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insider dealing

Cosmetics surgery

Author: Jason Sinclair

Published: 12 Feb 2024

body shop products green bottle serum cream pot face beauty dappled light

The Body Shop, after a period of ownership by Brazilian beauty conglomerate Natura, has been taken over by private equity. Jason Sinclair looks at the deal to ‘rescue’ what remains of an iconic brand and much-loved British retailer.

What to do with The Body Shop? Still one of the best-known brands on the British high street, the cosmetics company has had something of a turbulent recent past. Sold in 2006 by its founder – the now late Dame Anita Roddick – to French giant L’Oréal for £650m, the London headquartered firm seemed to have hit a plateau, fighting in a new marketplace where being ‘ethical’ was no longer the unique selling point it once was.

L’Oréal managed to pass the business on to Brazilian cosmetics group Natura in 2017 for £880m. Not a spectacular ROI for a decade’s ownership, but a return nonetheless – and rather better than the Sao Paulo beauty company managed six years later.

Now private equity hopes to succeed where trade has failed with The Body Shop, after PE house Aurelius closed a £207m deal for the brand in November 2023. The deal includes an earn-out of £90m payable over the five years to November 2028.

The deal might be described as distressed or as a bargain, and Aurelius will be looking to revitalise the brand. For Tristan Nagler, partner at Aurelius Investment Advisory who led the acquisition, the attraction of the deal was obvious: “It’s an extremely cherished brand, and there’s a huge amount of scale and substance to the business. It’s got hundreds of millions in revenue, operations in many global markets and has a strong multi-channel presence. It has well-invested infrastructure and an incredible brand value through affinity.”

Natura opened the sale process in August 2023. CEO Fabio Barbosa said the sale of The Body Shop would represent “an important step in our new development cycle to unlock significant value”, which would leave the company “refocused, deleveraged and leaner”.

Aurelius joined other interested parties, which were reported to include Alteri Investors, Epiris and Elliott Advisors. Two months later Aurelius was given exclusivity. It’s perhaps telling that it was private equity investors who could see an opportunity in a famous brand that had suffered six successive quarters of losses.

Ethical formula

Nagler says he feels “incredibly privileged” to have been the successful bidder: “But we’re not blind to the realities that taking on a consumer business of any description in this climate is something that needs to be thought through very carefully. And then you need to bring considerable energy and resource to sustain performance in an environment where consumers are so cash strapped.” 

There is risk to the deal, which is why the value was a quarter of what Natura paid for it, he explains, but the potential profits are still substantial for what was once a trailblazing business.

body shop products bottles beauty store displays cream face
In Anita Roddick’s hands, the ethical concept became a winner

When Roddick opened The Body Shop in 1976, it was in a world without the likes of Lush or L’Occitane. Ethical sourcing and ‘natural’ products were a niche, even ‘hippie’, concern. Cosmetics products were more likely to be purchased in department stores or in independent high-street chemists, shelved alongside Elastoplast, cod liver oil or paracetamol.

Roddick’s claims to have ‘invented’ The Body Shop in Brighton, selling natural health and beauty ingredients sustainably sourced on her travels worldwide, were somewhat undermined by the existence of another Body Shop founded in 1970 in Berkeley, California, with a suspiciously similar concept. But, in her hands, the concept became a winner. It had grown to 99 stores by the time of its stock market flotation in 1984. Then the founders of the Californian operation were paid $3.5m for the exclusive use of the name in a 1987 settlement.

Over the next two decades, the British company – working on a franchise model – became one of the best-known brands on the British high street and expanded worldwide, covering 65 countries. At present, there are around 3,000 stores in 89 countries, 900 owned stores and 1,600 franchises, which Nagler says shows the considerable customer loyalty and the potential for further expansion.

Aurelius, which also owns the retailer Footasylum, often specialises in cross-border corporate carve-outs, says Nagler, and this deal fits the template exactly. “Often a cross-border corporate owner, being a distant absentee landlord, creates a very interesting situation where you can find low-hanging fruit and operational potential,” he says. “Also, if it’s a non-core business it could be one that’s suffered from benign neglect. That’s how we have been investing for almost 20 years.”

Sector focus

Elsewhere in the sector, in December 2022, Silverwood Brands paid £217m for a 19.8% stake in Lush. And in April 2023, when Natura initiated the sale of luxury beauty brand Aesop (which it ultimately sold for $2.5bn), Nagler says they sensed there would be an opportunity around The Body Shop. “The sale of Aesop was a very successful disposal and we wondered if that might create the dynamic for them to decide to sell The Body Shop. We’re constantly looking for these sorts of situations. Here, we found a Brazilian owner of a business with a very strong British heritage – a global business with a very strong heartbeat in the UK.”

As Aurelius began to undertake its due diligence, the potential for operational improvements it could bring became clearer: “Our hope was to be able to navigate the M&A process, find our way through the competitive field and secure the business at a fair price.” 

body shop products bottles beauty store displays cream face
Silverwood now owns nearly 20% of Lush

Untapped potential

Natura, Nagler points out, as well as having a leadership that was “far from home” when it came to The Body Shop’s heritage, is more of a direct selling business. “The Body Shop is primarily a bricks-and-mortar retailer. It’s online too, but it’s not a direct-selling model. Already, there were some hints at the potential and then as we dug into the business, we could see a business that has a very, very strong hold over a consumer who probably shopped there in the 1980s and 90s. The question was whether the business had managed to remain relevant to new consumers, whether that’s Gen Z or Gen Alpha.

“It was a trailblazer, especially in terms of very strong, ethical sourcing, but maybe customers haven’t heard that message for a while. We were pleasantly surprised by how wonderful the sourcing is and how authentic it is.” Nevertheless, Nagler is all too aware of a vastly changed marketplace: “Everyone now has ethical standards and everyone claims to have a product that’s wonderful for the environment, so perhaps the business has lost a little bit of the uniqueness of its USP.”

New foundations

Aurelius will work with existing management to – as The Body Shop CEO Ian Bickley says – “begin a new chapter, allowing us to continue building the relevancy of this global brand for future generations”. But the first stage of its involvement, says Nagler, will be to take the business out of its corporate home and “get it thinking for itself. It’s not necessarily the case here, but you can get lost when you’re part of a corporate business, reporting numbers into a corporate centre every month and thinking about sister businesses.”

Aurelius also has the operational capacity and ‘fresh eyes’ to look at everything from supply chains to products to marketing to IT. “We have more than 40 investments, many consumer-facing, some omni-channel, and many are operating in the same jurisdictions as The Body Shop. We can bring the experience of having invested in these sorts of companies for almost 20 years and from our portfolio.”

Non-core businesses are sold for a reason, he continues: “If it had been flying, it wouldn’t have been sold by its parent company.” Nagler clearly has confidence that the new member of the Aurelius portfolio will benefit from a makeover.

Update to printed edition 12 February:
At the start of February it was reported that Aurelius had sold its international business to an unnamed international family office, and that it was on the verge of appointing FRP Advisory as administrator for its UK business. The latter action may result in shop closures and job losses, or be used as leverage to renegotiate certain leases. Aurelius reported poorer trading than forecast over the festive period, and time will tell how this swift action unfolds for the business.

Here’s the deal

Aurelius’s acquisition of The Body Shop was completed in November 2023 and valued the retailer at £207m. The deal includes an earn-out of £90m, subject to conditions.

The Aurelius team led the deal, with financial due diligence carried out by a team from PwC. OMMAX did tech and digital due diligence; Jones Day provided legal advice.

“It’s a sizeable business with lots of complexity, so due diligence materials from PwC were really valuable to accelerate the process,” says Tristan Nagler, partner at Aurelius Investment Advisory. “We can’t do these deals at pace without having really strong professional advisors from the M&A side.”

Natura used Morgan Stanley for corporate finance advice and Cleary Gottlieb for legal advice.

Nagler adds: “We’re in a climate where M&A is not very easy and deal volumes are down. You often find the deals that do get done are executed because the M&A banker has a collaborative mind-set. There’s time for driving competitive tension and holding feet to the fire to deliver on timings, but there’s also a time to bring the parties together in a collaborative way. It’s to their credit that Morgan Stanley were able to complete this because there are lots of deals not completing.”

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