Estée Lauder on the look-out: Ready to acquire… if the deal is right?

Make-up brands such as Bobbi Brown and MAC Cosmetics are two brands that the majority of people know of today, but they were once smaller companies that were revolutionized by the New York-headquartered beauty behemoth.

Much like its other big rivals, Estée Lauder has a history of small takeovers and turning them into big name brands, but it has now been almost four years since its last acquisition: Smashbox Beauty Cosmetics in May 2010; and this has set tongues wagging.

The company also looks ripe to be in deal-making mood with its cash balance at a record high, and company CEO Fabrizio Freda stating earlier this year that Estée Lauder is “very interested in growing by acquisitions.”​

Maybe, maybe not..?​

Before getting too carried away global M&A specialist at Kline, Eric Vogelsberg, tells Cosmetics Design that just because a company has a lot of cash available, it does not necessarily mean they are primed to make an acquisition.

“Many of the global strategic companies are currently sitting here with the most cash they have had on the books in years, through conservative fiscal management and various other reasons.”​

He explains that coming out of the financial crisis, a lot of companies have been less likely to take risks and have this money available, but it does not necessarily mean it is going to spend it that easily.

“There is an unusual amount of money that is looking for a home, and this complicates things in the M&A arena. If a quality company comes to market it’s going to be an expensive acquisition – it is a seller’s market,”​ Eric says.

“If Estée Lauder is looking for an acquisition there really needs to be a strategic reason beyond getting bigger because they are going to have to judge the premium they will have to pay in what is a competitive market.”​

Prestige? Emerging markets?​

So if an acquisition is to be on the cards, where do the opportunities lie for Estée Lauder?

Speaking to CosmeticsDesign-Europe.com, Senior Research Analyst at Kline's Consumer Products, Ewa Grigar, suggests that although there are no specific brands set out as targets so far, there may be weight behind the assumption that Estée Lauder might be looking into new acquisitions, mainly in Prestige Beauty.

“I am unable to say which specific brands could be the target, however those with a strong foothold in the Travel Retail segment (Prestige Beauty) and emerging markets (China and the Middle East) should be on the Estée Lauder’s radar,”​ she comments.

Grigar explains that there is one evident trend when it comes to investing in hot emerging markets in the beauty industry, and that is in acquiring a local brand rather than investing into a tedious process of launching its own brand without having a guarantee to succeed.

Opportunity​

Grigar’s US-based colleague Carrie Mellage echoes Eric’s sentiments, and tells us that while an acquisition is a possibility given the company’s previous successes, it is important to do your homework and search for the right deal.

“Staying in prestige would probably be the best move, and travel retail would also make sense. Globalisation is also important so I wouldn’t be surprised if the next move was to acquire a prestige brand in a different international market,”​ says the vice president, Consumer Products, Kline.

“In terms of opportunities in the cosmetics industry, apart from looking regionally and at emerging markets, category-wise devices could be an avenue to look at, Estée Lauder is not currently present in it, whilst L’Oréal is through acquisition, and Unilever is through strategic alliance.”​

So the combination of all these factors, plus with its biggest rivals, such as L’Oréal, also announcing that acquisitions could be its future strategy, the opportunity could be there for Estée Lauder to make an acquisition, but it is unlikely to rush into anything.