07: New Beauty Unicorns, Meet Your New Billion Dollar Brands
Analyzing the Augustinus Bader and Tom Ford Deals
This week, we’re treated to not one, but TWO unicorn deals in the beauty sphere. Augustinus Bader closed a round for $25M at a valuation of $1bn, while Tom Ford’s acquisition by Estée Lauder has been finalized in a $2.8bn deal. So what do the deals actually mean? Let’s dig in:
In our opinion, the most substantial news is the Tom Ford valuation. It’s a money deal, rather than a stock valuation deal which means the company (and shareholders) are actually receiving a liquid $2.8bn for the acquisition. Comparatively, the Augustinus Bader deal is simply closing a fundraising round in which they raised $25M at a $1bn valuation, meaning the value of the shares are set to $1bn. In theory, if one party paid the entire $25M for this round, their ownership of the company would be 2.5%. It indicates investors are willing to accept this valuation, which is no small feat, but not the same as having that cash on hand. So while both are billion-dollar league unicorn deals, Tom Ford is a realization of the valuation, whereas Augustinus Bader is building toward that potential.
Next steps for Tom Ford: Part of the complexity of the deal is the fact that the Tom Ford business is both a cosmetics and fashion brand. While cosmetics has always been their major source of business, the fashion side remained a hurdle for cosmetics giant Estée Lauder to resolve. It’s now been revealed that Estée Lauder will run the cosmetics and fragrance side of the business, and license the fashion (namely ready-to-wear and accessories) to Ermenegildo Zegna, and eyewear to Marcolin. Tom Ford himself is expected to stay on as creative visionary through the end of 2023.
Next steps for Augustinus Bader: According to Augustinus Bader’s press, their $25M round is expected to support global growth, with a particular emphasis on China. Having already onboarded celebrity investors in earlier rounds, it is noteworthy that participants in this round include Antoine Arnault (of LVMH), and his wife, supermodel Natalia Vodianova, putting them closer to being an acquisition target of LVMH.
Our analysis:
The Tom Ford deal pretty much shook out in the best possible scenario. Estée Lauder had been Tom Ford’s partner on the cosmetics and fragrance side, while Ermenegildo Zegna and Marcolin are also existing partners to the fashion and accessories side. We don’t foresee there being disruptions to the supply side, nor change in direction for the next couple of seasons, even after Tom Ford leaves as creative visionary.
We are curious how much Tom Ford will leave in the tank before he leaves, and how far that will inform the direction of the cosmetics, fashion, and accessories in the years to come. The biggest risk to us is the fashion side, that usually relies on a more singular and cohesive vision of the designer at helm. Even though Zegna is a luxury brand that has been a long standing partner, our understanding is they don’t have input on creative vision. We also don’t see Estée Lauder having the muscle to pull in and cultivate designers, the way a fashion conglomerate like LVMH and Kering can to helm a house. We predict the fashion side may eventually be sold separately to one of the fashion conglomerates.
The Augustinus Bader deal is on par for their trajectory. Based on the most recent earnings they shared, Augustinus Bader hit $70M in 2020, and if their latest round has their valuation placed at $1bn, it stands to reason that they grew past their annual $70M benchmark. This doesn’t mean their $1bn valuation is secure. One of the difficult metrics to achieve in CPG (consumer product goods) is sustained growth. And once a company fails to hit their targets, valuation can take a nosedive. For instance, Tata Harper’s 2017 sales were reported to be $65M, yet they ended up selling to Amorepacific for a total of $120M, which is not even a full 2x multiplier of that value.
When we look at the speed at which Augustinus Bader is going with new product launches, and activations (including adding Bobbi Brown as Creative Chief), rapid is how we’d describe their approach. Based on the fact that a $70M+ company still needs to raise a round to have $25M in spending for their war chest, we’re inclined to believe outsized, exponential growth is the target over profitability. The last time a beauty brand moved this quickly was Drunk Elephant. At this juncture, our bet is that Augustinus Bader is looking for a quick exit by 2024.
Disclaimer: Analysis, by nature, may be speculative, and should not be taken as fact. Views and opinion expressed are just that, and should not be taken as endorsements, nor advice (financial or otherwise).
Disclosures: Newsletter may use affiliate links. Underneath It All is run by Garçon’s Media, which is not a shareholder of any beauty company, nor vice versa.