In a $2.5 billion deal, beauty conglomerate L’Oréal has signed an agreement with Natura & Co to acquire Aēsop, an Australian luxury beauty brand best known for its hair, body and skin products. Aēsop has become a widely known brand within the luxury beauty space, thanks to its plant-based ingredients, minimalist aesthetic, sustainably-sourced formulas and ubiquitous hand soap.
“I am very excited to welcome Aēsop and its teams to the L’Oréal Groupe family,” said Nicolas Hieronimus, chief executive officer of L’Oréal Groupe, in a statement. “Aēsop is the epitome of avant-garde beauty, whose products are not only made with great care and exceptional attention to detail; they are a superb combination of urbanity, hedonism and undeniable luxury.”
The acquisition also happens to be the largest deal to date under Hieronimus, who stepped into the CEO role in May 2021. L’Oréal has recently acquired smaller brands, such as Californian skincare brand Youth To The People in late 2021 and American skincare brand Skinbetter Science in late 2022.
“We think this is a great deal for L’Oréal,” says Bernstein senior analyst Bruno Monteyne.. “The brand only recently expanded into China, which leaves plenty of headway for future growth.” In China, Aesop opened its first store and became available on the Tmall Luxury Pavilion last year. “Secondly, the acquisition confirms L’Oréal’s growth story. M&A is part of what makes L’Oréal a great company.”
According to Vogue Business, in 2016, L’Oréal bought IT Cosmetics in a $1.2 billion deal. In 2017, it bought the Cerave, AcneFree and Ambi skincare brands for $1.3 billion in cash. (That same year, it sold The Body Shop to Natura, which it had bought in 2006.) It also signed beauty license agreements with Valentino and Prada in 2018 and late 2019, respectively. The Aesop deal comes as the market gets more competitive than ever: Estée Lauder Companies bought Tom Ford for $2.3 billion last year, and Kering, LVMH and Hermès are all upping their beauty games.
According to Mario Ortelli, managing director of Ortelli & Co, “I expect a lot of acquisition in the beauty space. Beauty is a fragmented sector in which there are many possible acquisition targets, especially of small-mid size. As luxury brands increasingly bring back their beauty businesses in-house, the opportunity to sign license agreements are fewer. Therefore beauty groups are very keen to acquire brands when the opportunity arises.”
But what makes Aesop worth L’Oréal’s biggest buy in the company’s history? Part of its appeal is its positioning in the clean beauty space — the brand uses vegan and organic ingredients only and is cruelty-free. Chinese customers, in particular, like its gender-neutral premium products that appeal to a broad age range. Monteyne also adds that because Aesop sits in the premium beauty space, it’s a better prospect for direct sales on top of its 400 retail outlets. This also means L’Oréal will have to incorporate and manage a brand with a vast retail network.
Pierre Tegnér, equity analyst at financial services group ODDO BHF, says there are plenty of opportunities for Aesop, including the synergies and the Chinese market. But there are also challenges: “L’Oréal will have to make sure that Aesop complements the portfolio and doesn’t cannibalise its apothecary Kiehl’s brand [one of the billionaire brands within the L’Oréal Luxe division], in terms of product and image. They have a similar positioning in the premium segment. The other challenge will be to preserve the brand’s confidential and sophisticated vibe that made its success while boosting growth.”
Aesop’s sales were $537 million in 2022. “We have great confidence that Aesop will join the L’Oréal Luxe billionaire brands club and therefore contribute significantly to the growth of the division in the years to come,” L’Oréal Luxe president Cyril Chapuy stated. Tegnér thinks the $1 billion mark can be reached within five to seven years, with a $250 million business in China within that timeframe.
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