Estee Lauder to Buy Smashbox Cosmetics

Estée Lauder Cos. nabs the photo-studio-born makeup company Smashbox, a company founded in 1996 by Dean and Davis Factor.

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The Estée Lauder Cos. Inc. has gone Hollywood, nabbing the photo-studio-born makeup company Smashbox Beauty Cosmetics Inc. in a bid to move deeper into the fast-growing, alternative retail channel and gain entrée into the digital media space.

Lauder said Monday it has signed a definitive agreement to buy the Los Angeles-based makeup brand, founded in 1996 by Dean and Davis Factor, the great-grandsons of legendary Hollywood makeup artist Max Factor. The acquisition includes a minority stake in Smashbox Studios, the Los Angeles photo facility started by the Factor brothers in 1991. The deal is expected to close in July, subject to certain conditions, including regulatory approval.

The purchase price was not disclosed, but sources estimated it was between $200 million and $300 million. WWD first reported on April 23 that Lauder may have been in talks to buy Smashbox.

“We like the brand and its photo-studio inspired, Hollywood positioning,” Lauder’s president and chief executive officer Fabrizio Freda told WWD during a call from Los Angeles Monday morning. “Smashbox operates in a selling environment that is of big interest to us, specialty retail, where we want to continue to grow.”

North American department stores account for 30 percent of Lauder’s total revenue of $7.3 billion in fiscal 2009.

Freda added that Smashbox Studios, complete with its digital capabilities, will benefit the entire Lauder company. The deal marks the first acquisition since Freda assumed the ceo post in July. Leonard Lauder, chairman emeritus of the company, could not be reached for comment, but it is known he is a strong supporter of the acquisition.

Smashbox generates about $80 million in wholesale revenue and $140 million in retail sales, according to a source with knowledge of the company’s finances. In 2006, private-equity firm TSG Consumer Partners acquired a minority, noncontrolling stake in Smashbox.

“We and the Factors are pleased that the brand will now reside within the Lauder company,” said Hadley Mullin, a managing director at TSG. “We are confident that Lauder will be a tremendous steward.”

Mullin said TSG and Smashbox have been in serious talks with Lauder about a potential acquisition for several months, and that the brand has fielded inquiries from interested buyers for a number of years.

About a year ago, Smashbox tapped Deutsche Bank to act as a financial adviser as it considered strategic alternatives, including the sale of the company.

Smashbox’s prowess in fast-growing retail channels, particularly TV shopping, and its presence in open-sell store formats, including Ulta, Sephora and Macy’s Impulse Beauty concept, offer Lauder a stronger presence in alternative channels, particularly as shoppers continue to shift away from department stores. It also rounds out Lauder’s holding of venerable makeup artistry brands, which include MAC Cosmetics and Bobbi Brown.

Smashbox is sold throughout North America as well as some 60 countries worldwide, said Dean Factor. “We’ve grown to a point where we feel that the Lauder company can take us to the next level,” said Factor. Smashbox will continue to operate out of its Los Angeles office, and Dean Factor, co-founder and ceo; Davis Factor, co-founder, chief creative officer and celebrity photographer, and Budd Taylor, president, are expected to play key roles in the integration and the brand’s future plans.

Caris & Co. analyst Linda Bolton Weiser said, “[Lauder] has a history of taking something relatively small and expanding sales.” She added, “They’ve made MAC and Bobbi Brown hugely successful.” Bolton Weiser said Smashbox is Lauder’s largest acquisition of a brand that is dominant outside of department stores.

The deal broadens Lauder’s presence on the airwaves of the largest TV retailer, QVC, where Smashbox consistently ranks among the top 10 beauty brands. Smashbox also is sold on QVC in the U.K. and Germany.

Allen Burke, director of merchandising at QVC, where Smashbox premiered in 1998, credited Dean Factor’s vision for taking a chance on television home shopping. “He comes across as casual California. He is really a very bright business guy,” said Burke. “He was willing to listen to where we were going and what we were doing, and it made sense to him, and he clearly charted his own path. To be fair, it was a time when there was a lot of makeup artist brands emerging and the field got cluttered quickly, perhaps that was part of the attraction.”

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