Estee Lauder to Buy Makeup Brand Too Faced for $1.45 Billion

Industry: Other 2016-11-15

Estee Lauder Cos., making the biggest acquisition in its history, agreed to buy cosmetics company Too Faced for about $1.45 billion, scooping up a makeup brand that’s popular with millennials.

Too Faced, which is expected to top $270 million in net sales this year, will help Estee Lauder expand in e-commerce and specialty stores, according to a statement Monday. The purchase is expected to be completed next month.

The deal, which would dwarf Estee Lauder’s previous acquisitions, extends a run of industry mergers this year. Coty Inc. acquired more than 40 of Procter & Gamble Co.’s beauty brands last month in a transaction worth $12.5 billion. And Revlon Inc. agreed to acquire Elizabeth Arden Inc. in June for about $419 million.

Too Faced, started by Jerrod Blandino and Jeremy Johnson, would let Estee Lauder reach a younger shopper. The Los Angeles-based brand has 7.3 million Instagram followers and sells makeup for the eyes, face and lips in quirky packaging. Its best-selling mascara is called “Better Than Sex.”

“We like the acquisition,” Jason Gere, an analyst at KeyBanc Capital Markets Inc., said in a report. “Estee Lauder has a demonstrated history of success in driving the scale of smaller, high-growth brands on its global platform.”

Estee Lauder, based in New York, could use a boost after delivering a disappointing forecast to investors this month.

Estee Lauder suffered its worst stock rout in more than a year on Nov. 2 after saying that earnings would be $1.10 to $1.15 a share this quarter. Analysts had estimated $1.31 on average. Its shares are down 12 percent this year.

Department-Store Slump

Chief Executive Officer Fabrizio Freda said that declining traffic at mid-tier U.S. department stores contributed to the slowdown. That has increased the urgency of owning brands that sell via the internet and other channels — Too Faced’s strength. The acquisition target has seen sales grow more than 70 percent this year and 60 percent on a compound annual basis over the past three years, Estee Lauder said.

“We see a terrific opportunity for additional value creation through expansion in new and existing markets both in the U.S. and internationally, as well as in travel retail globally,” Freda said in Monday’s statement.

Too Faced currently gets about 83 percent of its sales from North America, meaning there’s room for growth overseas.

Cosmetics companies have been seeking new sales channels as the department-store makeup counter loses its allure. L’Oreal SA, for instance, agreed in July to spend $1.2 billion to buy IT Cosmetics. That business sells through QVC and the Shopping Channel, as well as retailers such as Ulta and Sephora.