How L’Oréal snapped up Aesop, which belonged to Natura – 04/13/2023 – Market

As a lifelong member of L’Oréal, Nicolas Hieronimus was brought up in the French beauty company’s tradition of slow and steady negotiation. However, two years after becoming chief executive, he was keen to get rid of some of his richest rivals to get Aesop.

To seal the purchase for US$ 2.5 billion (R$ 12.65 billion) of the coveted Australian skin care brand from its Brazilian owner Natura –L’Oréal’s biggest acquisition–, the 59-year-old executive surpassed the luxury giant LVMH and premium skincare companies Shiseido and Clarins, according to people with knowledge of the dispute. Private equity firms Permira and China’s Primavera have also made bids for the company.

Aided by L’Oréal president Jean-Paul Agon – another man at the company – Hieronimus courted Natura, which was initially unwilling to sell the highly profitable brand. The two sides already knew each other since the São Paulo-based company bought The Body Shop from the French group in 2017.

“Nicolas promoted the project and fought for it,” said a person close to the company. “This agreement reflects that L’Oréal wants to maintain dominance of its market and show its power.”

Hieronimus, who started at L’Oréal in 1987, intends to build on his experience running the group’s luxury unit for eight years, in which he doubled the division’s sales by buying smaller but coveted names such as Urban Decay and the Valentino beauty license. .

Largest group of cosmetics in the world in terms of sales, L’Oréal is also betting that it will be able to use its size to boost its newest purchase and double or triple the brand’s sales in a few years – a manual that it applied to other acquisitions, such as Kiehl’s and the CeraVe.

“There are two criteria when looking at potential acquisitions: potential for future organic growth and complementarity to our portfolio. Aesop more than fulfills both,” said Cyril Chapuy, president of L’Oréal’s luxury division.

“Our ambition is to grow the brand so that it joins our billionaire club in the near future. That would mean doubling sales.”

Known for its premium soaps – a 500ml bottle retails for over £30 (£40) – and distinctively scented skincare products, Aesop is loved by younger consumers for its minimalist aesthetic and vegan spirit. clean beauty. Its original dark glass containers, monochrome packaging and concept-based store design have allowed it to stand out from other brands.

While prices for the soaps and the company may seem high at first glance, analysts say Aesop’s positioning at the intersection of luxury and clean beauty – two of the fastest growing segments in the industry – and its growth potential make it a strong acquisition. for L’Oréal.

“In the consumer goods sector, the multiple you pay depends a lot on the company’s growth level. [A Aesop] is growing more than 20%, three times faster than any other company in the sector”, said analyst Bruno Monteyne, from AllianceBernstein. of 72%.

Under Natura’s ownership, Aesop’s retail footprint has increased from 60 to 400 stores, while revenues have grown tenfold to US$537 million (R$2.68 billion) in 2022.

The brand “still has the potential for material expansion,” according to Monteyne, as a premium beauty brand that hasn’t penetrated China, where L’Oréal has developed a strong presence since the 1990s, or in travel retail. Aesop has also recently launched a fragrance line, which L’Oréal could capitalize on.

Struggling with heavy debt after an expansion spurt, Natura initially preferred to retain a stake in Aesop, one of its strongest assets, before changing its mind with the help of lobbying Hieronimus, according to people briefed on the discussions.

Founded in 1909, L’Oréal has a history of acquiring smaller, stronger brands, leveraging the group’s marketing and distribution power to grow them. In 2017, it bought dermatologist-backed skincare brand CeraVe for $1.3 billion and built it into a phenomenon among younger consumers through smart social media marketing.

CeraVe became so popular that stocks sold out at major US retailers like Target and Walgreens after going viral on TikTok in 2021. In five years, CeraVe sales grew tenfold, surpassing €1 billion ( R$ 5.5 billion), adding to the ranks of the 11 so-called “billionaire brands” of the group, which include Lancôme, Garnier and Yves Saint Laurent.

L’Oréal has the firepower to close deals after several years of strong sales. Concerns that the pandemic, China’s shutdown during its Covid-zero policy and inflation deter consumers from spending on beauty did little to detract from L’Oréal’s performance. Shares in the group have gained about 25% since the start of the year and are trading near all-time highs.

The company had net cash of US$2.6 billion (R$13.16 billion) at the end of 2022 before closing the Aesop deal, and said it would like to make deals to bolster its presence in fast-growing emerging markets , such as India, and in “active cosmetics” or skin care.

L’Oréal is already so big that Aesop will only add around 1% to the group’s annual sales – hardly a transformational gamble. While M&A is part of the company’s culture, L’Oréal is also known for being meticulous and cautious.

“The L’Oréal team is very strict, so they want to get things right in terms of Aesop’s integration. They will continue to do small and medium businesses in the next stage, but not big things until they complete this Aesop project,” said L’Oréal. person close to the company.

Translated by Luiz Roberto M. Gonçalves