Consumer goods giants Unilever and Henkel and buyout funds including Advent and Cinven are exploring bids for some of Coty's top beauty brands in a deal worth up to €6.33 billion ($7 billion), three sources told Reuters.
Colgate-Palmolive Co is also looking to enter the bidding race for Coty's portfolio which focuses on professional hair and nail care products including Wella, Clairol, GHD and OPI, the sources said, speaking on condition of anonymity.
Coty, which has a market value of $9 billion (€8.14 billion) and is majority owned by German conglomerate JAB Holdings, is expected to kick off an auction process in December, according to the sources.
Turnaround Potential
The deal appeals to both industry behemoths and private equity funds for the turnaround potential of the brands whose sales have been on a downward trajectory in the last four quarters.
If successful, Henkel - whose Schwarzkopf brand makes it the world's fifth biggest player in salon haircare – would advance to third place in global industry league tables.
Unilever is the world's eighth largest hair salon player, according to Euromonitor, and has a more cautious approach to deal-making, one source said, adding it could decide to bid for only parts of Coty's portfolio to scale up its presence in specific segments.
New York-based Colgate-Palmolive recently bought the skin care unit of France's Laboratoires Filorga Cosmétiques for €1.5 billion ($1.66 billion) and intends to keep using add-on deals to diversify its offering, the sources said.
Private Equity Investors
The list of private equity investors vying for Coty's brands includes Advent, Cinven, Blackstone, KKR, CVC Capital Partners and BC Partners, the sources said.
But some funds including Cinven are looking for a bidding partner to submit a joint bid as part of an investment consortium, one of the sources said.
Coty, Henkel, Colgate-Palmolive, Cinven, Advent, CVC and BC Partners declined to comment, while Unilever, Blackstone and KKR were not immediately available for comment.
Coty aims to complete the sale, which was announced last month, by the middle of 2020 and has hired Credit Suisse to handle discussions with prospective bidders.
Confidential information packages are expected to be dispatched in December with a view to receiving non-binding offers early next year, the sources said.
Bankers advising the prospective bidders estimate the portfolio could fetch 10 to 12 times its core earnings of roughly $600 million (€542.7 million), giving it a valuation of $6 billion (5.43 billion) to $7 billion (€6.33 billion).
Game-Changer
Coty's professional beauty unit, which primarily sells hair and nail care products to salons, accounts for about 21% of its total revenue, with annual sales of about $1.81 billion (€1.64 billion).
L'Oreal currently ranks as the world leader in salon haircare, followed by John Paul Mitchell Systems and Coty, according to Euromonitor.
For Henkel the deal would be a game-changer as it would unlock substantial synergy with its popular Schwarzkopf brand, analysts said.
"It is very natural that Henkel would look at this deal," said Jefferies analyst Martin Deboo, adding the German firm tried to buy Wella twice before.
Henkel has been hoovering up niche brands, including DevaCurl, a premium product for curly hair, to prop up sales of its beauty business.
Coty said in October it was also exploring options for its Brazilian unit which operates as an independent business with a distinct portfolio of personal care and beauty products.
The company, whose debt load stood at $7.7 billion (€6.96 billion) at the end of June, owns other cosmetic brands such as Rimmel and Max Factor as well as skin care firms Lancaster and Philosophy. But it has struggled for years to integrate such a wide range of products.
Its 2016 purchase of a slice of Procter & Gamble's beauty business, which included Covergirl and Max Factor, forced it to take billions of dollars in write-downs and outline a four-year restructuring plan.
News by Reuters, edited by Donna Ahern Checkout. Click subscribe to sign up for the Checkout print edition.
