L’Oréal, the French skincare giant, is ready to acquire the luxury cosmetics brand Aesop, for an enterprise value of US$2.53 billion.
With expectations to close in the third quarter, the transaction caps months of discussions and negotiations for the asset. Talking to Bloomberg, people familiar with the deal said that private equity firm Permira and Chinese investment firm Primavera Capital expressed interest in buying a stake in the Australian brand, owned by Brazil’s Natura & Co.
The deal with L’Oréal will assist the Brazilian firm Natura in reducing its debt burden and focusing on the performance of its other businesses. Sao Paulo-based Natura, known for its natural, ethically sourced cosmetics has been facing difficulties in its global expansion plans, due to a plethora of disruptions brought about by the pandemic and the Russia-Ukraine war that led to cost-inflation pains.
Natura’s Chief Executive Officer, Fabio Barbosa, in a statement said that with a deleveraged balance sheet and a strengthened financial structure, Natura & Co, exercising strict financial discipline, will be able to sharpen its focus on its strategic priorities, most notably in the investment plan in Latin America.
Natura’s US depository receipts saw a surge of 15 percent in late trading after the announcement of the deal.
Since Barbosa took over as the CEO last year, the Brazilian beauty company has been contemplating a partial or total sale of Aesop, as part of a broader overhaul. He is looking to cut costs and simplify the company’s structure.
Aesop, which was founded in 1987, with its range of creams and lotions for skin, hair and body made from ingredients like a geranium leaf and mandarin rind, has developed a cult following among skincare devotees. Its first store was in an underground parking lot in the Melbourne suburb of St Kilda in 2003, and it has since expanded globally including locations across London and New York. In 2013, Natura acquired a majority stake in the business. Aesop will now join the L’Oréal Luxe division, which houses luxury brands like Yves Saint Laurent, Lancôme, Kiehl’s, Helena Rubinstein, and Mugler.
Investors began to see it as a crown jewel of the group as the brand grew and outpaced Natura’s other ventures such as Avon and Body Shop. According to Lucror Analytics, Aesop reported a revenue of 880 million reais ($231 million) for the fourth quarter, which accounted for about 8 percent of Natura’s total net revenue and was also the group’s most profitable business.
L’Oréal’s CEO, Nicolas Hieronimus in a statement said that Aesop taps into all of today’s ascending currents and L’Oréal will contribute to unleashing its massive potential of growth, especially in China and Travel retail.
The sale brings much-needed relief to Natura on the debt-load front, while also giving it a chance to improve operations at its key Latin America business. The company’s net debt-to-Ebitda ratio jumped to 3.5 times at the end of last year, compared to 1.5 times a year ago.
According to a survey ahead of the transaction, with 32 local and foreign investors, Banco Bradesco BBI said most of its clients expected Natura to sell 100 percent of Aesop at a value ranging between US$2 billion and US$2.5 billion.
Morgan Stanley and Bank of America worked together with Natura in the sale.