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Panelists Give Snapshot of M&A Activity

The flurry of merger and acquisition activity in the beauty business was the backdrop for a panel discussion of financial experts at the WWD Beauty CEO Summit.

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Alexander S. Panos

Photo By WWD STAFF

The flurry of merger and acquisition activity in the beauty business was the backdrop for a panel discussion of financial experts at the WWD Beauty CEO Summit.

The panel, moderated by WWD's beauty financial editor Molly Prior, delved into topics such as why financial investors are interested in beauty companies, the current state of financial deals and insight into what players are eyeing in potential investments.

The panelists were Kelly McPhilliamy, managing director, consumer and retail investing banking group of Wachovia Securities; Jani Friedman, managing director, beauty, of Demeter Group, and Alexander S. Panos, a managing director of TSG Consumer Partners. Among them they've handled deals such as the Ulta initial public offering and The Carlyle Group's acquisition of Philosophy, advised companies like Rx for Brown Skin and invested in beauty companies including PureOlogy and N.V. Perricone.

"Why beauty, why now," Prior asked the group, based on the influx over the last five years of financial companies in the beauty universe. The trio pointed to the high-growth opportunities and bountiful margins in the business.

"I guess one thing I'd add to why financial investors are so focused on this category right now is the attractive dynamics of the market and the mere fact that there have been a number of very visible successes," said McPhilliamy.
Panos chronicled some of his firm's on-target picks, such as investing in PureOlogy which was recently sold to L'Oréal. He also pointed out other sizable deals in beauty, ranging from Procter & Gamble's acquisition of Frédéric Fekkai and The Clorox Co.'s purchase of Burt's Bees.

Panos noted that beauty firms can sell for six to 10 times EBITDA, depending on growth, scale and other metrics. "I think in each case, whether it's us or a trade buyer or another private equity fund, we're highly focused on buying into leadership in profitable channels," said Panos. "There is a focus at TSG on categories that have the highest margins and then also direct businesses — Internet and QVC — and less of a focus on the department store channel."
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