In April, L’Oréal bought Aesop, its biggest acquisition in decades. What does this mean for the French cosmetics giant’s strategy – and for M&A drivers in the sector?
The making of a megadeal
In April L’Oréal, the biggest cosmetics company in the world, announced its largest acquisition in decades. It was a truly international megadeal – the Paris-headquartered business is to pay $2.5bn for high-end Australian cosmetics brand Aesop, acquiring it from Sao Paolo-based Natura.
Aesop was founded in Melbourne in 1987 by Dennis Paphitis and Suzanne Santos. In 2010, Harbart Australia Private Equity made a growth capital investment in the business and two years later a 65% stake in the company was sold to Natura for $71.6m. Four years after that, the Brazilian company acquired the remaining 35%.
Each Aesop store has a unique interior design, developed in collaboration with local architects, interior designers and artists. As of 2023, the brand had almost 400 sales outlets in more than 27 countries. It opened its first stores in China in 2022.
A tale of two strategies
Both acquirer and vendor are in the throes of a change in strategy. L’Oréal has recently focused on small acquisitions of brands it has subsequently grown into bigger ones. But Aesop’s turnover is already more than $500m. L’Oréal’s bold move implies it will make large-scale acquisitions to grow shareholder value.
In 2017, Natura paid L’Oréal €1bn for The Body Shop; it also owns Avon. But in January CEO Fábio Barbosa told the FT he was focused on improving margins and cash flow rather than growing sales, implying a move to net divestment rather than investment.
Are these strategies working in the short term? At 5 April L’Oréal’s share price on the Paris exchange was €419.70 – an all-time high. In Sao Paolo, Natura came back from a six-year low in December 2022, but is still under a quarter of its June 2021 market cap. Will there be more divestments?
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The man at the top
In May 2021, Nicolas Hieronimus (above) took over as CEO of L’Oréal from Jean-Paul Agon, who had been at the helm since 2006. Agon’s experience of 15 years at the top and 43 years with the company has not been dispensed with – he is staying on as chairman.
Hieronimus is another company man, who has reached the top job from within. The 59-year-old joined the group in 1987 and has since had a series of management roles with different L’Oréal subsidiaries, including in the UK and Mexico. He became deputy CEO in May 2017 and then CEO four years later.
Agon’s are tough boots to fill, though. He oversaw a quadrupling of the share price, fuelled by huge growth in cosmetics sales in Asia, which largely came through organic growth. Acquisitions were small but carefully selected brands and products, such as Kiehl’s, the cult skin and haircare brand.
The company definitely had a ‘good’ pandemic and post-pandemic period. And regardless of strategy, when news of his departure was released Agon predicted the sector would continue to boom.
The future is female
L’Oréal has never had a female CEO. But two years ago, for the first time in its 111-year history, a woman was named deputy chief executive – a post from which the last two CEOs emerged. Barbara Lavernos (above) has been with L’Oréal 32 years; her background is in procurement and innovation and technology.
“Women make up half of our board, more than one-third of top management, and over half of the heads of brands,” said Agon. “One day, a woman will run L’Oréal.”