Estee Lauder Has Go-Ahead for Deals While Coty’s Busy: Real M&A

Updated on

Estee Lauder Cos. may be an unexpected beneficiary of Coty Inc.’s brand grab.

Coty agreed on Thursday to buy Procter & Gamble Co. beauty labels including CoverGirl and Clairol for about $12.5 billion. A deal of that magnitude -- the second-largest on record for the cosmetics industry -- will keep the seller of Jennifer Lopez and Katy Perry fragrances busy for a while. For Estee Lauder, that means less competition and potentially lower price tags in the pursuit of fast-growing cosmetics brands.

“It’s probably better for Estee Lauder to not end up with these P&G properties,” said Ali Dibadj, a New York-based analyst at Sanford C. Bernstein & Co. “There are other properties out there that will have one fewer bidder in the mix.”

Estee Lauder, the $34 billion owner of the MAC and Bobbi Brown makeup lines, had its most active year for dealmaking in 2014. The cosmetics giant will continue the hunt for niche, luxury brands that can give it a greater share of consumers’ makeup bags and medicine cabinets, said Erin Lash of Morningstar Inc.

Possibilities include Perricone MD, a maker of anti-aging supplements and serums, or even P&G’s SK-II, a skincare brand that wasn’t part of the deal with Coty.

Any targets will likely be on the smaller side. Estee Lauder has never acquired a public company and its biggest disclosed purchase was $300 million, according to data compiled by Bloomberg. Jill Marvin, a representative for New York-based Estee Lauder, declined to comment.

Beauty Bloggers

Google Inc.’s YouTube and Facebook Inc.’s Instagram have become two of the top destinations for makeup tips. So increasingly, the most desirable brands are those with a significant social-media engagement. Buying a company that already has a strong digital following can give a company like Estee Lauder insight into building the same presence for legacy brands of its own that don’t get the same traction online.

Many of the brands with the strongest YouTube viewership are already owned by Estee Lauder rivals, such as Unilever’s Dove and LVMH Moet Hennessy Louis Vuitton SE’s Sephora. That’s according to a study by Piper Jaffray Cos. using data from Pixability Inc., a provider of technology for buying advertisements and marketing video on YouTube. Even so, there are other possibilities.

YouTube Views

Chanel SA’s beauty line, e.l.f. brand cosmetics, and Lush Cosmetics Ltd. also have high YouTube viewership ratings, according to the study. A division of TPG Capital purchased a majority stake in e.l.f. in 2014.

Another possible target is SK-II. P&G said it’s keeping SK-II -- which gets most of its sales from Asia -- because skin care is one of the categories where it best understands the consumer and possesses superior product technology. Even so, analysts questioned whether SK-II fits with P&G’s other retained brands.

“That to me could be interesting to go to Estee Lauder,” Dibadj of Bernstein said. “They need Asia, they need skin care.”

Perricone had also been cited by analysts as a possible skincare acquisition candidate for Estee Lauder. TSG Consumer Partners sold its stake in Perricone to Lion Capital in 2014. Murad Inc., also seen as a potential target for Estee Lauder, agreed to sell itself to Unilever earlier this month.

L’Oreal SA is the other big buyer out there and it’s sitting on $2.3 billion of cash. Estee Lauder has about $1.4 billion.

Still, “there is an opportunity for Estee to step up and be a little bit more aggressive about building out a portfolio,” said Stephanie Wissink, an analyst at Piper Jaffray. “They’ve done a few deals so we know they’re capable.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE