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BFD Expert Voices - Retail Deals

BFD Expert Voices

Function of Beauty wants to democratize personalized beauty by using its proprietary algorithm to create customized products at scale.

Driving the news: With beauty manufacturing set to become an M&A hotspot, Function of Beauty has been honing its in-house capacity since its inception in 2015, Kimberly writes.

What they're saying: "The way you accomplish (beauty personalization) is through automation, through highly innovative equipment that we've custom-built in-house," says CEO Alexandra Papazian.

The company has its own labs and its own factory, but, she adds, "fundamentally, the company is based on a digital algorithm that's been developed right at the beginning."

Everything is fully automated due to the "incredible innovation on the algorithm front," she says.

Flashback: Function of Beauty received a $150 million strategic minority investment with L Catterton in December 2020.

CircleUp and GGV also invested in the round.

What's next: The company hopes to implement more artificial intelligence into processes to further improve personalization.

"We sort of already have AI in what we do, but we will push this to the next level," Papazian says.

"Being a digital company, we're very focused on that."

Zoom in: The company recently launched a new product line at Sephora called the Function of Beauty Pro, a professional hair care line developed with stylists and its R&D team to address bond-building and hair repair.

Function of Beauty has been at Target since 2020, serving up basic, everyday care needs like shampoo and conditioner, as well as a styling and treatment range.

Zoom out: Papazian says the company will continue to focus on its direct-to-consumer channel while also striking exclusive partnerships.

"Exclusivity allows you to be super focused, and it allows you to basically invest in one retailer consistently over time and build something very big," she says.

"When it comes to hair care, mass is very big. It's the largest category. It's way bigger than prestige," she says.

"But prestige has seen tremendous growth, and there's an enormous appetite from a consumer standpoint to care for their hair," she adds.

1 big thing: Function of Beauty wants to scale personalization

Illustration of mechanical robot arms holding a makeup brush, lipstick, and a mascara wand.

After a tepid first half of the year, retail M&A is set to accelerate, with apparel in dealmakers' crosshairs.

Why it's the BFD: Private equity firm Consortium Brand Partners has acquired Reese Witherspoon's fashion and lifestyle brand, Draper James, Kimberly has learned.

Catch up quick: The number of deals in consumer staples rose 2.6%, in retail over the prior year, increased 17.4% but fell 7% for consumer products and services, Refinitiv data shows.

Meanwhile, deal value climbed in consumer staples and products and services but slipped in retail.

What's happening: "There's just been an outlook [that we're] not really certain how consumer discretionary spending is going to kind of evolve over the next 12 to 24 months," Baird's consumer and retail managing director Matthew Tingler says.

Yes, but: Retail has seen a resurgence in high-end apparel dealmaking, with Tapestry's $8.5 billion dollar acquisition of rival Capri and Advent's $1 billion acquisition of Zimmerman.

Alongside the demand for luxury, brand-licensing firms will continue to drive activity, Solomon Partners co-head of consumer retail Cathy Leonhardt tells Axios Pro at a virtual event.

She cites Authentic (with a string of acquisitions in Vince Holdings, Hunter, and Rockport of late) and WHP (which acquired menswear brand Bonobos and took a majority stake in Isaac Mizrahi this year).

Baird's Tingler notes workwear as another bright spot in apparel, citing its "repeat-use, replenishment nature."

Plus, Morgan Stanley's global head of consumer retail investment banking Kristen Rossi tells Axios strategic appetite is increasing for "better-for-you" food categories.

"There's a tremendous amount of interest in that," Rossi says.

The big picture: The leveraged finance market is strengthening, boding well for increased private equity activity, the insiders say.

"I think some of the conditions are improving to kind of support greater deal velocity and private-equity selling companies," Tingler says.

Between the lines: While debt has become less expensive, "there is this paradigm of PE that is going to be a little bit different for the foreseeable future where they are going to write bigger equity checks," KPMG consumer & retail partner Frank Petraglia says.

What we're watching: New merger guidelines from antitrust regulators could hit the sector hard, with large-scale tie-ups like the Albertsons-Kroger grocery merger under the microscope.

"There haven't been changes in the merger rules for many, many years. This is a new thing. It's just going to take longer and be more expensive for deals to get done," Leonhardt says.

"You have to be very sensitive to what looks competitive, anti-competitive and presenting the information carefully, not sharing information."

2. The BFD: Retail M&A to spotlight apparel in 2024

Illustration of a grid consisting of colorful rectangles, the back of a one hundred dollar bill, and photographs of a hanger, a laundry instruction tag, and a hand holding shopping bags.

Dealmakers see a rosier M&A outlook for Q4 and beyond as corporate buyers prepare to pounce and as piles of cash burn holes in private equity pockets.

Driving the news: Fueling these hopes are the surprising number of big-ticket summer deals, improved business confidence, and easier bank lending, Axios' Claire Rychlewski and Michael Flaherty write.

What's happening: M&A markets were dead quiet in the first half of the year, but deal activity came to life in the normally quiet summer months, across multiple sectors. Significant announcements since July 1 include...

Pipeline operator Energy Transfer agreed to acquire rival Crestwood for $7.1 billion.

Private equity firm GTCR agreed to buy a 55% stake in fintech Worldpay, which included a $1.25 billion check for Worldpay to pursue more deals.

And last month, fashion conglomerate Tapestry struck a deal to buy competitor Capri Holdings for $8.5 billion.

State of play: These stirrings have bankers getting back to work.

Brian Haufrect, co-head of Goldman Sachs' Americas M&A, says his team has been able to "relaunch processes and dialogue that had previously been put on hold."

The IPO market rebound is also helping to kickstart dual track discussions from sellers, says Dan Grabos, co-head of Barclays' Americas M&A team.

"In virtually every private equity IPO exit situation that we've talked about with clients, they want to evaluate a dual track M&A and IPO," Grabos says.

Meanwhile, Haufrect says he expects to see corporate spin-offs increase as strategics continue to assess their portfolios.

By the numbers: Through Aug. 31, U.S. M&A was down 26.7% to $981 billion, according to LSEG, the lowest year-t0-date value in a decade, excluding 2020. The number of deals notched up through that date totaled 12,743, an 8.4% drop.

The trend line is ticking up. U.S. M&A value was down 40% as of June 30.

What they're saying: Haufrect and Grabos zeroed in on one sector to watch: energy transition.

"A lot of clients are evaluating the appropriate pace of transition from fossil fuels to a lower carbon business model given the practicalities in the market, and many are looking to investments and M&A to facilitate that transition," Grabos says.

M&A interest in the energy sector is tracking close to venture capital dollars, as funds are expected to invest more into carbon and emissions-tech startups this year than in 2022.

With significant capital now invested in the sector, Haufrect says he expects M&A to play a larger role.

Yes, but: A stricter antitrust regime and new merger guidelines are casting a shadow over the deals landscape.

Both Haufrect and Grabos say potential antitrust concerns loom when vetting prospective buyers.

"People are spending more time thinking about regulatory risks and thinking about it up front," Haufrect says.

The bottom line: Dealmakers are more than ready for an M&A boom — but wishing doesn't make it so.

3. U.S. M&A sees uptick 

Walgreens Boots Alliance took advantage of the Friday news dump before the Labor Day weekend to reveal that Rosalind Brewer stepped down from her role as CEO and a board director as of Aug. 31.

Board member Ginger Graham will serve as interim CEO until a permanent successor is found, our colleague Hope King writes.

Brewer had deep retail experience, but Walgreens now wants "a successor with deep healthcare experience."

As our colleague Tina Reed points out, Brewer was one of only a few Black women CEOs of Fortune 500 companies.

Victory Park Capital is struggling to sell Perch, a Boston-based Amazon marketplace rollup platform that raised $775 million in 2021, per Bloomberg.

The clock has struck midnight for many of these Amazon aggregators, which have turned into rotting pumpkins after a couple of years of pandemic-fueled prancing, our colleague Dan Primack writes.

One of the more obvious errors committed by aggregators was buying up small e-commerce brands at market peak. Another was their use of debt by leveraging venture capital rounds to bulk up their buying capacity, Primack adds.

There could be more fallout in the retail category. New York-based Benitago last week filed for Chapter 11 bankruptcy protection despite having raised $325 million in a 2021 Series A round that included equity and debt.

L'Occitane, the Hong Kong-listed skin care retailer, said yesterday its major shareholder had nixed a deal to take the company private, per Reuters.

The beauty concern confirmed to the market last month that there was a potential buyout offer from chairman Reinold Geiger's investment holding company L'Occitane Groupe at no less than HK $26 per share.

Reality television and social media star Kylie Jenner has explored buying back for $600 million the 51% stake she sold to beauty group Coty about three years ago, per Bloomberg.

There have been disagreements over price and valuation, however.

Jenner's half-sister and fellow reality television star, Kim Kardashian, is also in talks to buy back the 20% in her skin care line SKKN she sold to Coty for $200 million, also per Bloomberg.

revealed that Rosalind Brewer had stepped down

4. Retail therapy

illustration of a white plastic shopping bag with the words "retail therapy" printed on it 

• Panoramic, a British private equity and debt firm focused on SMEs, raised £100m for its third fund. www.pgequity.com

• Sound Ventures, the VC firm co-founded by Ashton Kutcher and Guy Oseary, is raising its fourth fund, per an SEC filing.

• Alvarez & Marsal Capital, a Connecticut-based PE firm, is opening an office in West Palm Beach, Florida. https://axios.link/3qYsbpt

🍔 Trustar Capital (fka CITIC Capital) plans to raise a continuation fund that would help it sell down its position in McDonald's China, per Reuters. https://axios.link/45QeMhZ

• Butternut Box, a London-based fresh dog food company, raised £280m from General Atlantic and insider L Catterton. https://axios.link/3Pp2w2I

• Lavoie, an e-scooter maker owned by McLaren Applied, bought VanMoof, the bankrupt Dutch e-bike brand that had raised over $200m from firms like Norwest Venture Partners, Felix Capital, Balderton Capital and Hillhouse Capital. https://axios.link/3EqZEvP

• Mediafly, a Chicago-based revenue enablement startup, raised $80m. BIP Ventures led, and was joined by Boathouse Capital. https://axios.link/44uGr75

🌎 Sortera, a Markle, Ind.-based materials sorting company, raised $30.5m in Series C funding. RA Capital Management-Planetary Health led, and was joined by T. Rowe Price, Mineral Resources Group, Macquarie GIG Energy Transition Solutions, Assembly Ventures, Breakthrough Energy Ventures and Chrysalix. www.sorteraalloys.com

• Rewaa, a Saudi-based retail technology company, raised $27m in Series A funding led by Wa'ed Ventures. https://axios.link/3P2C9yj

🚑 Moxie, a medspa operations platform, raised $15.7m co-led by SignalFire and Boulton & Watt. www.joinmoxie.com

• Praso, a Brazilian food purchasing platform for small retailers, raised $9.3m in Series A funding. Valor Capital Group and NFX co-led, and were joined by insiders Base Partners, Formus Capital, Iporanga Ventures and Endeavor Scale-Up. https://axios.link/3QZjINq

• Markato, a Hong Kong-based cross-border marketplace for independent brands, raised $5m in seed funding led by Lightspeed Venture Partners. https://axios.link/44ttMS2

• Starcart, a Finnish online shopping platform, raised €3.5m in seed funding. Inventure led, and was joined by Business Finland. https://axios.link/3OWa77v

• Refiberd, a Cupertino, Calif.-based textile recycling company, raised $3.4m in seed funding. https://axios.link/47QIXI1

• Sycamore Partners has merged apparel brands Ann Taylor, Loft and Talbots under a new umbrella company called KnitWell Group.

• GTCR acquired Once For All, a Paris-based provider of compliance and supply chain management software, from Warburg Pincus. www.onceforall.com

• ModuGo, an Ann Arbor, Mich.-based portfolio company of Kinderhook Industries, acquired Kelcon, a West Springfield, Mass.-based provider of portable storage containers. www.modugo.com

• E.L.F. Beauty (NYSE: ELF) agreed to buy skin care brand Naturium for $355 million in cash and stock. https://axios.link/3OZL97c

🚑 L Catterton agreed to buy nutritional supplements maker Thorne HealthTech (Nasdaq: THRN), for $680m, or $10.20 per share. https://axios.link/3Pf38I2

• Marlin Equity Partners acquired ShipServ, a London-based maritime software procurement platform that will be merged with existing Marlin portfolio company Marcura. www.shipserv.com

• 360Pack, a Vancouver, Wash.-based portfolio company of Shore Capital Partners, acquired Team Packaging, a Denver-based provider of custom packaging solutions. www.teampkg.com

• Blue Torch Capital agreed to buy bankrupt pillow maker Pegasus Home Fashions, an Elizabeth, N.J.-based company bought two years ago by H.I.G. Capital. https://axios.link/3Pf4rXH

• Marfrig Global Foods of Brazil agreed to sell a portfolio of cattle and lamb processing facilities to rival Minerva for $1.5b. https://axios.link/44uFYll

⌚ Rolex agreed to buy Swiss watch seller Bucherer — news that crushed shares of rival retailer Watches of Switzerland. https://axios.link/3QUVkMT

• Natura, a listed Brazilian cosmetics maker, said it's considering a sale of retailer The Body Shop. https://axios.link/3QSCCWk

• Hostess Brands (Nasdaq: TWNK) hired Morgan Stanley to explore a sale after it received takeover interest from strategics like General Mills, PepsiCo and Mondelez, per Reuters. https://axios.link/44rVXki

• BradyIFS, a Las Vegas-based portfolio company of Kelso & Co. and Warburg Pincus, agreed to pay $1.7b for a 63% stake in Envoy Solutions, a provider of janitorial, sanitation and food service products, from Mexico's Femsa. https://axios.link/3qUz3EA

• Warburg Pincus sold its 34% stake in British fashion house Reiss for £128m to Next (LSE: NXT), which boosts its stake to 72%. https://axios.link/47Z7Wso

• Tiger Global sold its remaining stake in listed Indian food delivery company Zomato for $136m. https://axios.link/3QXFlhi

🚑 MaryRuth Organics, an LA-based health supplements maker backed by Butterfly Equity and CFT Capital Partners, is exploring a sale that could fetch nearly $1b, per Reuters. Houlihan Lokey and Mally Collective are managing the process. https://axios.link/3Phv7Hi

• Orora (ASX: ORA), an Australian packaging company, is in advanced talks to buy French glass bottle maker Saverglass from Carlyle, which last tried to sell the business in 2021. https://axios.link/47QyLiz

• Zasilkovna, a Czech parcel delivery firm, reportedly shortlisted Advent International, PPF and Daniel Křetínský for a takeover that could fetch more than €300m. https://axios.link/47LA9Tw

• Big C Retail, a Thai hypermarket operator, postponed its planned Bangkok IPO, citing market conditions. https://axios.link/3R1R7qH

5. Retail transactions

• Jasper Platz and Vaibhav Sharma joined G2 Venture Partners as investors. Platz previously was with Tally and Summon, while Sharma was with Carlyle and Guggenheim Securities. www.g2vp.com

• Eytan Tigay is stepping down as chief investment officer of Rhone Capital, per Bloomberg. https://axios.link/3PiIsPt

• Kevin Attiyeh and Kaitlyn Schmeck were promoted to vice presidents at Incline Equity Partners. www.inclineequity.com

• Bettina Curtze, former CFO of Axel Springer unit Aviv Group, joined Swiss venture firm Redalpine as a partner and CFO. www.redalpine.com

• Laura Padilla joined Sapphire Ventures as a partner and head of biz dev. She previously was with HP Enterprise. www.sapphireventures.com

• Anne Gifford joined IRL Ventures as an operating partner. She previously led product for Culdesac and, before that, was with Tusk Venture Partners. www.irlventures.com

• Emma Cope joined SoundCommerce, a Seattle-based retail data provider, as VP of sales. https://axios.link/45z9ibJ

• Derek Tufts was promoted to VP of human resources at the Grand Rapids, Mich.-based grocery distributor and retailer SpartanNash. https://axios.link/3QYk333

• Lauren Brindley, VP for beauty and personal at Walgreens, will join Revolution Beauty as CEO. https://axios.link/44zBD0t

• John Abkes joined Blue Book Services as its new VP of retail development. https://axios.link/3R3dbBB

• Bill Artman was promoted to CEO of Giant Eagle after serving as interim CEO following the departure of Laura Karet in March. https://axios.link/3Z21Kw0

• Angela Hildebrand joined L'Oréal's SkinCeuticals U.S. as the cosmetics brand's general manager. Amy Sloan will join as senior VP of business strategy and growth. https://axios.link/3sGelZm

• Marco Gentile, formerly the chief commercial officer of Chloé, will join Theory as CEO of Europe and the U.K. https://axios.link/3YZ4tWQ

• Julie Van Ullen was promoted from managing director and head of revenue to chief revenue officer of Rakuten Rewards, a subsidiary of Rakuten Group. https://axios.link/3ElWLfP

• Alessio Vannetti, who was previously at Valentino, was named chief brand officer of Gucci, succeeding Susan Chokachi, who will leave the company. https://axios.link/3R3HIiD

6. It's Personnel

💸 Mark your calendars: Axios BFD returns to NYC on Oct. 12, featuring exclusive conversations with industry leaders, including UnitedMasters founder and CEO Steve Stoute, OnlyFans CEO Keily Blair, and Panera founder and Cava chair Ron Shaich. 

Check out our full speaker lineup and request an invite to attend in person here.

📺 What we're watching: With the fall television season underway, Richard began streaming the second season of the fantasy series "The Wheel of Time" on Amazon Prime.

✏️ Many thanks to newsletter editor Claire Rychlewski and editor Mickey Meece for today's edits.

September 05, 2023

1 big thing: Function of Beauty wants to scale personalization