How Might The Acquisition Of Elizabeth Arden Help Revlon?

Shortly after its decision to acquire Cutex International brand from Coty earlier this month, Revlon has now decided to acquire global prestige beauty company, Elizabeth Arden, at $14 per share in cash. The total enterprise value paid for Elizabeth Arden as a result of this transaction would be ~$870 million. Revlon is paying around a 50% premium for the Elizabeth Arden stock which is currently trading at ~$9.31. The takeover is being touted as an attempt to revive both the beauty companies, which have been losing their popularity, lately. Arden had posted ~$400 million in losses in the last couple of years. In 2015, Revlon’s revenues declined by ~1.5% and its profit fell by ~5%. A significant part of this was due to currency headwinds, but Revlon’s performance in both the professional and consumer segments hadn’t been very strong. In January, Revlon’s largest controlling shareholder, Ron Perelman, declared that strategic alternatives were being explored for the company. It was also speculated that Perelman might acquire the remaining stake in Revlon once the company’s shares fell in price. However, with the stepping down of its then President & CEO Lorenzo Delpani in February, and the subsequent appointment of the new President & CEO, Fabian T. Garcia (who had served in leadership roles at Colgate-Palmolive), such speculation was put to rest. With Revlon’s recent surge of acquiring beauty players in different segments, it seemed that the 84-year old company is trying hard to regain its erstwhile popularity.

Revlon’s Foray Into The Prestige Beauty Segment

With its acquisition of the Colomer Group in 2013, Revlon forayed into the professional beauty segment. Prior to that, it focused mainly on color cosmetics. With the acquisition of Arden, Revlon will step into the premium beauty segment. The global prestige beauty segment had regained its popularity in 2015 after several years of lackluster demand, mainly due to the importance of skincare among the Millennials. Currently, fragrance is outperforming skincare. The U.S. prestige beauty market grew by 7% Y-o-Y to reach $16 billion in 2015. Arden sells premium makeup, skincare, and a range of licensed prestige fragrances under names such as Elizabeth Taylor, Britney Spears, and Taylor Swift. Along with expanding its offerings into the luxury segment, Arden will also help Revlon to enter channels such as travel retail–one of the most popular distribution channels for luxury beauty items. Also, Arden’s geographic reach in important regions such as Asia Pacific will further boost Revlon’s global footprints.

Currently, we forecast Revlon’s global market share in the color cosmetics, fragrance, and skincare segments to increase to 4.1%, 0.5%, and 0.36%, respectively. However, with the help of Elizabeth Arden, if Revlon is capable of expanding its market share further, then the company’s stock price can increase significantly. If Revlon’s global share of color cosmetics, fragrance, and skincare instead increase to 5.5%, 0.7%, and 0.5% respectively, then there can be over a 20% upside to our current stock price estimate of Revlon.

Have more questions on Revlon? See the links below.

• What Is Revlon’s Fundamental Value On The Basis Of Its Forecasted 2015 Results?
• How Has Revlon’s Revenue And EBITDA Composition Changed Over 2012-2016E?
• What Is Revlon’s Revenue And EBITDA Breakdown?
• Revlon: 2015 Year In Review
• What Is Revlon’s Fundamental Value Based On 2016 Estimated Numbers?
• How Has The TCG Acquisition Boosted Revlon’s Growth?
• How Did Revlon’s Different Segments Perform Over The Last 5 Years?
• Revlon’s Q1 2016 Earnings Results
• What Are The Implications Of Revlon’s Acquisition Of Cutex International Business?
• Revlon’s Expected Revenue And EBITDA For 2016: Trefis Estimate

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