French cosmetics group L'Oréal struck a deal with Brazil's Natura & Co to buy Aesop, its Australian luxury brand, at an enterprise value of $2.53 billion (€2.32 billion).
The deal, L'Oréal's largest ever brand acquisition according to Dealogic data, expands the firm's presence in the luxury cosmetics market, while also providing the Brazilian company with some financial relief amid shrinking margins and heavy debt.
The acquisition is also the third largest on record of an Australian company in the consumer products sector, the data showed.
The brand, Natura's most profitable, operates almost 400 stores and posted sales of $537 million (€492.7 million) in 2022, up 21% in constant currency from a year earlier.
It also reported double-digit growth across all its regions last year, and said it had entered the Chinese market "with strong performance that exceeded expectations".
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'Massive Growth Potential'
"Aesop taps into all of today's ascending currents and L'Oréal will contribute to unleash its massive growth potential, notably in China and travel retail," L'Oréal CEO Nicolas Hieronimus said in a statement.
For Natura, the deal adds to a broader organisational shakeup that saw former chief executive and executive chairman Roberto Marques step down in June last year, handing over the reins to Fabio Barbosa.
The firm said the sale will support its financial deleverage and focus on strategic priorities such as the integration of its Latin America operations, 'as well as the further optimisation of Avon International's footprint and the continued improvement of The Body Shop's business'.
The acquisition, which is subject to regulatory approvals, will be paid in cash on its closing date, expected in the third quarter of 2023, Natura said.
Melbourne-headquartered Aesop was established in 1987 and offers skin, hair and body care products.
Analyst Viewpoint
Commenting on the deal, Barclays analyst Iain Simpson said, "Aesop adds c.1.2% to 2023e sales for L’Oréal, and the purchase price is less than six months of free cash flow. The near term impact on our EPS forecasts is minimal.
"What is more interesting to us is the potential impact this deal could have on L’Oréal’s future organic sales growth trajectory. "If hypothetically three years from now Aesop were to be a €1bn brand growing 40% (i.e. similar to where CeraVe is now) then it could add 1% onto L’Oréal’s organic sales growth."
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