PERSONAL CARE PRODUCTS & SERVICES Q3 2017

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1 PERSONAL CARE PRODUCTS & SERVICES CONTACTS Tracy Patch Vice President (949) David Bench Managing Director (949) Christopher Cardinale Associate (949) MERGER & ACQUISITION OVERVIEW The strong economy and consumer preferences have driven growth in the Personal Care Products & Services Industry and have spurred healthy levels of merger and acquisition (M&A) activity. Through the end of August, 80 transactions have been announced or closed. At the market s current pace, the industry will likely meet or modestly miss the record number of deals closed in Year-to-date, strategic buyers have been the dominant players, making 52 acquisitions and accounting for 65.0% of deals. Financial buyers have made the additional 28 acquisitions accounting for 35.0% of deals. This buyer breakdown closely echoes 2016 activity. Within the industry, a variety of segments have become increasingly attractive to suitors. One segment rife with buyer activity is vitamins and supplements. Capstone has identified 24 vitamin and supplement transactions this year a 50.0% year-over-year increase from end of August The global market for this segment, valued at $132.8 billion in 2016, is forecasted to grow to $220.3 billion by 2022 at a compound annual growth rate (CAGR) of 8.8%, according to Zion Market Research. Two trends helping to drive growth are an increase in the population s health conscientiousness andtheriseof the aging population. Dermatology practices have also been consistently targeted, with 16 deals in As detailed in our Q1 report, acquisitions in this segment are being driven by the high demand for dermatology services (due to increased per capita income, healthcare coverage and the aging population) as well as new regulatory burdens which have incentivized practices to seek exit opportunities. The future of the market is promising for businesses considering a sale. Companies with strong management teams, international presence, and diverse customer bases are some of the most attractive targets. Additionally, companies that offer products with either organic ingredients, higher purity, proven efficacy, or increased concentrationsof the advertised ingredient(s) will have a strong advantage in the M&A market. M&A Transactions: Personal Care Products & Services BOSTON CHICAGO LONDON LOS ANGELES NEW YORK ORANGE COUNTY PHILADELPHIA SAN DIEGO SILICON VALLEY TAMPA Number of Transactions YTD YTD 2017 Sources: Capital IQ and Capstone Partners LLC research

2 Food & Beverage SEGMENT HIGHLIGHT: NATURAL & ORGANIC Consumers today are more likely to pursue a healthy and natural lifestyle than in previous years due to a range of contributing factors, some of which are highlighted below. This consumer demand is driving companies to incorporate chemical-free, minimally processed, organic and eco-friendly items into their product portfolio. According to IBISWorld, Over the five years to 2022, revenue [for Beauty, Cosmetics & Fragrance Stores] is anticipated to grow an annualized 4.7% to $27.8 billion as consumers buy more cosmetics. Moreover, the proliferation of naturally derived products will spur growth in new markets. Year-to-date there have been seven natural and organic deals compared to five in all of Disclosed transaction values for natural and organic deals totaled to $1.1 billion, accounting for 47.2% of all disclosed Personal Care Products & Services deals in Acquisitions this year include: LTS Nutraceuticals acquisitions of Natural Products (August), Wellnext s acquisition of NeoCell (August), Youngevity s acquisition of Sorvana (June), HGGC s acquisition of Nutraceutical (April), Ashland s acquisition of Pharmachem Laboratories (April) and Flavors & Fragrances acquisition of Columbia Phyto Technology (April). TRENDS & DRIVERS Growing demand for chemical transparency In a 2016 study, UC Berkley found that young women who stopped using certain personal care products for just three days saw a notable drop in hormone disrupting chemicals. As studies of this nature inform the public, consumers are becoming more selective about the ingredients they put on their skin an organ which absorbs 60% of what it touches. In August, industry giant Proctor & Gamble announced that it will begin listing fragrance ingredients (including those in Olay skin care products and Herbal Essence shampoos) down to the 0.001%. Consumer demand for transparency will drive companies to offer less chemically laden products. Millennials willing to pay more for natural products Millennials are more focused on incorporating healthy choices into their daily routine than their predecessors Generation X and Baby Boomers, according to a report by Goldman Sachs. While the largest generation in US history is reluctant to pay for a home or car, they have shown a willingness to pay more for eco-friendly and natural products. With millennials projected to make up 75% of the workforce by 2020, retailers are keen to secure this customer base in the future economy. NOTABLE TRANSACTION BWX acquires Mineral Fusion Natural Brands (July 2017) Australian beauty products provider BWX acquired Mineral Fusion Natural Brands for $43.0 million. Based in Denver, Mineral Fusion s products are made in the USA with natural ingredients. BWX acquired Mineral Fusion from private equity group North Castle, who helped develop the brand into a leading cosmetics, body, skin, nail and hair care company. The buyer will leverage Mineral Fusion s existing distribution channels to promote BWX s current product, Sukin, in the US. Conversely, BWX will utilize Sukin s retail relationships outside the US to drive international growth for Mineral Fusion. Capstone Partners LLC 2

3 Personal Care Products & Services NOTABLE PERSONAL CARE TRANSACTIONS Several notable transactions have been announced or completed in the Personal Care Products & Services Industry in Capstone has outlined select transactions below, followed by a more comprehensive list on the following table. Yellow Wood Partners acquires Freeman Beauty (August 2017) Yellow Wood Partners, a Boston private equity firm that invests exclusively in the consumer industry, acquired specialty personal care products provider Freeman Beauty. Terms of the deal were not disclosed. Freeman s products are readily available in stores across the US and the company offers one of the premier facial masks on the market. Yellow Wood will seek to accelerate Freeman s growth trajectory by creating cost efficiencies and expanding the company s products through both new and existing channels. Freeman CEO Jon Achenbaum stated, "We believe there is a substantial opportunity to grow distribution with all of our customers, and especially to expand outside of the US and Canada into international markets including South America and Europe. Unilever acquires Kingdom Animalia (June 2017) Unilever acquired Kingdom Animalia (operating as Hourglass Cosmetics) for an undisclosed amount. Hourglass Cosmetics was founded in Venice, California in 2004 and offers products that are a hybrid of science, beauty and luxury. The brand s niche offerings in the personal care market have created a loyal customer base. Alan Jope, President of Personal Care at Unilever, stated, The color cosmetics category has been showing high growth-rates, driven by social media content, channel diversity and democratization of professional makeup techniques, and it therefore presents a significant opportunity. Hourglass is already a successful brand in this space, offering fantastic make-up products that also deliver skin care benefits, and we look forward to continuing to grow this wonderful brand. CVC Capital Partners acquires Parfums de Coeur (June 2017) CVC Capital Partners (CVC) acquired a majority stake of Parfums de Coeur (PDC), a beauty, personal care and wellness products provider, for $1.4 billion. PDC holds international clout, with headquarters in both the US andtheukandwithproductsavailableinmorethan60countries. Some of PDC s leading consumer brands include Dr. Teal s, Cantu, Eylure, Elegant Touch and Calgon. CVC raised a record $18 billion for private equity investments this year, according to Reuters. The company has used some of the funding to make 13 acquisitions yearto-date (compared to 12 in all of 2016). CVC was attracted to PDC s proven management team, strong portfolio and rapidly growing, multinational platform, CVC Partner Cameron Breitner commented in a press release. PDC was previously owned by Yellow Wood Partners. James Stammer, CEO of PDC Brands, noted, We have significantly grown and diversified our portfolio in recent years, and we know that CVC will be able to support our future growth ambitions in both the US and abroad by leveraging their deep sector experience and global resources. Capstone Partners LLC 3

4 PERSONAL CARE PRODUCTS & SERVICES: SELECT M&A TRANSACTIONS Personal Care Products & Services Enterprise EV / LTM Ann. Date Target Acquirer Target Business Description Value (mm) Revenue EBITDA 08/21/17 Moberg Pharma s Fiber Choice 08/15/17 Natural Products Caret Pharma Comprises a line of dietary supplements. $ LTS Nutraceuticals Offers organic shampoos and soaps under Nature's Gate brand. 08/14/17 Freeman Beauty Yellow Wood Provides skin care, body care and hair care products. 08/08/17 NeoCell Wellnext Develops natural supplements, skin care, and health and wellness products. 08/04/17 J+D Laboratories Captek Softgel Manufactures dietary supplements and products. 07/24/17 Alphabet Holding KKR & Co. 07/19/17 Redwood Dental 07/17/17 Water Pik Silver Oak Services Church & Dwight Co. Manufactures vitamins, minerals, herbs, specialty supplements and sports/active nutrition products. Offers dental care that includes teeth whitening and cosmetic dentistry. Markets personal and oral healthcare products. $1, x 12.9x 07/05/17 NüYU Skin SISTAR Cosmetics Manufactures skin and beauty products. 07/03/17 06/29/17 06/20/17 06/19/17 06/19/17 06/19/17 06/16/17 06/14/17 06/01/17 05/22/17 Mineral Fusion Natural Brands Make Up My Cosmetics Dermatology Associates of OK Top Secret Nutrition Kingdom Animalia Sorvana Sheer Strength Labs Agilex Flavors and Fragrances Parfums de Coeur Nutraceutical BWX Manufactures mineral based cosmetics. $ Mycone Dental Supply Epiphany Dermatology Hi-Tech Pharmaceuticals Manufactures beauty care products and cosmetics. Offers medical and cosmetic dermatology services. Develops nutritional supplements. Unilever Manufactures and sells color cosmetics. Youngevity Manufactures natural wellness and skin care products. Baymark Sells sports nutrition products. Firmenich Markets various fragrances. CVC Provides beauty, personal care and wellness products. HGGC 05/22/17 Valley Nails Hudson 05/19/17 Life Matters Young Living Essential Oils Manufactures branded nutritional supplements and other natural products. Operates as a salon that specializes in nail and nail art services. $ x 9.9x Produces nutritional products and supplements. 05/18/17 Deva Concept Ares Management Produces and sells curly hair products. 05/11/17 egamerz Natural Products Manufactures energy supplement. 05/04/17 French Transit Juggernaut Management Offers body deodorant products. 05/04/17 Saavy Naturals Trimax Sells soaps, body creams and body scrubs. $ Capstone Partners LLC 4

5 Personal Care Products & Services CAPSTONE PARTNERS: COMPLETED PERSONAL CARE PRODUCTS & SERVICES TRANSACTIONS has secured financing from ANAPHORA, LLC Pierre s School of Cosmetology has recapitalized with CAPSTONE PARTNERS: OTHER CONSUMER PRODUCTS & SERVICES TRANSACTIONS CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL corporate sale (IN PROCESS) corporate sale (IN PROCESS) corporate sale (IN PROCESS) A Branded Organic Food Company Contract Manufacturer of Supplements and Nutritional Products US Craft Brewer has merged with has recapitalized with a portfolio company of Capstone Partners LLC 5

6 Personal Care Products & Services THE PERSONAL CARE PRODUCTS & SERVICES TEAM Tracy Patch, Vice President (949) Tracy is a Vice President in the Orange County office, supporting the management of the Western Region. Prior to Capstone, Tracy worked as a senior banking professional in Morgan Stanley Smith Barney s Capital Strategies Group and its predecessor, Citi Capital Strategies. She possesses nearly 15 years of experience in middle market investment banking, working on both domestic and cross-border transactions. Her previous finance experience includes working in the hedge fund industry with Collins/Bay Island Securities LLC and Talisman Capital. Prior to that, Mrs. Patch worked with institutional fixed income sales at Vining Sparks IBG, LP and Robert Thomas Securities, Inc. She also was a manager at The Disney Company. Mrs. Patch holds an MBA from Pepperdine University and a BS in Finance from Miami University of Ohio. She is a Series 7 and 63 Registered Securities Representative. David Bench, Managing Director dbench@capstonellc.com (949) David is a Managing Director in charge of the Western Region, based out of Orange County. Prior to Capstone, David managed the Western region for Morgan Stanley Smith Barney s Capital Strategies Group and its predecessor, Citi Capital Strategies. David has focused on middle market investment banking for nearly 30 years and has been the lead banker in over 250 M&A transactions involving both domestic and foreign corporate buyers, as well as leveraged recaps with private equity sponsors. David s achievements in investment banking have gained national recognition by The M&A Advisor: one of his transactions was awarded the Private Equity Deal of the Year, while another was recognized as the Energy Deal of the Year. Mr. Bench has also been awarded Middle Market Financing Professional of the Year, an award recognizing M&A s most accomplished professionals. Mr. Bench holds a BS and an MBA in Finance from Brigham Young University. He is a Series 7 and 63 Registered Securities Representative and a Series 24 Registered Securities Principal. Christopher Cardinale, Associate ccardinale@capstonellc.com (949) Christopher is an Associate in the Orange County office. He supports management and clients in the Western Region. Christopher is engaged in the execution and advisory of mergers, acquisitions and strategic capital raises. Prior to joining Capstone, he was an associate with a boutique M&A firm focused on valuation, M&A advisory, corporate finance, acquisition target research and exit-planning strategy. His industry experience includes manufacturing, healthcare, TMT and consumer. Christopher was also a research analyst in the M&A department at UnitedCapitalFinancialAdvisors.HeearnedaBAfromtheUniversityofSanDiego. Christopher is a Registered Securities Representative having passed the FINRA Series 79 and 63 examinations. Capstone Partners LLC 6

7 CAPSTONE S OFFICE LOCATIONS BOSTON 176 Federal Street 3rd Floor Boston, MA (617) CHICAGO 200 South Wacker Drive Suite 3100 Chicago, IL (312) LONDON 42 Brook Street London W1K 5DB United Kingdom +44 (0) LOS ANGELES 401 Wilshire Suite 1200 Santa Monica, CA (858) NEW YORK 340 Madison Avenue 10 th Floor New York, NY (212) ORANGE COUNTY Avenida de la Carlota Suite 600 Laguna Hills, CA (949) PHILADELPHIA 1515 Market Street 12th Floor Philadelphia, PA (215) SAN DIEGO High Bluff Drive Suite 200 San Diego, CA (858) SILICON VALLEY 228 Hamilton Avenue 3rd Floor Palo Alto, CA (650) TAMPA 1550 W Cleveland Street Suite 10 Tampa, FL (813) ABOUT CAPSTONE PARTNERS Capstone Partners LLC is an award-winning investment banking firm dedicated to serving the corporate finance needs of middle market business owners, investors and creditors. Over the past 15 years, Capstone has earned a reputation as one of the most innovative firms in the industry, offering corporate sale & divestiture, merger & acquisition, private placement, corporate restructuring, valuation and financial advisory services. The firm maintains seven industry practices, including: Business Services, Consumer Products, Education & Training, Government Services, Health& Medical, Manufacturing & Industrial, and Technology & Telecom. Headquartered in Boston, Capstone has offices in Chicago, London, Los Angeles, New York, Orange County, Philadelphia, San Diego, Silicon Valley and Tampa with an international presence that spans 450+ professionals in 70 offices across 31 countries. For more information about our expertise, please visit World Class Wall Street Expertise. Built for the Middle Market Capstone Partners LLC. All rights reserved.