Is your independent company the next Clarisonic or e.l.f., poised to be acquired in a multi-million dollar deal led by a large strategic partner like L’Oréal or a private equity (PE) firm?
For starters does your company have a great opportunity to expand quickly and does it have a unique hero product? What about your supply chain? How sound is your distribution strategy?
These were just some of the points outlined by Blythe Jack, a managing director at TSG Consumer Partners, who spoke at HBA Expo’s Global Trend Theater on Thursday, June 12 in New York City. Her topic: “What global investors and manufacturers want to see before acquiring an indie beauty brand.”
Start-ups need not apply, so to speak, when it comes to finding an investor. According to Jack, when it comes to the beauty category, PE firms and larger manufacturers looking for acquisitions seek out companies with a bit more of a track record. This isn’t the tech industry where unknown companies can go from garages in Silicon Valley to the front pages of the Wall Street Journal seemingly overnight.
Jack, who was involved with the Clarisonic investment deal before joining TSG, said PE investors look for companies that have unique, hero products that serve as the foundation of their business.
“Each business we invest in was started on the back of a hero product, where they could add ancillary products to grow the brand,” she explained.
PE firms like TSG can come in and take firms to that next level, she said. As an example, Jack discussed Smashbox. This beauty brand had a hero product, its primer, but when TSG first invested in the business, it was “fairly over-distributed,” said Jack.
TSG pulled back on distribution, went to Nordstrom with an exclusivity deal, and also tapped rising outlets like Sephora and Ulta.
Smashbox needed to “step back to take a future step forward,” said Jack.
Smashbox’s distribution was a vital part of Estee Lauder’s acquisition of the brand in 2010, she said.
According to Jack, strategic investors look for disciplined distribution strategy, sound management, strong sell through metrics, intellectual property and a robust innovation pipeline of new products. In addition, strategic investors usually look for companies with revenues above the $100 million mark.
She told the audience that the beauty category is active with strategic investors and PE firms looking to buy. In fact, in early June alone, TSG was involved in two deals: it sold its stake in Perricone MD to fellow PE firm Lion Capital, and sold three hair care brands (SexyHair, Alterna and Kenra) to Henkel.