Who Will Buy Charlotte Tilbury?

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NEW YORK, United States — Charlotte Tilbury accomplished the seemingly impossible in 2019: it grew.

Last year was a bad one for prestige cosmetics, with just two of the 20 biggest labels in the US seeing growth in the first half of the year, according to data from NPD Group. Charlotte Tilbury was one of them. For the first quarter of 2020, makeup was down 22 percent, year over year.

No wonder then that the brand is widely expected to be acquired by a strategic any day now. The pandemic has slammed consumer spending on everything aside from essentials. Any brand that has a proven ability to hold onto customers in a downturn can practically name its own price these days.

Charlotte Tilbury was already a top acquisition target even before Covid-19. The seven-year-old line is one of the largest “indie” brands yet to be scooped up by a multi-billion-dollar conglomerate. For beauty giants, the hope is that the brand could help give their existing colour businesses a much-needed lift.

Estée Lauder was rumoured to be circling the brand as far back as spring 2019. Last month, talks of a sale were reignited — and said to be in late stages — even though the coronavirus outbreak has ravaged the apparel industry and the retailers where many beauty brands are sold. Lauder was said to be out, and Unilever and Puig are now the rumoured frontrunners willing to pay Charlotte Tilbury’s reportedly $1 billion-plus price tag. Charlotte Tilbury and Puig did not respond to requests for comment. Unilever and Estée Lauder declined to comment.

The initial reaction to the makeup brand's unicorn-sized price was met with many a furrowed brow (due in part to lack of access to Botox right now, but also because it's a lot of money during a time of economic uncertainty). With retailers hanging on by a thread — Neiman Marcus filed for bankruptcy Thursday with others sure to follow — the idea of shelling out that much for a makeup brand right now seems risky.

But is it?

Founded by the celebrity makeup artist of the same name, Charlotte Tilbury markets “Hollywood glamour,” with signature rose gold packaging that feels elevated but not gaudy. Tilbury sells colour cosmetics, but her brand is more approachable than other artist-founded lines — think makeup one might put on for a (virtual) “date night,” not the dramatic contouring and brows one might see on Anastasia Beverly Hills or Huda Beauty’s Instagram feed.

The brand’s “Pillow Talk,” a pink-nude lip liner that “flatters all skin tones,” became so popular that Tilbury built an entire franchise around the shade. There is now “Pillow Talk” lip colour (matte, glossy, liquid, collagen-infused and even a sparkly “Diamond” version), eyeshadow palettes, eyeliner, blush, and more. It’s Tilbury’s version of Nars' “Orgasm.” The desired effect is just more red carpet than post-sex glow.

All of this has helped the line dodge the challenges faced by the rest of the sector. Plus, Tilbury herself has a magnetic public personality, often appearing in tutorial videos or in photos with celebrity pals like Jennifer Aniston.

The two most likely buyers have their own motives for buying the brand. Puig, a Spanish company, has little track record in makeup and is known mostly for its fragrance portfolio, where it holds the licenses to Prada, Carolina Herrera, Jean Paul Gaultier and Paco Rabanne brands.

Buyers who have cash are able to set the tone.

Puig would be making a “really bold move” if it spends $1 billion for Tilbury, a banker who has worked on major beauty deals said.

Unilever has been trying to establish itself as a prestige player in cosmetics, a space it entered with the 2017 acquisition of Hourglass. Last year, the company bought skin-care line Tatcha.

Unilever is said to be conserving cash now, but it also needs a sexy colour label. Hourglass is a smaller business than Charlotte Tilbury, with more subdued branding, but what's missing is a younger, more provocative makeup line like Too Faced or Urban Decay.

Assuming Tilbury is sold, it could be the last major beauty deal for a while. Other indies hoping to sell to a strategic face the daunting idea of negotiating and conducting due diligence via Zoom, in the middle of a severe recession. Setting a price would be difficult.

“Investors value businesses off of current year and forward years’ earnings and sales,” said Rich Gersten, founder of True Beauty Capital, a private equity firm he formed earlier this year. Previously, he was a partner at Tengram Capital Partners, an investor in Nest Fragrances and Lime Crime. “[The] forward year is impossible to forecast.”

The frothy multiples that defined M&A deals in years past are likely gone. What was acceptable pre-pandemic – Pat McGrath Labs 2018 valuation of over $1 billion when the brand was on track to do over $60 million in sales – won't fly.

"Buyers who have cash are able to set the tone,” said Bahige El-Rayes, a partner at consulting firm Kearney’s consumer practice. To him, a sluggish economy does not necessarily equate to a slowdown of beauty acquisitions — it means buyers will get “decent-sized assets” at a discount.

Till Dudler, managing director of Accenture’s consumer goods and services practice, expects demand in beauty technology — software and hardware — to grow even as the economy lags.

Solutions that optimise the backend, as well as consumer-facing features that enhance (or in the case of coronavirus, replace) the in-store shopping experience, are in high demand. Artificial intelligence and augmented reality could help retailers sell more makeup to the customers who are afraid to go into stores. With more people at home, there is also an appetite for more tools and in-home treatments.

“It doesn’t mean I wouldn’t invest in makeup,” Gersten added. “The valuation just would be different.”

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