PE Panorama: Majors positioning themselves to acquire The Body Shop

27 March 2017   Category: News, Asia, China, Global, USA, France, United Kingdom   By Paul Mackintosh

According to numerous reports from Reuters and elsewhere, private equity (PE) majors are positioning themselves for another big-name-brand acquisition – this time for the UK’s The Body Shop, pioneer of socially and environmentally responsible retailing, but currently a somewhat underperforming subsidiary of L'Oréal S.A., which acquired it in 2006. Reuters and other sources quote Advent, Apax, Bain Capital, BC Partners, CVC, and KKR among the PE majors likely to bid for the asset. Chinese investors are among the few other competitors in an auction which, according to Reuters, is not attracting much interest from other industry competitors.  

The actual valuation of the asset is still to be confirmed, but is reportedly below the figure of around 1 billion euros (US$1.08 billion) originally sought by the sellers. Actual valuations quoted are closer to 700 million euros. The problem with mismatched valuations apparently revolves around The Body Shop’s underperformance, which ought to make it a prime target for any experienced turnaround investor. Since Anita Roddick’s much-lamented death in 2007, there are no founder issues to concern any incoming owner, but the business reportedly needs considerable work to restore its flagging sales and profits. Coverage in The Times and elsewhere link Emmanuel Osti, former head of French cosmetics brand L’Occitane, with CVC Capital Partners’ possible bid for The Body Shop.

It may be just as well if at least one investor can bring a major industry player into its mix, because the whole deal raises the question of how well PE investors can own and manage major brands, let alone revive and turn them around. The nuts-and-bolts mechanics of process improvement or IT upgrading is one thing for turning around an industrial asset, but the delicate alchemy of reviving a brand may be quite another.

L Catterton, the brand-focussed PE firm formed in 2016 by the merger of LVMH’s private equity arm L Capital with US brand-focussed investor Catterton, might be a logical bidder for The Body Shop, whether alone or in a consortium, but no report has yet linked it with the auction. Will any PE owner be able to execute the kind of brand revival that Burberry Group managed from the mid-2000s, with cutting-edge initiatives like “The Art of the Trench”? Hugo Boss, Gucci, Karl Lagerfeld, and many other name brands have been beneficiaries of PE investment, but the industry’s track record in this area is not an unqualified success. Here’s hoping for The Body Shop spirit.