Estee Lauder Cos., making the biggest acquisition in its history, agreed to buy cosmetics company Too Faced for about $1.45 billion, scooping up a makeup brand that’s popular with millennials.
Too Faced, which is expected to top $270 million in net sales this year, will help Estee Lauder expand in e-commerce and specialty stores, according to a statement Monday. The purchase is expected to be completed next month.
The deal, which would dwarf Estee Lauder’s previous acquisitions, extends a run of industry mergers this year. Coty acquired more than 40 of Procter & Gamble’s beauty brands last month in a transaction worth $12.5 billion. And Revlon agreed to acquire Elizabeth Arden in June for about $419 million.
Too Faced, started by Jerrod Blandino and Jeremy Johnson, would let Estee Lauder reach a younger shopper and will be complementary to MAC, the parent company’s biggest makeup brand. Too Faced, based in Los Angeles, has 7.3 million Instagram followers and sells makeup for the eyes, face and lips in quirky packaging. Its best-selling mascara is called “Better Than Sex.”
“We like the acquisition,” Jason Gere, an analyst at KeyBanc Capital Markets Inc., said in a report. “Estee Lauder has a demonstrated history of success in driving scale of smaller, high-growth brands on its global platform.”
Estee Lauder, which also bought makeup brand Becca this month, could use a boost after delivering a disappointing forecast to investors. It plans to add its newly acquired brands into its 2017 guidance, which will be announced during its second-quarter earnings in February, Chief Financial Officer Tracey Travis said on a conference call Tuesday. The Too Faced acquisition will reduce earnings in 2017, but will improve them after that, she said.
Estee Lauder, based in New York, suffered its worst stock rout in more than a year on Nov. 2 after saying that earnings would be $1.10 to $1.15 a share this quarter. Analysts had estimated $1.31 on average. Its shares are down 11 percent this year.
Chief Executive Officer Fabrizio Freda said that declining traffic at mid-tier U.S. department stores contributed to the slowdown. That has increased the urgency of owning brands that sell via the internet and other channels — Too Faced’s strength. The acquisition target has seen sales grow more than 70 percent this year and 60 percent on a compound annual basis over the past three years, and the company expects the growth rate to continue.
The brand “strengthens our leadership in the fastest-growing product category in the global prestige beauty makeup,” Freda said on the conference call. “It increases our penetration with millennial and Gen Z consumers, who are socially connected beauty enthusiasts.”
Too Faced, those costumers are mostly under 40, currently gets about 83 percent of its sales from North America. It will be expanded in the U.S. and internationally, as well as in travel retail globally, Freda said. Estee Lauder, which has made seven acquisitions since 2014, will continue to look for M&A opportunities, he said Tuesday.
Cosmetics companies have been seeking new sales channels as the department-store makeup counter loses its allure. L’Oreal, for instance, agreed in July to spend $1.2 billion to buy IT Cosmetics. That business sells through QVC and the Shopping Channel, as well as retailers such as Ulta and Sephora.
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