L'Oréal Makes the Biggest Acquisition in Beauty with $2.53B This Year

L'Oréal believes that Aesop will be the next brand to join L’Oréal Luxe Billionaire brands club and will help Aesop achieve massive growth in the Chinese market.

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According to official news from L'Oréal, on April 4th, Natura & Co announced an agreement with L'Oréal to acquire Australian beauty brand Aesop. L'Oréal has estimated the enterprise value of Aesop at $2.525 billion and the deal is expected to close in the third quarter of 2023.

Founded in 1987, Aesop is a minimalist aesthetic brand with strict adherence to plant-based ingredients and zero cruelty to animals. It has always been a "rebel" in the beauty sector, according to Suzanne Santos, co-founder and chief customer officer of Aesop. "As more and more brands move in a cleaner, greener and more inclusive direction, it's time to start redefining Aesop again."

Aesop's parent company intended to split out Aesop as early as last year

Natura & Co has been considering a partial or full sale of Aesop, which would be used to help reduce its debt burden. It hopes to focus on turning around other businesses into profit. Commented on the selling of Aesop, Fábio Barbosa, Chief Executive Officer of Natura &Co, said that the separation of Aesop marks the beginning of a new phase of development for Natura & Co. The Group will focus more on its management in Latin America and be able to concentrate more on improving the alignment of The Body Shop and Avon's international.

Looking back at the history of Aesop, in 2013, Natura & Co acquired a 40% stake held by Harbert Private Equity and a 25% stake in the founder in a deal totaling approximately A$68.3 million ($46.13 million), making it the largest shareholder in Aesop. In 2016, following a number of acquisitions, Aesop was acquired by Natura & Co. As a wholly-owned brand.

In October 2022, Natura & Co attempted to spin off Aesop for an IPO. After that, several major international cosmetics groups such as L'Oreal, LVMH and Shiseido subsequently showed interest in acquiring Aesop. This Brazilian cosmetics giant stated that it was "still evaluating the feasibility of selling its stake in Aesop, as one of the strategic options", which would allow the group to finance Aesop's growth and create more value for its shareholders.

Shortly after, it was announced that Brazilian beauty giant Natura & Co was working with Bank of America and Morgan Stanley to sell a minority stake in its Australian skincare brand, Aesop, with potential bidders including Shiseido Group, L'Occitane Group and private equity giant CVC Capital Partners. The deal valued Aesop at around $2 billion.

The announcement comes just days after news that Chinese investment management firm Chunhua Capital was involved in a bid for a stake in luxury beauty brand Aesop. It is said that this Chinese investment firm has completed its latest round of bids for a stake in Aesop.

(Credit: The physical store of Aesop in China)

Aesop is the only brand at Natura & Co to achieve positive growth

CHAILEEDO found that Natura & Co, the former Aesop parent company, has been underperforming in recent years. According to Natural & Co's latest financial results, in fiscal 2022, the Natura & Co group achieved net revenues of R$36.35 billion ($7.18 billion), down 9.5% year-on-year. While its gross profit reached R$23.2 billion ($4.59 billion), down 11% year-on-year in Brazilian real terms compared to the previous year. Its net loss attributable to controlling shareholders amounted to R$2.86 billion ($564.7 million), a significant drop of 372.9% year-on-year.

(Source: Natura & Co financial report)

However, despite the sharp decline in the results of its parent company, Aesop has continued to grow at a higher rate each year. After reviewing the last five years' results, CHAILEEDO found that Aesop has consistently recorded positive growth from 2018 to 2022, with a maximum growth of 50.6% (in terms of net revenue).

(Summary of Aesop's five-year performance by CHAILEEDO)

In its 2022 results, Natura & Co said that Aesop had achieved double-digit growth in all regions, despite a challenging external environment. Its fragrance sales grew more than twice as fast as the overall growth rate, which was in line with Aesop's category diversification strategy.

Aesop fits in well with L'Oréal China strategy

CHAILEEDO found that in the official documents announcing the acquisition, Nicolas Hieronimus, CEO of the L'Oréal Group, made special mention of Aesop's growth in China. He says: "L'Oréal will contribute to unleashing its massive growth potential, notably in China and Travel retail."

This means that L'Oréal pays special attention to the bright performance of Aesop in China. It will help Aesop to capture the Chinese market with its strong background. Notably, in its 2022 financial report, Natura & Co also recognized Aesop's excellent growth in the Chinese market.

According to Natura & Co, Aesop's first shop in China opened in Shanghai in November 2022, followed by Aesop's second shop in Shanghai a month later. The two physical shops achieved better results. At that time, against the backdrop of an uncertain consumer environment, Aesop's big move into China was seen by outsiders as the biggest confidence and bet on the Asian market.

In response to the impressive performance of Aesop, Natura & Co said that the launch of its business in China was a very crucial step in Aesop's strategy. Although Aesop is still in its infancy in China, the two shops have already exceeded expectations, with sales in the Top 1 and Top 2 of Aesop's global signature shops.

The leading beauty giant, L'Oréal, enjoys the strength of its finance and growing trends in recent years. So it may help Aesop better development. According to the full-year 2022 financial data released by L'Oréal Group, L'Oréal Group sales reached 38.261 billion euros ($41.8 billion) in 2022, up 18.5% year-on-year. It was a new high in its performance in the past 12 years.

And in terms of the Chinese market, L'Oréal even recorded double-digit growth in online sales despite the impact of public health restrictions. This impressive success led to strong growth in both offline and online market share for the year. During the Chinese Double 11 Shopping Festival, L’Oreal ranked top in the beauty category on the Chinese e-commerce platform Tmall. In this way, the leadership position of L'Oréal was further reinforced.

The positioning of the Aesop brand suggests that it belongs to L'Oréal Luxe division, which has been a key area of the group. According to L'Oréal Group's latest financial results, L’Oreal Luxe sales revenue in 2022 was 14.638 billion euro ($16 billion), up 18.6% year-on-year. In the group's fourth quarter of 2022 and from the full year of 2022, L’Oreal Luxe division accounted for the top share of L’Oreal’s sales.

It is reported that four major brands in L'Oréal Luxe division, Lancôme, YSL Beauty, Armani Beauty and Kiehl's, are currently among the billionaire brands club. 2022 China's Double 11 shopping festival saw Lancôme enter the Tmall Top 15 brands list for skincare, and YSL, Armani and Lancôme enter the Top 10 brands list for colour cosmetics.

Aesop is also considered by L'Oréal to be the next premium cosmetic brand to join the L’Oréal Luxe Billionaire brands club. In the acquisition, Cyril Chapuy, President of L’Oréal Luxe, said, "We have great confidence that Aēsop will join the L’Oréal Luxe Billionaire brands club and therefore contribute significantly to the growth of the Division in the years to come."

Aesop has been growing steadily in recent years and it has been gaining popularity among Chinese consumers right after its arrival in China. Therefore, if L'Oréal wants to maintain its leading position in China in the future, the acquisition of Aesop may help it to do so.