P&G’s On the Way to Sell 15% – 30% Of Its Beauty Business
Global consumer processed goods behemoth Procter & Gamble (NYSE:PG) is reportedly on the way to sell an estimated 15% to 30% of its beauty business in terms of revenues. The company has received binding offers from multiple parties for a number of its beauty brands, cumulatively valued at an estimated $12 billion. [1]
We have a price estimate of $78 for Procter & Gamble, which is nearly the same as its current market price.
See our complete analysis for Procter & Gamble here
P&G’s High EBITDA Margin Could Command a Higher Valuation Multiple
The mean LTM (last twelve months) revenue multiple of nine major publicly traded beauty companies was 2.0x in the first quarter of 2015. [2] Assuming this mean revenue multiple of 2.0x, the revenue from P&G’s beauty brands in play is estimated to be $6 billion, or 30%, of P&G’s $20 billion Beauty division.
It should be noted that in the set of comparable companies used above, the mean LTM EBITDA margin was 12.9%. L’Oreal (OTC:LRLCY) had the highest EBITDA margin of 20.6%. [2] In comparison, the EBITDA margin of P&G’s Beauty division was 20.4% in 2014, placing it just below the high end of the range. Thus, it can be reasonably assumed that not just the EBITDA multiple, but also the revenue multiple commanded by P&G’s beauty brands could be higher than the mean.
Since L’Oreal is closest to P&G’s Beauty division in terms of revenues as well as EBITDA margin, the revenue multiple of L’Oreal can be used as an alternative. Thus, assuming L’Oreal’s revenue multiple of 4.2x, revenue from P&G’s brands up for sale comes to approximately $3 billion, which is about 15% of P&G’s revenues from its Beauty division.
This Could Be P&G’s Last Major Divestment
Earlier this year, P&G stated in the Consumer Analyst Group of New York Conference Call that the brands to be sold under the divestment plan cumulatively account for 14% of the company’s total revenues (Read: P&G Expects Brand Consolidation to be Over by Summer). P&G had revenues of $80 billion in 2014, which implies that the brands to be sold account for a little over $11 billion in revenues.
Last year, P&G sold the Duracell battery business to Berkshire Hathaway. The Duracell business generated approximately $3 billion in annual revenues. [3] The company has also sold at least 35 other smaller brands over the last year. [4] Combined with the impending sale of its beauty brands, the total foregone revenues amount to $6 billion to $9 billion. If cumulative revenues from the brands sold so far are at the higher end of our estimated range, revenues from the remaining brands to be sold would be a mere $2 billion. Therefore, it is possible that the ongoing bulk sale of the beauty brands could be P&G’s last major divestment under its brand consolidation program.
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Notes:- Henkel, Coty submit binding bids for P&G assets: sources, Reuters, June 8, 2015 [↩]
- 2015 Q1 Beauty Care M&A Report, Intrepid Investment Bankers [↩] [↩]
- As P&G considers trims, is Duracell disposable?, Cincinnati.com, June 12, 2014 [↩]
- P&G 2014 Analyst Meeting Transcript, Seeking Alpha, November 14, 2014 [↩]