Feb 17, 2020: Elisabeth King reports on this week’s business news

KKR emerges as frontrunner to buy Coty Professional Beauty Division; Edgewell exits US$1.37 billion acquisition of Harry's; Kering Group sales reach US$17.32 billion; and Brazil's Grupo Boticario announces major expansion.

KKR emerges as frontrunner to buy Coty Professional Beauty Division

Coty's Q2 2020 results exceeded analysts' expectations. The luxury part of the business led the way with net revenues of US$1.16 billion, which offset a 17.4 per cent decline in the Consumer Products division to US$799.7 million. Ghd and single-digit growth in haircare brands, including Clairol, pushed the multinational's Professional Beauty sales to US$528.8 million. Coty's overall revenues for the period reached US$2.345 billion.

The better-than-predicted results weren't the only good news for Coty. KKR, the global investment company with total assets of US$39 billion, is rumoured to be working with JPMorgan Chase, the largest bank in the US, to pitch an US$8 billion offer for Coty Professional Beauty. The division was officially announced for sale late last year.

KKR bought Arnott's, the Australian snack and biscuit unit, from Campbell's Soup for US$2.2 billion last August. The private equity giant was also interested in acquiring the stable of professional brands, including Wella, ghd, Clairol and Nioxin, before P&G sold it to Coty in 2015 as part of a mega-buyout of 43 brands.

Edgewell exits US$1.37 billion acquisition of Harry's

A decade ago, Gillette and Schick totally dominated the global men's shaving with the former a runaway number one. Both brands still account for the majority of men's and women's razor sales worldwide. But startups such as The Dollar Shave Club and Harry's have shaken up the duopoly.

Unilever bought The Dollar Shave Club in 2016 for US$1 billion. While Edgewell Personal Care, the owner of Schick, extended into men's grooming with the buyouts of Brit brand Bulldog in 2016 and US cult favourite, Jack Black, in 2018.

Last May, Edgewell made global headlines when it announced the acquisition of Harry's, a US-based rival to The Dollar Shave Club, for US$1.37 billion. Most deals of this nature pass the scrutiny of regulators. But the Federal Trade Commision (FTC) decided to oppose the agreement, citing higher consumer prices which would eliminate competition in the market.

The FTC has torpedoed several mergers and acquisitions in the food and biotech industries over the past few months and the companies involved have walked away rather than pursue further legal action. Edgewell has also decided to back out of the Harry's acquisition. The company's CEO, Rod Little, revealed that Edgewell will pursue its own direct-to-consumer razor sales, similar to Gillette's strategy, and remains on the lookout for acquisition targets.

Kering Group sales reach US$17.32 billion

Many of the world's bestselling prestige fragrances are linked to the most storied names in fashion. Kering Group, the global luxury goods titan, owns the Gucci, Yves Saint Laurent, Balenciaga, Bottega Veneta and Alexander McQueen brands. All of which have significant fragrance licenses, primarily with Coty and L'Oréal.

The conglomerate's sales rose 16.2 per cent for the full year 2019 to US$17.32 billion. According to Francois-Henri Pinault, Chairman and CEO of Kering: "Total revenues exceeded the 15 billion euro mark and our recurring operating margin topped 30 per cent for the first time ever. In the challenging period China is facing right now, we are confident in our growth potential in the medium and longterm".

The Asia/Pacific region enjoyed the highest overall growth last year of 20.4 per cent, followed by Western Europe (13.7 per cent), North America and Japan, both up 6.7 per cent. Gucci continued its reign as the star performer, generating revenues of 9.62 billion euros (US$10.506 billion) in 2019. Yves Saint Laurent also had a stellar year with global sales up 17.5 per cent to 2.049 billion euros (US$2.235 billion). The iconic fashion house enjoyed double digit growth across the top three geographic regions - North America (+23.1 per cent), Western Europe (+16.8 per cent) and Asia/Pacific (+13.2 per cent).

Brazil's Grupo Boticario announces major expansion

The Brazilian beauty market is the fourth largest in the world behind the US, China and Japan with revenues in excess of US$32 billion a year. Two local companies - Natura & Co and Grupo Boticario - have dominated the market for decades and have risen to high positions in the global rankings. Natura & Co became the fourth largest beauty group in the world last year, following the staggered acquisitions of Aesop, The Body Shop and Avon Products.

Grupo Boticario has announced a new acquisition program at home and abroad, sparked by increased competition from the Natura takeover of Avon Products. The company has confirmed it is looking at the purchase of Coty's Brazilian operations to extend its footprint in haircare.

The company enjoyed a 9 per cent jump in gross revenue to US$3.466 billion in 2019. With more than 4000 stores in Brazil and operations in over 15 countries, Grupo Boticario plans to invest US$80 million to US$92 million this year, building on its US$76.7 million investments in 2019.

Snippets from the Wires

  • AuMake, the leading daigou hub whose inventory includes beauty and personal care, posted a 402 per cent jump in gross profit for the first half of 2020. Revenues climbed to $45.2 million and the company is confident that the current coronavirus outbreak will have only a temporary effect on its business.
  • Long Haul Spa SKUs are formulated by Stacey Fraser, a leading product development whiz for skincare brands including Trilogy. The Brisbane-based company has created 6 all-natural skincare kits, including one for men, which have been picked up by KrisShop/Singapore Airlines and the airline's regional and budget carriers, Silk Air and Scoot. Christine Keeling, Founder and Managing Director of Long Haul Spa, believes the move to be game-changing and the company's first step into travel retail and duty-free.
  • Designer sneakers have become a boom business worldwide. Golden Goose, the Italian luxury sneaker brand favoured by celebs including Selena Gomez, has been acquired by private equity firm, Permira, for 1.3 billion euros ( US$1.4 billion). The 20 year old, Venice-based company has 90 stores and generates around 260 million euros ( US$281.6 million) in annual sales. The current parent company of Golden Goose is the Carlyle Group, one of the largest private equity firms in the world with US$212 billion of assets.