UPDATED May 2, 2106.
Johnson & Johnson (NYSE: JNJ) agreed to acquire Vogue International LLC from private Equity firm Carlyle Group LP (NASDAQ: CG) and the company’s founder and CEO Todd Christopher, for $3.3 billion in cash, representing a windfall for the sellers.
Private Equity firm Carlyle Group LP (NASDAQ: CG) is said to be actively seeking to sell its portfolio company Vogue International LLC, a leading manufacturer and distributor of salon-heritage hair care and other personal care products, and is in the midst of a first-round bidding process.
The Carlyle Group acquired 49% of Vogue International in February 2014 out of its Carlyle Partners VI fund, reportedly for about $400 million, giving the company an $800 million approximate total value at the time. The company’s founder and CEO Todd Christopher, kept a 51% stake. Vogue’s revenue for the 12 months ended September 2014 was less than $300 million, according to Moody’s Investors Service.
Earlier this year, The Wall Street Journal reported that Vogue International is being shopped by Goldman Sachs Group (NYSE: GS), with a price tag that could be well over $1 billion.
Meanwhile, Reuters recently reported that Unilever NV, Henkel & Co KgaA AG, L’Oréal SA, and other companies have submitted first-round bids in an auction for the shampoo maker, and that a deal could value Vogue International at $2.5 billion to $3 billion, citing anonymous sources.
The news comes a week after private equity firm Brynwood Partners agreed to sell its competing hair care and personal care portfolio company High Ridge Brands Co. to private equity firm Clayton, Dubilier & Rice for $415 million. High Ridge Brands is America’s 4th largest nationally branded hair care manufacturer, and its brands include VO5, Rave, White Rain, Thicker Fuller Hair, LA Looks and Salon Grafix, according to the company. It also owns Zest, Coast, and White Rain skin cleansing brands. High Ridge, with approximately 45 employees, outsources 100% of its manufacturing needs.
In February 2015, Moody’s rated Vogue’s $650 million of debt instruments B2 Corporate Family Rating (CFR) following the launch of a $205 million incremental term loan to fund a distribution to its shareholders, Christopher and Carlyle. Goldman Sachs led the financing, with Bank of America Merrill Lynch as joint lead, according to Thomson Reuters IFR.
“The dividend — the company’s first since the recapitalization in early 2014 — is evidence of increasingly aggressive financial policies,” Moody’s added. “That said, Moody’s believes that the company’s credit metrics will benefit from ongoing innovations and expanded distribution over the next 12 to 18 months which will continue to support its strong growth.”
Headquartered in Clearwater, Florida, Vogue’s branded products include the OGX collection of shampoos, conditioners, styling and treatment, and body and bath items, the FX hair styling line, Proganix hair care, and the Maui Moisture beauty line.
Vogue’s products are distributed to retailers through food, drug, and mass channels in the US and internationally, in 38 foreign countries. “We are constantly recreating the company so we are always offering innovative products to a very savvy consumer,” said Christopher.
Christopher founded Vogue International in 1987, after working for his uncle’s hair salon. He invented hair treatment capsules under the Pro-Vitamin brand, which he and his wife sold out of their car, according to Smart Business Magazine.
Vogue International has grown to become one of the largest privately owned hair care and beauty companies in the US, with its OGX brand consistently ranking as one of the top 10-premium hair care brands, SBN says. In 2014 Christopher received the EY Entrepreneur of the Year Award under the Retail & Consumer Products category in Florida. A significant factor in the company’s success is its colorful packaging and presentation.
Vogue’s main brand is OGX, with its styling brand FX Effects accounting for less than 5% of revenue, according to Moody’s. Vogue has a good market position in a niche segment of the hair care category, it experienced recent significant market share gains, and positive projected free cash flow during the past few years, Moody’s commented in connection with its February 2015 ratings.
While the company has good insight into consumer preferences for shampoos and conditioners, and is benefiting from significant distribution gains in recent years, Vogue is also heavily reliant on its founder, which creates succession risk, Moody’s noted. It further added that Vogue’s small scale relative to much larger competitors, its product and customer concentration, and its moderately high financial leverage, subject the company to potential earnings volatility.
In December 2012, Vogue re-formulated OGX shampoos and body washes to remove Cocamide DEA from all products. In August 2013, Vogue paid $6.5 million to settle a false advertising class action filed in November 2012, accusing it of falsely labeling its Organix skin and hair care products as organic. It then rebranded the product as OGX.
After 2014, the company phased out the allergen Hydroxyisohexyl 3-cyclohexene carboxaldehyde (HICC, commonly known as Lyral) from all OGX products. It also made a commitment to eliminate the use of the colorants Red 17 (CI 26100) and Yellow 11 (CI 47000) by the end of 2015, and to eliminate the use of the preservative Methylisothiazolinone from its products, by 2017.