Breakingviews: Make-up artist’s star power tested by $1 bln tag

Cosmetics mergers and acquisitions appear to have survived Covid-19. Spanish perfume and fashion company Puig is close to paying more than $1 billion (800 million pounds) for Charlotte Tilbury’s company, Bloomberg reported on Tuesday. The British make-up artist has achieved stellar sales growth with celebrity endorsements and a cult following. But improving the brand’s profitability will require a delicate balancing act.

The brand has expanded rapidly since Tilbury launched it in 2013. In 2018, the latest year for which accounts are available, revenue grew 45% to 145 million pounds. Since then the business has expanded into Space NK and Sephora stores, launched its own e-commerce platform, and joined Alibaba’s Chinese Tmall portal. Assuming the same top line growth rate, revenue last year would have been 211 million pounds, implying a valuation of less than 4 times sales. Estee Lauder is valued at around 5 times sales, while Coty paid a multiple of around 7 times when it bought half of Kylie Jenner’s beauty business last year.

The coronavirus probably weighed on the valuation: There are fewer reasons to get make up these days. Even as lockdowns are lifted, consumer spending will be under pressure. Puig’s biggest challenge, however, will be boosting profitability. Its target’s administrative costs were a hefty 105 million pounds in 2018, implying that sales growth was fuelled by a large marketing budget. The business also looks top-heavy: more than a quarter of its 800-odd staff were managers.

Tilbury’s distinctive pink and bronze palettes and Magic Cream moisturiser have won over beauty editors and supermodels, like Tilbury’s friend Kate Moss. Keeping entrepreneurs can be tricky though: Jil Sander quit her eponymous label months after selling it to Prada.

Family-owned Puig, which owns past-their-prime brands like Jean Paul Gaultier and fragrances, including the licence to sell Antonio Banderas’ and Shakira’s perfume, is hardly at the cutting edge of prestige beauty. That will make it all the more important to hang on to Tilbury’s expertise, creative vision and name, while forcing through potentially painful financial changes. Both sides may struggle with the makeover.

_____________________________________________________________________

Request a free trial of Breakingviews here