Smells Like A Deal

Beauty M&A

Image source: Wikimedia Commons; WAYHOME studio - Shutterstock

What's going on?

French beauty giant L’Oréal may soon get even bigger: on Tuesday, it said it was negotiating the purchase of two perfume brands from rival Clarins.

What does this mean?

Clarins had sales of $2 billion last year – a quarter of which were from perfumes. Significant, but barely a whiff compared to L’Oréal’s $31 billion of revenue. A small (a.k.a. “bolt-on”) acquisition should, therefore, proceed smoothly…

For bigger deals, the same doesn’t quite apply. In 2015, rival American firm Coty – owner of household brands like Rimmel and Wella – bought Procter & Gamble’s perfume, haircare, and makeup business for $12.5 billion. But Coty wrote down that investment by $3 billion on Monday (i.e. slashed its assessment of what it’s worth) and announced extensive restructuring plans.

Why should I care?

The bigger picture: Makeup can’t fix everything.

Three major trends are currently putting a fresh face on the global cosmetics industry: a growing number of middle class people, who’re now able to spend more, in emerging markets like China; an aging population in more developed countries, increasing the number of people using beauty products to look younger; and a growing tendency for men to wear makeup. So while the beauty market looks flawless, the (eye)shadow over Coty might’ve been its reliance on middle-of-the-road brands instead of the high-end cosmetics that consumers have actually been buying.

For markets: Once bitten, not twice shy.

L’Oréal’s stock rose on Tuesday, and Coty’s continued its decline (having fallen 14% on Monday). But Coty seems ready to try again, considering an offer for Kylie Jenner’s makeup company – which would push Kylie further into “self-made” billionaire territory. Coty’s majority shareholder, a backer of its 2015 acquisition, appears to still favor such deals. Another of its subsidiaries, coffee and sandwich chain Pret A Manger, recently bought out a rival – and has installed a new CEO to oversee the merger.

Originally posted as part of the Finimize daily email.

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