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BoF Exclusive | Estée Lauder Buys Becca Cosmetics

The deal, in the realm of $200 million, is the latest in a string of indie-brand acquisitions made by the beauty conglomerate.
Becca Cosmetics | Source: Courtesy
By
  • Lauren Sherman

NEW YORK, United States – The Estée Lauder Companies, Inc., the American beauty conglomerate that owns brands like Clinique, Bobbi Brown and MAC, has signed an agreement to acquire Becca Cosmetics from beauty incubator Luxury Brand Partners.

The terms of the deal were not disclosed, although industry sources suggest the conglomerate paid around $200 million for the business, which was founded in 2001 and is set to generate approximately $80 million in revenue in 2016.

“We believe Becca Cosmetics is ready to be leveraged further,” The Estée Lauder Companies president and chief executive Fabrizio Freda told BoF. “We are well positioned to add amazing resources in social media, product development, research and development, and access to suppliers around the world. The other big resource is the access to global markets.”

The global reach of The Estée Lauder Companies — which netted $2.2 billion in the Asia-Pacific region in its last fiscal year — is key to exploiting the potential of Becca Cosmetics, said the company. While 55 percent of Becca’s customers identify as non-Caucasian, the majority live in the North America and Europe, suggesting an opportunity for global growth.

The Estée Lauder Companies was not the first to court Becca. Earlier this year, the brand hired investment bank Piper Jaffray to find the right buyer and multiple parties showed interest, including investment firm Castanea Partners, which came extremely close to acquiring the brand over the summer. However, when that deal fell through, The Estée Lauder Companies stepped in, in turn allowing Becca to forgo the private-equity stage of its business development.

Financial companies UBS and PricewaterhouseCoopers and law firm Lowenstein Sandler LLP advised The Estée Lauder Companies in the transaction, while Becca worked with Piper Jaffray and Greenberg Traurig LLP.

The brand's executive team, led by president and chief executive Robert DeBaker, and chief financial officer/chief operating officer James MacPherson, will remain with the company. Becca will be added to the portfolio of executive group president John Demsey, who oversees a wide range of lines, from Tom Ford Beauty to Bumble and Bumble.

Becca is the latest in a string of small-to-mid-size brand acquisitions made by The Estée Lauder Companies, including By Kilian, Glamglow, Frederic Malle, Le Labo and Rodin Olio Lusso. However, Becca is the first colour cosmetics company to join the group since it acquired studio makeup line Smashbox in 2010.

They actually want to learn from us what has made us special, and how they can help to protect that.

The move appears to be well timed, as colour cosmetics have been a bright spot for the Estée Lauder Companies in recent financial reports. In the group's 2016 fiscal year, which ended in June 30, net sales of makeup were $4.7 billion, up 9 percent from $4.3 billion in 2015. Skincare sales were essentially flat during the same period, amounting to $4.5 billion, attributed to currency fluctuations in Asia in particular.

But Becca’s strength is not in what might traditionally be thought of as colour cosmetics — lipstick, blush, eyeshadow — but in complexion and luminosity: foundations, highlighters and concealers. The market for complexion products has soared with the rise of social media and, in particular, YouTube tutorials. (Google searches for the term “contouring” — an application technique that requires the sort of highlighters and foundations Becca sells — began to uptick in 2013, spiking in January 2016.)

“What has been majorly affected by social media’s success is makeup,” Freda said. “The millennial generation, even teenagers... the selfie generation... are always makeup ready. They take more photos of themselves in a week than their mothers do a year. This change in customer behavior has created an increase in the makeup category, but also importantly, a very high interest in how to use this makeup.”

In 2015, Becca launched a collaboration with YouTube star Jaclyn Hill, who the brand reached out to after a video she did featuring its “Shimmering Skin Perfector Pressed” more than tripled sales of the product in just one week, making it Becca’s number-one selling SKU on Sephora.com. The first product Hill and Becca created, the “Champagne Pop” highlighter, remains its most popular SKU overall .

“In the colour space, there really hadn’t been a brand that had gone after the complexion category in a fresh way,” said DeBaker. “It just kind of blossomed from this perfect moment of the right product at the right time on trend, with the best formula in the industry, matched with a really direct, engaged, one-to-one consumer discussion about why to highlight and how to highlight.”

But while Becca’s social media relevance was certainly a selling point for its multiple suitors, Freda is quick to emphasise that plenty more was considered before attempting to bring the brand into the Lauder fold. “There were three cornerstones of this acquisition,” he said, "the quality of the brand and of its products, the strategy of the brand, and the talent associated with the brand.”

DeBaker sees the development as an opportunity to capitalise on the resources a multi-billion-dollar company brings to the table. “We are loaded with ideas. To have their expertise supporting our product ideas is thrilling to me,” he said. “I’m also incredibly fired up about the ability to tap their global presence. International success is really difficult for a small brand to execute.”

The Estée Lauder Companies' commitment to maintaining unique identities for each of its businesses, under the watch of indie-brand trumpeter Demsey, was also a draw.

“The biggest fear for a brand like ours has is that you’re going to be swallowed up and you’re going to be part of the machine as opposed to doing your own thing,” DeBaker said. “From top to bottom — from Fabrizio to William and John — they have been so eager to share with us how they don’t want to corporatise us. They actually want to learn from us what has made us special, and how they can help to protect that.”

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