Summary List Placement
Estée Lauder is acquiring the company behind skincare brand The Ordinary, though the deal is anything but.
The cosmetics giant will acquire a 76% stake in Deciem, which owns the brand, building on Lauder’s existing 29% stake in the business, WWD reported Tuesday. When it closes, the deal will become the largest in Estée Lauder’s history, valuing Deciem at $2.2 billion, WWD said.
Deciem’s sales almost doubled in 2020 to $460 million, a feat it accomplished selling mostly low-priced skincare items through The Ordinary brand such as toner, serums, and concealer. Many of its products cost less than $10 and use simple, no-frills packaging and labels.
Among young beauty brands, “nothing is seeing more growth than skincare,” said Suzanne Kopulos, co-founder at Beauty Consultants & Strategists. “We’ve just seen so much consistent growth and consistent new brands entering that game, whether it’s one hero product or an entire range of products that gives them a full shelf.”
The deal is the first major skincare buy for EstéeLauder since its December 2019 purchase of Have & Be, owner of K-beauty brand Dr. Jart+, for $1.1 billion.
Brands like Youth to the People and Beverly Hills MD were among the fastest-growing beauty brands online in the early months of the pandemic, according to data from SimilarWeb. In the early months of the pandemic, sales of skincare products jumped as many people kept their existing skin health routines even as others, such as hair washing and putting on makeup, fell by the wayside.
Estée Lauder’s approach to M&A might also lend itself to focusing on a category like skincare: When the company looks for acquisition targets, it likes to fill out a particular subcategory, area of the world, or sales venue, sometimes with multiple acquisitions in a relatively short period of time, CEO Fabrizio Freda said in November during the company’s annual meeting.
In fragrances, for instance, Estee Lauder added to its existing Jo Malone and Tom Ford lines by buying Le Labo and Editions de Parfums Frederic Malle in 2014 as well as By Kilian, another luxury brand that it has since used to appeal to younger consumers with lower-priced products, in 2016.
The company has continued looking for deals even during the pandemic, Freda said. Estee Lauder is still “looking into acquisitions and opportunity for reinforcing our portfolio in areas where we have strategic opportunities or strategic gaps,” he told analysts during a call earlier this month.
But figuring out which brands have the staying power and are worth acquiring has gotten harder in recent years as more beauty brands have popped up, Kopulos said. That, plus pandemic chaos, has made it more attractive for large personal care and beauty companies to take a wait-and-see approach, paying attention to only the brands that have the most innovative products and consistently grow over several years.
“Where bigger companies like your Unilever, your Estee Lauder, and your LVMH used to think about buying a company, they’re actually sitting back a little bit more and waiting for these brands to really prove what they are going to do and that they are different,” she said.
Those brands that can set themselves apart are still striking deals and going public.
Honest Co., founded by Jessica Alba, filed confidentially for an IPO, Bloomberg reported in January. The company could go public during the second quarter, a source told WWD earlier this month. Meanwhile, China-based e-commerce cosmetic company Yatsen, which makes Perfect Diary and Abby’s Choice, raised $617 million in a US IPO last November.
Beauty deals during the pandemic have included L’Oreal’s acquisition of skincare brand Thayers Natural Remedies and Coty’s purchase of a 20% stake worth $200 million in Kim Kardashian West’s color cosmetics and fragrance brand.
Originally published at https://www.businessinsider.com/how-deciem-and-the-ordinary-fit-into-estee-lauders-growth-2021-2 on .