Beauty Industry
2011 Mid-Year Review and Outlook
2011 Mid-Year Macroeconomic and Capital Markets Review
Renewed concerns about the sustainability of the financial recovery following sub-par U.S. GDP growth, continuing
unemployment, and the global debt crisis are all causing macroeconomic and consumer headwinds
Impact
Situation
High risk of dynamic shift in the economy due to
U.S. budget deficit, which breached the debt limit
of $14.29 trillion in May, and the sovereign debt
crisis in the EU
June’s 9.2% unemployment, the third consecutive
monthly increase, renewed fears of a stalled
economic recovery
Average American still holds $10,168
$10 168 of debt in
credit cards, loans, and non-real estate consumer
debt
Number of U.S. homes to receive a foreclosure
filing expected to climb ~20% in 2011, reaching a
peak for the housing crisis
▪
▪
Beauty stocks mostly underperformed the S&P 400
July 2009 to July 2011
No Beauty IPO’s in the first half of 2011
▪
U.S. IPO market remains healthy; total proceeds
raised 2x more in the first half of 2011 than 2010
▪
▪
▪
Strategics led in both quantity and size of deals; of
all
ll transactions
t
ti
in
i the
th fi
firstt h
half
lf off 2011
2011, 83% were
completed by strategics and 17% were completed by
financial sponsors
▪
▪
Macro
▪
▪
▪
Capital
Markets
Private
P
i t equity
it holds
h ld over $1 ttrillion
illi off uninvested
i
t d
capital and is under pressure to put money to work
in advance of raising new funds
– Unrealized investments a record 60% of total
managed capital; pressure building for exits
▪
Debt markets remain open for >$20mm EBITDA
opportunities; ample capital available to high
grade borrowers
2
▪
▪
Consumers remain uncertain about the future,
adding to fears that spending will continue at a
tepid pace
– June consumer confidence fell from 61.7 to
58.5 (lowest since Nov. 2010); spending at its
slowest pace in 20 months
Bifurcation exists among consumers; increase in
spending among wealthy far outpaces middle class
Federal Reserve cut its 2011 economic forecast
(from 3.2% to 2.8%), however, expects growth to
strengthen in the second half of 2011
M&A volume increased in the first half of 2011 by
>45% compared to the same period in the prior year
– Highlighted by transformational acquisitions
that provided strategic buyers access to new
g
markets,, channels,, and categories
ƒ High-growth companies are raising equity capital to
pursue growth in direct-to-consumer channels and
international markets
Global Beauty Overview
The $382 billion Global Beauty industry is supported by positive growth across all major categories, and is on track to
reach $437 billion by 2015(1)
2010 Channel Share
2010 Category Size & Growth
(% of channel share)
($ in billions)
7.5%
4.6%
4.6%
7.0%
6.0%
5.2%
$48.2
4.5%
$42.0
4.1%
$33.6
$35.5
Drugstores
12.8%
$28.7
$17.2
$16.8
Suncare
Sets / Kits
Deodorants
Men's Grooming
Bath & Shower
Oralcare
Fragrance
Color Cosmetics
Haircare
Skincare
$8 0
$8.0
Sales by Category
Supermarkets &
Hypermarkets
26.9%
4.7%
4.4%
$6 9
$6.9
$5 7
$5.7
Beauty
Specialists
13.4%
Depilatories
$68.0
% Growth in 2010
Overall Retail Sales Growth by Channel 2005 - 2010
(% growth)
($ in billions)
$ 400
% 7.0%
350
6.0%
300
5.0%
10.0%
8.0%
250
4.0%
6.0%
200
3.0%
4.0%
150
2.0%
100
1.0%
50
0.0%
0
2.0%
0.0%
(2.0%)
(0.1%)
(1.0%)
2007
To tal Market
% Mass Gro wth
% To tal Gro wth
(1) Constant
Other
21.3%
Non-Store
Retailing
16.1%
2006 - 2010 Global Beauty Growth
2006
Department
St res
Sto
9.5%
7.3%
Babycare
$71.5
7.5%
2008
2009
2005
2010
Premium Sales
% Premium Gro wth
Retailing
2010 prices and fixed 2010 exchange rates. Source: Euromonitor.
3
2006
Grocery
Retailers
2007
2008
Non-Grocery
Retailers
2009
Non-Store
Retailing
2010
BPC
Non-Store
Sales
U.S. Beauty Overview
After a decline in 2009, Beauty and Personal Care sales showed signs of life in 2010
Premium vs. Mass Sales Mix
Historical and Projected Sales by Category
($ in billions)
$59.7
$56.6
$62 0
$62.0
10.3
0.4%
10.1
10.6
8.6
9.4
10.0
6.0
5.0
5.3
54
5.4
5.2
53
5.3
9.1
17.7
19.4
2005
2010
0.9%
10.7
10.0
1.6% shift toward Mass
’05-’15
CAGR
34.8%
34.6%
34.5%
33.4%
32.2%
32.4%
32.7%
33.0%
33.1%
33.1%
33.2%
65.2%
65.4%
65.5%
66.6%
67.8%
67.6%
67.3%
67.0%
66.9%
66.9%
66.8%
2005
2006
2007
2008
2009
2010
2011P
2012P
2013P
2014P
2015P
1.6%
1.6%
(1.4%)
(1 4%)
0.6%
20.2
1.3%
2015
Haircare
Skincare
Color Cosmetics Fragrance Bath & Shower
Other Bath & Shower Fragrance Color Cosmetics Skincare Haircare
Other
Mass
2010 Sales by Distribution Format
2005 – 2010 Ecommerce Sales
(% of channel share)
Other
Store-Based
19.7%
''
'05
05 - '10
10 CAGR
0.7%
'05 - '10 CAGR
(4.0%)
($ in billions)
Supermarkets &
Hypermarkets
24.7%
Mass
Merchandisers
10.7%
2005 - 2010
CAGR = 11.5%
$2.9
'05 - '10 CAGR
1.8%
$3.0
$3.2
$2.6
$2.2
$1.9
'05 - '10 CAGR
1.4%
'05 - '10 CAGR
(3.1%)
Department
Stores
13.9%
Premium
Non-Store /
DTC
16 8%
16.8%
'05 - '10 CAGR
1.3%
Pharmacies &
Drugstores
14.2%
2005
Source: Euromonitor.
4
2006
2007
2008
2009
2010
U.S. Beauty Industry — Category Outlook & Growth Drivers
▪ The $10.1 billion Skincare category grew by 2.0% in 2010, driven primarily by premium product sales
▪ Already the largest Skincare segment, Facial Anti-Aging, and specifically Premium Facial Anti-Aging products, boasted
Skincare
5.3% and 13.0% increases, respectively; CAGR through 2015 is forecasted at 1.0% with gains in Face, Sun, and Gifts
▪ While only 4.3% of Facial Skincare sales today, whitening treatments and spot correctors are gaining importance as
women seek to reverse the effects of sun damage
▪ Increases in R&D budgets of large mass brands have yielded breakthroughs in Skincare technology rivaling prestige
efficacy, enabling mass brands to achieve higher price points
▪ Representing 23.5% of the U.S. Haircare business, Salon Haircare’s 19.7% decline since 2005 has weighed down the
overall category, but is expected to reverse course through 2015
Haircare
▪ Mass brands are launching value-added Haircare that rivals the efficacy of salon brands
▪ Hair Color sales increased 3.0%, rebounding to 2008 levels
▪ Growth in Styling Agents, Salon Haircare, and Hair Extensions are expected to counter the decline in Haircare dollar
sales
▪ Color Cosmetics made a remarkable turnaround, growing 3.8% in 2010 to reach $9.4 billion in retail sales, after a two year
decline
Color
Cosmetics
▪ Nail products outperformed other segments with growth of 12.0% in 2010, benefiting from women performing DIY manicures
and pedicures; Nail Polish achieved impressive sales growth of 16.0%
▪ In Prestige, the Lip segment gained 7.4% in 2010 and 7.0% from January to April 2011; Lip Color specifically increased 11.0%
after almost a decade of decline
▪ Eye Makeup is still strong, posting a 4.5% increase in 2010, and is expected to maintain a 2.1% CAGR through 2015
▪ Likewise, forecasts of the entire category turned for the better, with updated expectations for a 1.2% CAGR through 2015
▪ U.S. Fragrance sales have steadily declined since 2005; nevertheless, subtle consumer optimism helped boost sales by 1.7%
in 2010; by 2015, Fragrance is expected to decline by 0.5% CAGR
F
Fragrance
▪ Roughly 5 times larger than Mass, Premium Fragrances at $4.3 billion bounced back by 3.1%, while Mass suffered a 3.8%
d li
decline
▪ Brand fragmentation continues as celebrity and designer launches are a dime a dozen, and typically a 1 – 2 season shelf life
▪ Unisex scents fell out of favor in both Mass and Prestige channels, realizing double digit decreases in 2010
▪ Classics continue to dominate the top 10 best seller list
▪ The $5.4 billion Bath & Shower category declined 2.0% in 2010, after growing by 3.5% in 2009; sales are not expected to
Bath &
Shower
rebound through 2015 as the category is heavily promotional
▪ Body Wash & Shower Gel experienced a 7.5% increase in 2010
▪ Majority of sales come from the Mass channel, with private label and cover label sales accounting for ~25% share
▪ Increasingly, brands are adding anti-aging technology in core body products in order to achieve higher price points
Source: Euromonitor, Mintel, NPD, GCI, and Beauty Cross Channel Monitor.
5
Beauty Retail Trends
▪ The astounding pace of consumer adoption of mobile commerce is altering the retail landscape
in the U.S.
Mcommerce
▪ Beauty brands of all sizes are utilizing social media and mobile apps in order to cement
▪
Ecommerce
relationships with consumers, garner feedback, and provide real-time services such as product
locaters, efficacy ratings, tutorials, and interactive beauty advisors
Within 4 years, mobile usage is expected to overtake PC usage in terms of accessing the Web
▪ Ecommerce grew 16% globally and 10% in the U.S. in 2010
▪ Beauty-specific internet sales reached over 5% of all Beauty retail, or $3.2 billion
▪ After 18 months of de-stocking, retailers are replenishing stock and increasing on-hand weeksRe-Stocking
▪
Services
Drive
Traffic
of-supply (“WOS”), creating a smoother supply chain and allowing brands to forecast with
better accuracy
Average WOS stock increasing 50 – 60% since low point in 2009
▪ Prestige and mass retailers alike are adding lash & brow bars, self-tanning, blowouts, nail bars
▪
and makeover studios within current retail environments to entice frequent visits and a higher
average basket
Consumers are drawn to instant services,, tips
p on technique,
q , and makeover opportunities
pp
▪ With the onslaught of private flash sale sites and daily deals, consumers are becoming
ConsumerCentric
R t il
Retail
▪
desensitized to paying value prices for top brands; furthermore, consumers are more in control
as they demand free shipping, prefer to name their own price, leverage social media platforms
to “aggregate”
gg g
purchases,
p
, and use mobile devices to compare
p
p
prices and discounts
Top 4 flash sale sites claimed 2.7 million unique visitors in December 2010, each up 15% - 50%
over 2009
Source: Euromonitor, WWD, comScore, and Morgan Stanley.
6
Beauty Brand & Innovation Trends
▪ Perceptive brands are launching products targeting specific generational groups,
Niche
C
Consumer
Segments
whether Gen D (the “D”-igital generation that believes access to information is their
birthright) or Boomers, which represent the fastest growing segment in developed
countries and have unique personal care needs
▪ At 75 million consumers strong, or 29% of the U.S. population, Boomers will double in
size in the next 20 – 30 years, representing a significant opportunity to deliver
products with anti-aging benefits in all categories and packaging options customized
for portability, ease, and value
▪ Topical beauty products have the potential to be delivered efficaciously via infused
Unconventional
Delivery
y
Systems
clothing, sleepwear, and bedding; shapewear not only has the potential to physically
shrink one’s appearance, but also to actively reduce the signs of cellulite or stretch
marks on the skin
▪ Textile manufacturers have cracked the code on embedding fabric with active
ingredients, making wearable garments the newest delivery system for cosmeceuticals
▪ New legislation aims to update the U.S. Food, Drug, and Cosmetics Act of 1938 by
Regulation
mandating more stringent practices on ingredient labeling across all categories,
causing concern over massive repackaging expenses
▪ First signs of increased intervention are evident in the recently announced new FDA
guidelines for the labeling of sunscreen products that will take effect in the next 12
months
Source: Euromonitor, WWD, The Future’s Report, BW Confidential, GCI, and The Doneger Group.
7
Overview of Public Market Comparables in the Global Beauty Industry
Overall, public valuations have improved marginally with subtle improvements in the economy; the sector is expected
to grow as economic outlook remains cautiously optimistic
Median EV / EBITDA
Stock Performance Index Graph – Last 2 Years
400%
Median 2011 = 9.8x
Median 2010 = 8.2x
8 2x
Meidan 2009 = 8.2x
350%
10.9x 11.1x 11.2x
300%
9.3x 9.3x 10.1x
9.3x
9.6x
250%
7.4x
6.6x
6.0x
200%
150%
2.5x
100%
50%
Jul-09
Sep-09
Dec-09
Specialty Retail
Feb-10
Apr-10
Large and Mid-Cap
Jul-10
Sep-10
Nov-10
S&P 400
Feb-11
Small-Cap
Apr-11
Jul-11
Global Mega-Cap
Global Mega Cap
07/22/09
Historical vs. Estimated Revenue Growth CAGRs
2.1%
6.4%
▪
Large and Mid-Cap: All for One, Amorepacific, Avon Products,
Beiersdorf, Church & Dwight, Clorox, Estée Lauder, Kao Corp.,
Natura Cosmeticos
Cosmeticos, Oriflame Cosmetics
Cosmetics, Shiseido
4.9%
▪
Small-Cap: Elizabeth Arden, FANCL Corp., Helen of Troy, KOSE
Corp., Mandom Corp., Mannatech, Nu Skin Enterprises, Obagi
Medical Products, Physicians Formula, Prestige Brands, Revlon,
Unihair
Specialty Retail
▪
Specialty Retail: Limited Brands, Regis Corp., Sally Beauty, Ulta
S l
Salon
1.9%
(1.3%)
Global Mega-Cap
Large and Mid-Cap
Last 2-Year
Small-Cap
Specialty Retail
7/22/11
Global Mega-Cap: Colgate-Palmolive, Henkel AG, Johnson &
Johnson, L’Oréal, Procter & Gamble, Unilever NV
13.5%
5.0%
Small-Cap
07/22/10
▪
Median Change in Last 2 Year to Next 2 Year CAGR = 5.8%
5.9%
Large and Mid-Cap
Next 2-Year
Source: Capital IQ; LTM data as of July 22, 2011.
8
M&A Trends in the Beauty & Personal Care Industry
Transaction volume increased 45% in 2010 with 2011 projected to exceed 2010; valuations continue to rebound with
strategics generating the majority of deals in the sector through both bolt-on and transformational acquisitions
Strategic vs. Financial Sponsor Acquisitions
Median Transaction Multiples
13.6x
12.0x
11.7x
11.2x
12.5x
25.0%
31.0%
75.0%
69.0%
62.0%
2005
2006
2007
38.0%
29.2%
27.3%
70.8%
72.7%
2008
2009
11.8%
17.1%
88.2%
82.9%
2010
2011
9.7x
9.5x
2.0x
1.5x
1.2x
2005
2006
2007
2.0x
2.0x
22
2.2x
1.7x
2008
2009
2010
2011
Median EV / Revenue
Strategic
Median EV / EBITDA
2005 – 2011 Median EV / Revenue by Category
Financial Sponsor
2005 – 2011 Median EV / EBITDA by Category
Overall Median = 11.9x
Overall Median = 2.0x
2.3x
2.0x
2.2x
1 8x
1.8x
Color Cosmetics
Haircare
Skincare
13.6x
13.0x
Bath & Body
1 7x
1.7x
10.5x
Oral Care
Color Cosmetics
Source: Public company filings, press releases, Capital IQ, & Demeter Group estimates as of July 22, 2011.
9
Haircare
10.5x
12.3x
Skincare
Bath & Body
Oral Care
Select 2011 M&A Comparables
Closed
Enterprise
Date
Target
Acquirer
Target
Enterprise Value/
Value*
Revenue
EBITDA
Revenue
EBITDA
N/A
Skincare
Pending
Dermik Laboratories, Inc.
Valeant Pharmaceuticals International
$425
$240
N/A
1.8x
Pending
H20 Plus, L.P.
Pola Orbis Holdings, Inc.
91
N/A
N/A
N/A
N/A
Marbert Holding AG (Marbert Brand)
Straub GmbH
N/A
N/A
N/A
N/A
N/A
Jul-11
Jul-11
Freeze 24▪7 Skin Care Brand
TPR Holdings LLC
N/A
N/A
N/A
N/A
N/A
Jun-11
Laboratories Dermatologiques d´Uriage SA
Exea Corporation (Puig Beauty & Fashion Group S.L.)
N/A
N/A
N/A
N/A
N/A
May-11
Pomega, Inc. (Private Placement)
mBeach Software, Inc.
N/A
N/A
N/A
N/A
N/A
May-11
Aero Pharmaceuticals Inc.
Biozone Pharmaceuticals Inc.
321
N/A
N/A
N/A
N/A
N/M
Apr-11
Paras Pharmaceuticals Ltd.
Reckitt Benckiser Group plc
717
88
$24
N/M
Feb-11
Beiersdorf AG - Juvena brand
Troll Cosmetics GmbH
N/A
N/A
N/A
N/A
N/A
Feb-11
Nude Skin Care
LVMH Moet Hennessy Louis Vuitton
N/A
N/A
N/A
N/A
N/A
Feb-11
Ole Henriksen of Denmark, Inc.
LVMH Moet Hennessy Louis Vuitton
N/A
N/A
N/A
N/A
N/A
Jan-11
Tjoy Holdings, Ltd
Coty Inc.
400
N/A
N/A
N/A
N/A
Mean
1.8x
N/A
Median
1.8x
N/A
Haircare
Pending
Darling Group Holdings
Godrej Consumer Products Ltd.
$219
$224
N/A
1.0x
N/A
Jul-11
Fing'rs (Europe) AG and Fing'rs (Deutschland) GmbH
Pacific World Corporation
N/A
N/A
N/A
N/A
N/A
Jun-11
Oscar Blandi Haircare
TPR Holdings Inc.
N/A
10
N/A
N/A
N/A
May-11
Alberto-Culver Co.
Conopco (Unilever)
3,732
1,551
$248
2.4x
15.0x
May-11
Sexy Hair Concepts, LLC
TSG Consumer Partners
N/A
N/A
N/A
N/A
N/A
Feb-11
Beiersdorf AG - Marlies Möller brand
Troll Cosmetics GmbH
N/A
N/A
N/A
N/A
N/A
Feb-11
Kenra Limited
TSG Consumer Partners
N/A
N/A
N/A
N/A
N/A
Jan-11
Jan
11
Vanart and Select Brands
Genomma Lab Internacional SAB de CV
85
42
N/A
2 0x
2.0x
N/A
Jan-11
Namasté Laboratories, LLC
Dermoviva Skin Essentials Inc
140
90
N/A
1.6x
N/A
Mean
1.7x
15.0x
Median
1.8x
15.0x
Color Cosmetics
Pending
Jun-11
Somang Cosmetics Co.
KT&G Corporation
N/A
N/A
N/A
N/A
N/A
COVER FX Skin Care, Inc.
Catterton Partners (Private Placement)
N/A
N/A
N/A
N/A
N/A
Jun-11
Jun
11
Collection 2000
Li & Fung Limited
N/A
N/A
N/A
N/A
N/A
Mar-11
Mirage Cosmetics, Inc., Certain Assets
Revlon, Inc.
N/A
N/A
N/A
N/A
N/A
Feb-11
Barielle, Ltd.
Fisk Industries, Inc.
N/A
N/A
N/A
N/A
N/A
Jan-11
Dr. Scheller Cosmetics AG
Coty Inc.
N/A
$70
N/A
N/A
N/A
Jan-11
E.l.f. cosmetics (Private Placement)
TSG Consumer Partners
N/A
N/A
N/A
N/A
N/A
Jan-11
Paris Presents
Mason Wells
$82
70
$8
1.2x
10.0x
Mean
1.2x
10.0x
Median
1.2x
10.0x
Overall Mean
1.7x
12.5x
Overall Median
1.7x
12.5x
Note: $ in millions. *Enterprise Value = Value of Shareholders’ Equity + Debt – Cash.
Source: Public company filings, press releases, Capital IQ, & Demeter Group estimates as of July 22, 2011.
10
Demeter Group Overview
Latest Transactions
In the last 6 months,
months Demeter Group has closed 4 transactions totaling +$400 million in Enterprise Value
Value, with each
sold at a strategic multiple to a global Consumer portfolio
Has Been Acquired By
Has Been Acquired By
Has Been Acquired By
Has Been Acquired By
May 2011
March 2011
February 2011
December 2010
12
Demeter Group
N ti
Nationally
ll recognized
g i d iinvestment
t
t bank
b k focused
f
d exclusively
l i l on high-growth
high g
th Consumer
C
and
dR
Retail
t il companies
i
Advisory Services
Overview
▪
Advise global, multi-channel, high-growth brands and
concepts in the following sectors:
–
–
–
–
–
▪
▪
Raise growth equity capital ($10 million to
$50 million) from global private equity funds
and family offices in non-control
transactions
▪
Obtain strategic transaction multiples by
leveraging our strategic perspectives to
match our clients’ unique industry direction
and shareholder objectives with buyer
capabilities
▪
Develop tailored investment theses and
identify potential targets that leverage
i
investors’
t ’ and
d buyers’
b
’ core capabilities
biliti so
they can be pre-emptive yet competitive on
valuation and terms
Private
Placement
Food & Beverage
Beauty & Personal Care
Apparel & Footwear
Specialty Retail
Direct-to-Consumer (“DTC”) and Ecommerce
Advise privately-held, founder-led, and family businesses
with enterprise values between $25 million and $300
million
–
▪
Sell-side
Median transaction size ~$100 million
Deal teams run day-to-day by CEO
Buy-side
Note: Securities offered through Demeter Advisory Group, LLC, member of FINRA / SIPC.
13
Jeff Menashe
Chief Executive Officer
menashe@demetergroup.net
Jani Friedman
Managing Director
friedman@demetergroup.net
100 Spear Street, Suite 1115
San Francisco, CA 94105
(415) 632-4400
www.demetergroup.net