European Beauty M&A Activity Heats Up

PARIS — European beauty M&A activity is heating up, with licenses and companies changing hands or receiving cash injections at an ever-quickening pace.
On Tuesday, rumors that Prada and Puig would end their fragrance and beauty partnership reached a crescendo, and L’Oréal is believed to be waiting in the wings as the Italian company’s next licensee, according to industry sources.
The previous week, Beiersdorf said it had taken an equity stake in the single-digit-million-euro range in biotech S-Biomedic NV to collaborate on research into skin microbiome. These were just the latest in a string of deals in the works.
In late June, it emerged that Goldman Sachs had been tapped to explore sale options for Space NK, the prestige, U.K.-based beauty retailer. And Caron, among France’s oldest fragrance houses now owned by Alès Groupe, is being shopped around. Ditto for Cult Beauty, the highly curated e-tailer out of the U.K., to name but a few.
Meanwhile, fragrance licenses said to be in the market for new ownership include Alexander McQueen, Sonia Rykiel, Roberto Cavalli, Iro and SMCP group’s fashion brands Sandro, Maje and Claudie Pierlot.
There are many reasons why Europe is percolating right now. “I think we are like three years the U.S.,” said Antoine Fine, a partner at Otium, an early stage European venture capital fund. “So what happened in the U.S. is now happening in France.”
Private equity players are moving increasingly into the beauty space, for instance, and some of the focus these days is on acquisition targets with business-to-consumer or clean product positioning.
“The market in the U.S. is really well-developed,” said Evan Merali, a director at international investment banking firm Financo LLC. He explained it’s almost like a natural part of a beauty business’ life cycle there to — after reaching a certain size — bring in a private equity partner to build the activity for a couple of years until that hits another threshold and appears in the scope of multinationals or possibly opts to take the initial public offering route.
“There is less of a track record or history of private equity funds investing in the beauty space in Europe, but it is now becoming very active,” he said. “I think because of the growth in the market generally and some of the successes in the States with U.S. beauty brands, people are looking over to the European beauty market more.”
The buzz is ramping up about licenses, too, for fragrance and beauty businesses of European fashion brands, which often have worldwide renown.
Speculation about a split between Prada and Puig heated up in mid-June following the Spanish fragrance and fashion company snapping up Dries Van Noten. Numerous sources have said that Prada has decided not to renew the license with Puig, which generates an estimated 100 million euros per year.
On Tuesday, officials at Puig could not be reached for comment about the companies parting ways, and a spokeswoman for Prada had no comment.
While conjuncture has been swirling for some time, as recently as June 22, José Manuel Albesa, Puig’s president of brands, markets and operations, said the two companies remained firmly in a long-term partnership.
When asked specifically whether the project was long-term, he repeatedly said “yes.”
“The last three years have been extremely successful for Prada,” said Albesa, regarding a period when the strategy had been put in place to raise the brand to a more premium level. “We tripled the market growth with Prada.”
Over the past year, Puig has focused on Prada’s in-store strategy by introducing, for instance, new merchandising units. Where they’ve been rolled out, there has been 40 percent to 80 percent growth in consumer spend.
“Next year we will have very important launches in Prada, which for sure will take the brand further,” Albesa said.
The two companies’ tie-up dates back to May 2003, when Prada Holding NV and Puig inked a 50-50 joint venture for the management of the fashion label’s fragrance and skin-care business globally.
A L’Oréal spokeswoman contacted Tuesday had no comment about the Prada license. But, should the world’s largest beauty company make the deal, it will be the second Italian luxury fashion label’s fragrance and beauty business L’Oréal has taken over from Puig. In late May, it signed for Valentino, with the agreement set to go into effect on Jan. 1.
Industry sources say numerous fashion brands are looking to get into the fragrance game, with Isabel Marant — currently working on a limited-edition capsule makeup collection with L’Oréal Paris — and Vanessa Bruno — who did a one-off holiday scent with L’Oréal’s Biotherm brand in 2011 — among them.
Some fashion labels are believed poised to take their fragrance businesses in-house. Céline — whose new artistic director Hedi Slimane oversees both women’s and men’s fashion, plus leather goods, accessories and perfume — is one of those. The Céline perfume license with Inter Parfums SA was ended in late 2007, four years before it was due to expire, after performing disappointingly.
Since fashion and fragrance are very different businesses, it can be difficult to run the two simultaneously. Burberry is a case in point. In April 2017, four years after the label took its beauty activity back, it inked a deal with Coty Inc. to accelerate the segment’s growth and development.
The M&A scene keeps evolving on numerous fronts in Europe. Over the past couple of years, for instance, some companies on the acquisition hunt have been eyeing beauty players that had attained annual sales of 10 million euros, rather than 100 million euros, the more standard level of the recent past.
“The market is now very different from the consumer perspective,” explained Financo’s Merali. “The consumer is really interested in brands that are well-differentiated, that are quite unique. They love independent brands…and these brands, because they are newer are obviously a little bit smaller, but they speak to the consumer in a really different way and they have tremendous growth potential — either through digital or through more traditional channels. Because of the strength of these brands and their potential, the strategics are looking at things which are a little bit smaller than what they used to.”
Otium’s Fine also noted more entrepreneurs moving into the European beauty space. “What I see is that now it starts to be as attractive as the tech opportunities, and I am sure we will have more and more high profiles joining those consumer start-ups. This will accelerate the dynamism overall of the industry,” he said.
“I think this is just the beginning of a new wave. The question is whether those newcomers will be sustainable, will take big market shares or only small . And depending on that the whole M&A activity will adjust, because you won’t buy at the same price a brand that will remain local and small versus a global one,” Fine continued. “It’s very interesting, what is going to happen in the coming years.”
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