L’Oreal’s chief took a liking to Aesop, a luxury soap manufacturer

Nicolas Hieronimus, a L’Oreal Lifer, was trained in the French beauty brand’s slow-and steady dealmaking tradition. He was appointed chief executive in 2002, but he continued to fight for Aesop’s survival two years later.

According to sources familiar with the contest, the 59-year old executive won the $2.5bn purchase from Natura , the prized Australian luxury skin care brand — L’Oreal’s largest acquisition. He outbid luxury giants LVMH and premium skincare brands Shiseido and Clarins. Permira, a Chinese private equity firm, and Primavera in China also bid for the company.

Jean-Paul Agon, L’Oreal chair — another man from the company — helped Hieronimus to court Natura. Natura did not want to sell its highly profitable marque. It was important that both sides knew each other since the purchase of The Body Shop by the French group from Sao Paulo in 2017.

A source close to the company said that “Nicolas was the one who carried the project and fought for it.” “This deal shows that L’Oreal wants its market dominance to continue and its power to show it.”

Hieronimus started his career at L’Oreal in 1988. He plans to draw on the eight-year experience he had as the luxury unit manager of the group. During that time, he bought smaller, but still highly regarded brands like Urban Decay or Valentino’s beauty license.

L’Oreal, the world’s largest cosmetics company by sales, is betting that it can leverage its size to boost its latest purchase to double or even triple its sales within a few year — a strategy it has used on other acquisitions like CeraVe and Kiehl’s.

When considering potential acquisitions, there are two things that should be considered: future organic growth potential as well as complementarity to the portfolio. Cyril Chapuy (president of L’Oreal’s luxury segment) said that Aesop does more than fulfill both.

“Our goal is to grow the brand so that it joins the billionaire club in near future.” This would result in a doubling of sales.Aesop is well-known for its premium soaps (a 500ml bottle retails for more than £30) and distinctively scented skincare products. Younger consumers love Aesop’s minimalist aesthetic and clean, vegan beauty philosophy. Its unique dark glass bottles, monochrome packaging, and concept-led store design have made it stand out among other brands.

Although the price tag for soaps and company may seem high, analysts believe that Aesop’s position at the intersection between luxury and clean beauty — two segments of the industry’s fastest growing — and its potential growth make it an attractive acquisition for L’Oreal.

“The multiple that you pay in the consumer goods industry is heavily dependent on how much growth the company has achieved.” Bruno Monteyne, analyst at AllianceBernstein, stated that Aesop is growing at 20% plus and three times faster than any other sector company. Its gross margin of about 87% is even higher than L’Oreal’s 72 percent.

Aesop’s retail presence grew from 60 to 400 stores under the ownership of Natura. Revenues grew tenfold to $537mn by 2022.

Monteyne stated that the brand still has “material expansion potential”, as it is a premium beauty brand that has not yet penetrated China. China is where L’Oreal has had a strong presence in the 1990s. L’Oreal could also benefit from Aesop’s recent launch of a fragrance line.Struggling with heavy debts after an expansion push, Natura had initially favoured retaining a stake in Aesop, one of its strongest assets, before changing its mind helped by Hieronimus’ lobbying, according to people briefed on the discussions.

L’Oreal was founded in 1909 and has a history of buying small brands, then using the group’s distribution and marketing power to grow them. In 2017, it bought dermatologist-endorsed skincare brand CeraVe for $1.3bn and turned it into a phenomenon among younger consumers through savvy social media marketing.

After becoming viral on TikTok 2021, CeraVe was so popular that stock sold out at major US retailers like Walgreens and Target. CeraVe sales grew tenfold in five years to surpass EUR1bn. This group now includes 11 “billionaire brands”, such as Lancome, Garnier, and Yves Saint Laurent.

After several years of high sales, L’Oreal is able to make deals. L’Oreal’s performance was not affected by concerns about the pandemic or China’s closure during its zero-Covid policies. Inflation and China’s shutdown did little to deter beauty consumers. L’Oreal shares have risen by 25% since the beginning of the year, and they are near their all-time highs.

Before the Aesop deal, the company had $2.6bn in net cash at the end 2022. It has stated that it is keen to make deals to increase its presence in rapidly-growing markets such as India and “active cosmetics”, which are both skincare.

L’Oreal’s already large company means that Aesop can only increase group sales by 1% annually. This is not a transformative bet. L’Oreal’s culture includes M&A, but the company is also known for being meticulous and cautious.

“The L’Oreal team are very meticulous and they want to do everything right when it comes to integrating Aesop. According to a source close to the company, they will continue doing small and medium deals at the next stage but not large deals until they complete the Aesop project.”

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