Douglas Net Sales Reached New High! In 2023, Capital Reinvests in the Beauty Industry
- Chaileedo Press
- Aug 10, 2023
- 8 min read
Private equity firm CVC is considering taking German perfume and cosmetics retailer Douglas public on the Frankfurt Stock Exchange, with a potential IPO valuation of up to 7 billion euros.
It is worth noting that since entering 2023, Johnson & Johnson's consumer business Kenvue and the Israeli beauty company Oddity, invested by LVMH, have successfully gone public. At the same time, the cosmetics industry has witnessed several significant mergers and acquisitions, including L'Oréal's acquisition of Aesop for an estimated $2.5 billion and Kering Group's rumored acquisition of fragrance brand Creed for a staggering €3.5 billion. This reflects the renewed international capital interest in the beauty industry.
Douglas net sales for FY22 reached a record high of 3.65 billion euros
Douglas GmbH is a German perfume and cosmetics retailer headquartered in Düsseldorf. Douglas offers around 35,000 products in over 1,900 stores and franchise outlets across 19 European countries.
The history of Douglas can be traced back to 1821 when the perfume and soap factory JS Douglas Söhne was established in Hamburg. In 1863, the first Christ subsidiary was founded, and in 1910, the first Douglas perfume factory opened in Hamburg. The actual predecessor of Douglas Holding AG was Hussel Süßwarenfilialbetrieb GmbH, founded in 1949 and transformed into a joint-stock company in 1962. In 1969, it acquired Parfümerie Douglas and soon became the company's main pillar. It became known as Hussel Holding AG in 1976 and was renamed Douglas Holding AG in 1989.
In December 2012, private equity firm Advent International led the acquisition of Douglas for approximately 1.5 billion euros. Following the acquisition, Advent International refocused Douglas on its core perfume and cosmetics range, divesting businesses such as jewelry, women's fashion, and book retail. In 2014, Douglas acquired the French perfume chain Nocibé.
In June 2015, CVC Capital Partners agreed to acquire a controlling stake in the company from Advent International, reportedly valuing Douglas at around 2.8 billion euros.
Based on Douglas' financial data in recent years, it has performed well due to its strong presence in both physical stores and online retail under an omnichannel model. It has also demonstrated resilience during the pandemic.
After being acquired by CVC in 2015 and refocusing on the perfume and cosmetics sector, Douglas experienced rapid growth in its performance. In the fiscal year 2016, its sales revenue reached 2.709 billion euros, and in the fiscal year 2018, it surpassed 3 billion euros for the first time, reaching 3.277 billion euros, representing a growth of 21% in just two years. The fiscal year 2019 set a new high at 3.454 billion euros.
During the fiscal years 2020 and 2021, which were impacted by the outbreak of the pandemic, Douglas' sales figures remained above 3 billion euros. The sales revenue for the fiscal year 2020 decreased by 6.39% compared to the previous year, and for the fiscal year 2021, it decreased by 3.5%. However, the decline remained in the low single digits.
In the fiscal year 2022, with the fading impact of the pandemic, Douglas experienced a significant rebound in performance. Its sales revenue reached a record high of 3.65 billion euros, representing a 17% increase compared to the previous year. Compared to the pre-pandemic fiscal year 2019, the growth rate was 18.3%.
Sander van der Laan, CEO of DOUGLAS Group, said: “The positive sales performance in a difficult economic environment demonstrates how strongly DOUGLAS has been positioned in the past years with its omnichannel model. The combination of an attractive store business and an almost unique online offering has made the company more resilient.”
In the first half of the fiscal year 2023, Douglas continued to experience growth in net sales, reaching 2.2975 billion euros, representing like-for-like growth of 15.8%. Despite the ongoing macroeconomic challenges, Douglas stated that both physical stores and e-commerce contributed to double-digit sales growth, supporting its omnichannel model. The e-commerce business remained strong, accounting for over one-third of the group's total sales.
With the support of its omnichannel model, Douglas has maintained its position as a leading beauty retailer in Europe.
There have been several significant M&As within the industry this year
In the context of the gradually diminishing impact of the pandemic, several beauty companies have either gone public or have been rumored to do so this year. Additionally, significant mergers and acquisitions have taken place in the industry.
Apart from the IPO rumors surrounding Douglas, Kevnue and Oddity, an Israeli beauty company invested in by LVMH, have successfully gone public on the NASDAQ.
Kevnue is a new company formed by Johnson & Johnson through the spin-off of its consumer health business. It debuted on the NASDAQ on May 4th. Kevnue owns 44 brands, with four major brands generating revenue exceeding $1 billion and 20 brands generating revenue over $150 million. Its business is divided into three segments: The Skin Health and Beauty segment includes face and body care, hair care, and sun care products. The Essential Health segment includes oral care, baby care, and other essential health products for women's health and wound care. The Self Care segment includes cough, cold, and allergy products, pain relief, and other self-care products such as digestive health and smoking cessation. As of now, Kevnue has a total market capitalization of $44.7 billion, making it the largest IPO in the U.S. this year.
Oddity, founded by siblings Oran Holtzman and Shiran Holtzman-Erel in 2018, utilizes data and artificial intelligence to create brands and provide personalized product recommendations to customers. After receiving a $29 million investment from L Catterton, a private equity firm under LVMH, in 2018, Oddity relaunched the cosmetics brand Il Makiage. Oddity also owns the skincare and haircare brand Spoiled Child. It went public on the NASDAQ on July 19th, and its total market capitalization is $286 million.
In addition to the two companies that have already gone public, Swiss skincare and dermatological treatments company Galderma is also rumored to be going public. It raised approximately $1 billion through a private placement at the end of June this year. Galderma has stated its intention to proceed with its planned IPO. In early May, there were reports of Spanish beauty giant Puig undergoing corporate restructuring, including consolidating all its businesses under Puig Brands SA, seen as a significant step before its IPO. Furthermore, Coty is also seeking a dual listing in Paris.
In addition to IPOs, several significant mergers and acquisitions have taken place in the beauty industry this year.
In April, L'Oréal and Brazilian beauty giant Natura &Co signed an agreement for the acquisition of Aesop, an Australian high-end beauty brand. Aesop reported sales of $537 million in 2022, and the deal valued the company at $2.525 billion. L'Oréal expects the transaction to be completed in the third quarter of this year. If successful, it will be the largest deal in L'Oréal's history.
Luxury conglomerate Kering Group, after establishing its beauty division this year, made its first acquisition. On June 27th, Kering Group announced that its beauty division, Kering Beauté, will acquire the entire share capital of luxury perfume brand Creed in a cash deal expected to be completed in the second half of 2023. Creed reported revenues of over €250 million for the fiscal year ending on March 31st, 2023. Media reports suggest that the acquisition amount could reach as high as €3.5 billion.
Furthermore, on June 22nd, private equity firm Advent International acquired a majority stake in French niche perfume brands Parfums de Marly and Initio Parfums Privés, with the acquisition amount reportedly exceeding $700 million. Parfums de Marly and Initio have experienced significant growth in recent years, with sales reaching $366 million last year.
Other major acquisitions include Estée Lauder's early-stage strategic investment and incubation division, New Incubation Ventures, acquiring a minority stake in British fragrance brand Vyrao. Pierre Fabre, the parent company of Avène, announced the acquisition of Même, a skincare and makeup range specifically formulated for women with sensitive skin due to cancer treatment. Additionally, Procter & Gamble Beauty acquired the haircare brand Mielle Organics.
These developments indicate that in 2023, as the impact of the pandemic gradually diminishes, the beauty industry has witnessed significant IPOs and mergers and acquisitions, drawing investor attention to this high-growth potential sector.
Well-established brands and perfumes remain the focus of capital investment
Despite the challenging economic environment, the beauty industry continues to attract M&A activity due to its resilience and potential for growth. Large beauty conglomerates will actively seek high-quality mature brands and companies to fill the gaps in their product portfolios and maintain competitiveness.
Among the myriad of mergers, acquisitions, and financing transactions, there are two notable characteristics.
Firstly, acquirers are turning towards mature brands with stronger balance sheets. The past three years of the pandemic have dealt a heavy blow to the beauty industry, with rising costs due to supply chain issues and regional lockdowns affecting the industry from production to consumption.
In the face of economic downturns, acquirers have realized that fast-growing startups are struggling to maintain momentum and finding it increasingly difficult to scale up and become profitable. Therefore, both capital and the beauty industry are shifting their acquisition targets toward mature brands with comprehensive supply chains and sales networks. For startups, they are being targeted for early investment through corporate incubation funds, rather than large-scale acquisitions.
Pauline Mexmain, a senior manager at Kearney and specialist in beauty, personal care, and luxury, said, " It’s the in-between that is going to shrink." Mexmain pointed out that the number of deals in the $100 million to $400 million range is expected to decrease, while there will be a greater focus on high-value acquisitions like Byredo, Aesop, and Creed. Additionally, there will continue to be numerous smaller deals below $100 million. So far this year, 86 percent of beauty deals have been below $100 million, while 10 percent of deals have exceeded $1 billion.
Beauty brands are now more willing to spend more money to acquire brands with strong balance sheets and time-tested reputations. For instance, this year, Estée Lauder's acquisition of Tom Ford reached a transaction price of $2.25 billion, L'Oréal's valuation of Aesop reached $2.525 billion, and Kering Group's acquisition of Creed is reportedly expected to reach 3.5 billion euros.
Secondly, looking at the categories being acquired, perfume remains a focus of the capital market. The growth rate of perfume is higher than the average level of the beauty industry. According to McKinsey's data, from 2019 to 2022, the global beauty industry's average growth rate was 4%, while perfume was 5%. It is expected that from 2022 to 2027, the global beauty industry's average growth rate will be 6%, while perfume will be 7%, which is higher than skincare, cosmetics, and hair care.
From the perspective of deal value, several significant deals this year have been related to perfumes, once again setting new records for the prices of individual perfume brands. Acquirers are willing to spend several times the annual sales figures to acquire perfume brands.
Estée Lauder's acquisition of Tom Ford this year reached a transaction price of $2.25 billion. According to Estée Lauder's financial report, its perfume net sales increased in the fiscal year 2022, primarily driven by Jo Malone London, Tom Ford Beauty, and Le Labo, with total sales of approximately $440 million. Considering that the acquisition price of $2.25 billion includes Tom Ford's other business segments and Tom Ford's perfume sales in 2022 were lower than $440 million, Estée Lauder's acquisition cost far exceeds its annual sales.
Similarly, the Kering Group's acquisition of Creed is rumored to reach €3.5 billion, while Creed's sales in 2022 were €250 million, making the transaction price more than ten times Creed's annual sales. Similarly, Advent International's acquisition of a majority stake in the French niche perfume brands Parfums de Marly and Initio Parfums Privés reportedly exceeded $700 million, while their 2022 sales were $366 million, nearly double the sales amount.
Last year, Spanish beauty giant Puig's acquisition of Swedish perfume brand Byredo was reported to have sales exceeding $100 million, with an estimated valuation of approximately €1 billion.
The willingness of beauty conglomerates to pay significant premiums for perfume brands demonstrates the importance of perfumes. Established brands like Creed command higher acquisition prices. Looking at the acquirers, the next major deal may also occur among luxury conglomerates. Luxury conglomerates have relatively abundant cash flows compared to other companies. Kering's cash deal for Creed demonstrates its financial strength.
In summary, despite challenging economic conditions, the beauty industry continues to attract merger and acquisition activities. Large companies seek to strengthen their product portfolios and maintain competitiveness through the acquisition of established brands. Acquisitions tend to favor mature brands with strong balance sheets, and investments in startups rather than large-scale acquisitions. Perfumes are favored by capital and experience faster growth than the industry average. The next major deal in the beauty industry may emerge within the perfume and luxury conglomerate sectors.
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