Coty is buying a controlling stake in Kylie Jenner's cosmetics company for $600 million (€542 million) in a bet that the youngest Kardashian sister's celebrity and social media savvy will help revive growth at its flagging beauty business.
Owned by investment company JAB Holdings, Coty will hold a 51 per cent stake in Kylie Cosmetics once the deal closes later this year.
For Ms Jenner, selling a chunk of her four-year-old company at a rough valuation of $1.2 billion (€1 billion) cements her status as a mogul at the age of just 22. Earlier this year, Forbes magazine crowned her "the youngest self-made billionaire ever" as her eponymous company grew in notoriety and revenue.
The deal is another sign of how the beauty industry is changing in the social media era as celebrities like Ms Jenner and pop star Rihanna mint new brands seemingly overnight, appealing to younger consumers with little loyalty to old brand names.
"With a single social media post, Kylie is able to reach double the number of people who watch the Super Bowl every year, and she is the seventh-most followed person on Instagram, " said Coty chief executive Pierre Laubies, who joined the company a year ago.
Companies including L'Oréal and Shiseido have been on acquisition sprees in a bid to remain relevant amid the boom in upstart brands. Also on Monday, Estée Lauder said it would buy the two-thirds of Korean skincare company Have & Be Co that it did not already own for $1.1 billion (€990 million).
Coty will take on additional borrowing to finance the acquisition, adding to its already heavy debt load of $7.4 billion (€6.6 billion), which represented a net debt-to-ebitda ratio of 5.5 times at the end of September.
Coty expects the Kylie Jenner deal to add "more than 1 per cent" to annual net revenue growth for its fragrance, cosmetics and skincare products over the next three years, and for the deal to boost its earnings per share after one year. Kylie Cosmetics is on track to reach $200 million (€180 million) in sales this year, growing at roughly 40 per cent annually. Ms Jenner's business has an ebitda margin of more than 25 per cent, Coty said.
The Jenner move is also a sign that Coty’s new management and its backers at JAB are not afraid of embarking on additional acquisitions, despite the company’s track record of destroying value with such moves. It was forced to write down a quarter of the $12 billion (€10.8 billion) value of its 2015 acquisition of Procter & Gamble’s beauty brands, and recently sold off Younique, a social selling platform for make-up, for $78 million (€70 million) about two years after paying $600 million (€541 million) for it.
Coty is still in the midst of a four-year restructuring effort to put the company on firmer footing after several torrid years marked by management changes, supply chain mishaps, and market share losses.
It recently put its haircare and professional beauty businesses up for sale, which account for nearly a third of its $8.6 billion (€7.7 billion) annual revenue. Coty said at the time that the divestment was supposed to cut debt and create a smaller, more profitable company.
– Copyright The Financial Times Limited 2019