Coty’s Professional Beauty Unit Draws Buyout Interest

(Bloomberg) -- Coty Inc. has kicked off the sale of its professional hair and nail products business, drawing interest from some of the world’s largest buyout firms for a unit that could fetch as much as $8 billion, according to people with knowledge of the matter.

Buyout firms including Advent International, Bain Capital and Cinven are working with advisers to prepare bids, the people said, asking not to be identified because the discussions are private. Clayton Dubilier & Rice LLC and KKR & Co. are also expected to make first-round bids, which are due the first week of March, the people said.

Henkel AG, a German maker of adhesives and shampoos, has hired advisers as it explores a bid for the business, which could fetch $7 billion to $8 billion, the people said. Other strategic bidders including Unilever Plc are weighing offers for parts of the unit, the people said. No final decisions have been made and the talks about a sale remain in the early stages, the people said.

The sale is expected to be one of the most hotly contested auctions involving buyout firms this year because they have record levels of capital to spend and access to cheap financing. In a transaction last year that drew a similar buyer universe, EQT beat out stiff competition to acquire Nestle SA’s skincare business for more than $10 billion.

Coty is weighing the sale of the unit, which owns brands including Wella, as part of a plan by Chief Executive Officer Pierre Laubies to turn around the wider business by boosting margins and reducing leverage. The New York-based firm took a $965 million writedown last year on the value of brands, including Clairol, that it agreed to purchase from Procter & Gamble Co. in 2015. Coty’s shares have fallen about 48% in the last five years.

Coty has launched a process to explore strategic alternatives for the unit and aims to complete the review by the summer, it said, referring back to an October announcement. Representatives for Henkel, Unilever and the buyout firms declined to comment.

Coty’s advisers are offering cash-paid leverage of about 6.5 times to help buyout firms finance the acquisition, one of the people said. The businesses for sale have earnings before interest, taxes, depreciation and amortization of about $450 million, and that number could rise to well over $500 million after including the gains from the carve-out and cost cuts, the person said.

Staple financing is a pre-agreed debt package provided by banks chosen by the vendor to all competing bidders during an M&A sale process. The debt financing that was raised for EQT’s buyout of Nestle skincare was levered at 7.2 times total debt to core earnings. Prior to that, banks provided staple financing for the auction of Unilever’s spreads division that was levered at 5.25 times, while the final debt package used by KKR for the buyout was 6.2 times the total.

Coty is selling brands including Clairol, Good Hair Day and OPI nail care as well as its business in Brazil. Cosmetics company Boticario Group is considering a bid to boost its haircare business, CEO Artur Grynbaum told Valor newspaper earlier this month.

Some of the biggest beauty companies have been on an acquisition spree in recent years as they seek to court younger shoppers with upstart brands. Coty itself agreed to pay $600 million in cash for a majority stake in Kylie Jenner’s cosmetics line last year.

--With assistance from Jan-Henrik Förster, Myriam Balezou, Sally Bakewell, Thomas Buckley, Oliver Sachgau, Sarah Husband, Michael Hytha and Ruth McGavin.

To contact the reporters on this story: Dinesh Nair in London at dnair5@bloomberg.net;Aaron Kirchfeld in London at akirchfeld@bloomberg.net

To contact the editors responsible for this story: Aaron Kirchfeld at akirchfeld@bloomberg.net, Neil Callanan

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