Coty isn't quite done with dealmaking.
The New York-based beauty company said on Monday that it was buying GHD, a maker of hair straighteners and other products, from private equity firm Lion Capital. The deal for GHD, whose name is short for "Good Hair Day," is immediately accretive because Coty is paying 420 million pounds ($511 million), a multiple of 2.4 times GHD's fiscal 2016 revenue, which compares with Coty's own valuation multiple of 2.9.
And although currency is rarely a swing factor in strategic acquisitions, the deal's merits are enhanced by the fact that Coty has obtained something of a discount thanks to the roughly 18 percent decline in the British pound since June's Brexit decision.
But the acquisition itself is a surprise, especially considering Coty completed its $12.5 billion purchase of a bevy of Procter & Gamble brands just two weeks ago. The $17.5 billion company presumably has its hands full with the integration, which is expected to result in $780 million in savings over the next four years. Plus, it's working through planned divestitures of 6 percent to 8 percent of the combined portfolio, a complex feat.
Still, it's a pleasant surprise and the first transaction with new chief executive Camillo Pane at the helm. Even though it's not the largest of deals, it indicates Coty thinks it has the bandwidth to pounce on bite-size, complementary acquisitions that provide it with other avenues of growth without sacrificing efforts to spur growth in its existing businesses.
But there's also no guarantee that Coty's plans to stimulate organic growth -- including by ramping up in-store and digital customer engagement -- will bear fruit, in part because of significant competition from other "mass beauty" rivals like L'Oreal and Estee Lauder in addition to smaller niche brands.
The company can pad its overall growth and operating margins by striking deals for the likes of GHD and Hypermarcas' beauty arm for a few more quarters. But if the performance of its core business doesn't improve, investor patience will wear thin eventually.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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