Dan received a BE in Biomedical Engineering with a Business Minor from Vanderbilt University. He earned an MBA and a Master of Accountancy from the Daniels College of Business at the University of Denver.

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ABOUT CAPSTONE PARTNERS

Capstone Partners LLC is a premier investment banking firm dedicated to For more information serving the corporate finance needs of middle market business owners, about our expertise, investors and creditors. The firm provides M&A, corporate restructuring, private placement and financial advisory services. Headquartered in Boston, please visit Capstone has offices in Chicago, London, Los Angeles, New York, Orange www.capstonellc.com County, Philadelphia, San Diego, Silicon Valley and Tampa with an international presence that spans 450+ professionals in 70 offices across 31 countries.

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