A brand new period of L’Occitane is upon us.
The corporate — which has been listed on the Hong Kong inventory alternate since 2010 — introduced a privatisation provide on April 29, with Blackstone and Goldman Sachs offering funding for a $1.8 billion take-private transaction that values the corporate at $6.4 billion.
The provide follows months of hypothesis: In August 2023, reviews surfaced that Reinold Geiger, the corporate’s chair and majority shareholder, was contemplating a buyout with shares being quickly halted from buying and selling because of this – on saying these plans have been shelved, its share worth dropped 30 p.c. Shares have been halted indefinitely on Apr. 9, following a Bloomberg report that privatisation was once more imminent.
Usually, firms spend years getting ready for an preliminary public providing, as changing into a public firm means punching in a heavier weight class. However L’Occitane’s arms have change into tied with restricted development alternatives. In a press release, Geiger mentioned, “The transaction we’re launching immediately will allow us to deal with rebuilding the inspiration for the long-term sustainable development of our firm.” Privatising now could be indicative of a special type of rising pains.
“Administration is a bit fed up with their low valuation within the Hong Kong market,” mentioned Ivan Su, a senior fairness analyst at funding agency Morningstar.
The Hong Kong inventory alternate was seen as a profitable possibility for international firms within the early 2010s when the Chinese language client was quickly gaining wealth — and an urge for food for luxurious items to go along with it. However the market hasn’t lived as much as expectations in the long run. Corporations like Samsonite, Prada and L’Occitane are what Erwan Rambourg, a managing director in HSBC’s client apply, known as “orphan shares.” The previous two firms have introduced plans to get out of the alternate or add a secondary itemizing some other place.
Magnificence conglomerates listed on the New York or Paris inventory exchanges usually get pleasure from increased valuations — in Hong Kong, the usual worth to earnings a number of is round 9, mentioned Su, whereas within the US, it’s usually increased than 20. Magnificence firms like Estée Lauder and L’Oréal get pleasure from PE multiples round 30 to 50, whereas L’Occitane’s has traditionally been between within the excessive teenagers to low twenties, although the information of a potential takeover brought about its share worth to skyrocket earlier than buying and selling was halted. Geiger’s provide of $34 HKD ($4.30) a share is a 61 p.c premium on its common closing worth.
“[Geiger] should suppose, “I’ve an important firm with good development and good margins,” and relates extra to a [Estée] Lauder or Beiersdorf … In some instances, [L’Occitane] has increased margins and higher development,” mentioned Rambourg.
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Peer Strain
L’Occitane’s points transcend its buying and selling locale. The corporate’s strategic plans are more and more at odds with shareholders’ expectation for quarterly income will increase and dividends. Su mentioned the corporate would possibly merely want to rid itself of those exterior controls.
Public traders haven’t taken kindly to its development plans. In June 2023, the corporate introduced an funding of €100 million ($106 million) into advertising and marketing efforts as a way to revive a few of its core manufacturers like L’Occitane en Provence and Elemis. Its inventory worth slid some 15 p.c. Analysts usually view giant advertising and marketing expenditures as a black gap, mentioned Invoice Detwiler, co-founder and managing accomplice of funding agency Fernbrook, particularly if efforts are directed to platforms like Fb and Instagram, which each provide unpredictable returns on funding.
The opposite key distinction L’Occitane has is its unusually giant retailer footprint, primarily for its core model L’Occitane en Provence. The physique care model operates greater than 2,000 storefronts worldwide. Most different magnificence conglomerates rely closely on wholesale, promoting their manufacturers by means of the likes of Sephora or in department shops.
“You’re paying hire and paying employees like Louis Vuitton, however you’re not promoting a $1,500 purse; you’re promoting $29 shea butter hand cream,” mentioned Rambourg, including that the amount wanted to show a revenue is gigantic. “Promoting magnificence [in standalone] retail has by no means been a straightforward process.”
L’Occitane’s management could want to scale back the variety of shops to enhance margins, take away poorer-performing merchandise, and even cull manufacturers. Earlier this month, it shed skincare model Grown Alchemist, promoting the bulk share to outgoing chief government, André Hoffman.
The Measurement of the Prize
L’Occitane does have development potential. Not like a few of its friends which have opted for a selective mergers and acquisition technique – Estée Lauder prefers premium manufacturers, L’Oréal has centered currently on dermatologist-led skincare and status fragrance — L’Occitane’s method has been scattergun. Whereas it’s had a slant in the direction of manufacturers with pure credentials, its portfolio is blended throughout skincare, cosmetics and hair care. Some acquisitions like Sol de Janiero, which it acquired in 2021, have offered stellar development. Within the 9 months main as much as 31 Dec. 2023, gross sales grew by 184 p.c, led by viral merchandise and wild reputation with Gen-Z and Gen Alpha. The model is predicted to succeed in $1 billion in gross sales within the full fiscal yr.
However not all new acquisitions have been hits. Different traces like Melvita and Erborian, which it teams collectively, are a small a part of its total gross sales.
As a personal firm, it may make unencumbered selections with regards to M&A; whether or not that’s divesting manufacturers or buying others to steadiness out Sol de Janiero’s astronomical development. Rambourg described Sol de Janiero as a “homerun,” however its future as a frontrunner in physique care and perfume is threatened by extra manufacturers climbing into these classes. Any future softness within the enchantment of influencer advertising and marketing may additionally undercut its success.
A Non-public Affair
L’Occitane’s possession profile is considerably irregular for a public firm. Greater than 70 p.c of it’s owned by Geiger; the households on the helm of Estée Lauder and L’Oréal personal 38 p.c and 35 p.c, respectively. Its distinctive profile may be a part of what makes it interesting to a personal fairness purchaser, mentioned Detwiler.
“Non-public fairness corporations love partnering with primarily family-owned companies, or households not getting any profit from being public,” Detwiler mentioned. Linking up with a agency like Blackstone makes for a superb match, because it has international attain and former success with magnificence and private care. The fund owns sunscreen line Supergoop and scientific skincare line Zo Pores and skin Well being.
Different corporations have made the change. In 2008, after 24 years on the Parisian inventory market, Clarins reprivatised to change into a totally family-owned firm once more. Since then, it’s expanded drastically: including make-up, males’s and luxurious traces, in addition to opening directly-operated shops, a glitzy workplace tower close to Paris and a analysis and growth centre in Shanghai. It’s additionally made investments in skincare line Pai and the clear make-up model Ilia. (Clarins’ instance could also be prime of thoughts, because the group was once an investor in L’Occitane from 2001 to 2011.)
The street forward for L’Occitane possible requires some course-correction. In an effort to revive its core properties, strategic shifts are wanted, which may embrace discontinuing product traces, investing in new product growth and extra advertising and marketing. Whereas L’Occitane en Provence is making nice inroads in China and has development potential in Asia, it’s seen as “a bit dusty” in Europe, mentioned Rambourg. With round $156 million in money, the corporate may wish a capital injection to attain these targets.
Extra rockstar manufacturers are wanted to assist scale back reliance on Sol de Janiero, and future-proof the corporate towards shifts in client tastes and preferences. As Detwiler famous, non-public fairness corporations are at all times curious about firms that help additional acquisitions.
Even with a proposal on the desk, no matter L’Occitane’s final technique is, it possible received’t unfold quickly. ‘[Geiger] isn’t about getting a fast return. He’s obsessed about doing the precise factor for the long run,” mentioned Rambourg.
