Beauty Industry

2011 Mid-Year Review and Outlook

2011 Mid-Year Macroeconomic and Capital Markets Review

Renewed concerns about the sustainability of the financial recovery following sub-par U.S. GDP growth, continuing
unemployment, and the global debt crisis are all causing macroeconomic and consumer headwinds
Impact

Situation
High risk of dynamic shift in the economy due to
U.S. budget deficit, which breached the debt limit
of $14.29 trillion in May, and the sovereign debt
crisis in the EU
Junes 9.2% unemployment, the third consecutive
monthly increase, renewed fears of a stalled
economic recovery
Average American still holds $10,168
$10 168 of debt in
credit cards, loans, and non-real estate consumer
debt
Number of U.S. homes to receive a foreclosure
filing expected to climb ~20% in 2011, reaching a
peak for the housing crisis

Beauty stocks mostly underperformed the S&P 400

July 2009 to July 2011

No Beauty IPOs in the first half of 2011

U.S. IPO market remains healthy; total proceeds

raised 2x more in the first half of 2011 than 2010

Strategics led in both quantity and size of deals; of

all
ll transactions
t
ti
in
i the
th fi
firstt h
half
lf off 2011
2011, 83% were
completed by strategics and 17% were completed by
financial sponsors

Macro

Capital
Markets

Private
P
i t equity
it holds
h ld over $1 ttrillion
illi off uninvested
i
t d
capital and is under pressure to put money to work
in advance of raising new funds
Unrealized investments a record 60% of total
managed capital; pressure building for exits

Debt markets remain open for >$20mm EBITDA

opportunities; ample capital available to high
grade borrowers
2

Consumers remain uncertain about the future,

adding to fears that spending will continue at a
tepid pace
June consumer confidence fell from 61.7 to
58.5 (lowest since Nov. 2010); spending at its
slowest pace in 20 months
Bifurcation exists among consumers; increase in
spending among wealthy far outpaces middle class
Federal Reserve cut its 2011 economic forecast
(from 3.2% to 2.8%), however, expects growth to
strengthen in the second half of 2011

M&A volume increased in the first half of 2011 by

>45% compared to the same period in the prior year

Highlighted by transformational acquisitions

that provided strategic buyers access to new
g
markets,, channels,, and categories
High-growth companies are raising equity capital to
pursue growth in direct-to-consumer channels and
international markets

Global Beauty Overview

The $382 billion Global Beauty industry is supported by positive growth across all major categories, and is on track to
reach $437 billion by 2015(1)
2010 Channel Share

2010 Category Size & Growth

(% of channel share)

($ in billions)
7.5%

4.6%

4.6%

7.0%

6.0%
5.2%
$48.2

4.5%
$42.0

4.1%

$33.6
$35.5

Drugstores
12.8%

$28.7
$17.2

$16.8

Suncare

Sets / Kits

Deodorants

Men's Grooming

Bath & Shower

Oralcare

Fragrance

Color Cosmetics

Haircare

Skincare

$8 0
$8.0

Sales by Category

Supermarkets &
Hypermarkets
26.9%

4.7%

4.4%

$6 9
$6.9

$5 7
$5.7

Beauty
Specialists
13.4%

Depilatories

$68.0

% Growth in 2010

Overall Retail Sales Growth by Channel 2005 - 2010

(% growth)

($ in billions)
$ 400

% 7.0%

350

6.0%

300

5.0%

10.0%
8.0%

250

4.0%

6.0%

200

3.0%

4.0%

150

2.0%

100

1.0%

50

0.0%

2.0%
0.0%
(2.0%)

(0.1%)
(1.0%)

2007
To tal Market
% Mass Gro wth
% To tal Gro wth

(1) Constant

Other
21.3%

Non-Store
Retailing
16.1%

2006 - 2010 Global Beauty Growth

2006

Department
St res
Sto
9.5%

7.3%

Babycare

$71.5

7.5%

2008

2009

2005

2010

Premium Sales
% Premium Gro wth

Retailing

2010 prices and fixed 2010 exchange rates. Source: Euromonitor.

2006

Grocery
Retailers

2007

2008

Non-Grocery
Retailers

2009

Non-Store
Retailing

2010

BPC
Non-Store
Sales

U.S. Beauty Overview

After a decline in 2009, Beauty and Personal Care sales showed signs of life in 2010

Premium vs. Mass Sales Mix

Historical and Projected Sales by Category

($ in billions)
$59.7

$56.6

$62 0
$62.0

10.3

0.4%

10.1

10.6

8.6

9.4

10.0

6.0
5.0

5.3
54
5.4

5.2
53
5.3

9.1

17.7

19.4

2005

2010

0.9%

10.7

10.0

1.6% shift toward Mass

05-15
CAGR

34.8%

34.6%

34.5%

33.4%

32.2%

32.4%

32.7%

33.0%

33.1%

33.1%

33.2%

65.2%

65.4%

65.5%

66.6%

67.8%

67.6%

67.3%

67.0%

66.9%

66.9%

66.8%

2005

2006

2007

2008

2009

2010

2011P

2012P

2013P

2014P

2015P

1.6%
1.6%
(1.4%)
(1 4%)
0.6%

20.2

1.3%

2015

Haircare
Skincare
Color Cosmetics Fragrance Bath & Shower
Other Bath & Shower Fragrance Color Cosmetics Skincare Haircare

Other

Mass

2010 Sales by Distribution Format

2005 2010 Ecommerce Sales

(% of channel share)
Other
Store-Based
19.7%

''
'05
05 - '10
10 CAGR
0.7%
'05 - '10 CAGR
(4.0%)

($ in billions)
Supermarkets &
Hypermarkets
24.7%

Mass
Merchandisers
10.7%

2005 - 2010
CAGR = 11.5%
$2.9

'05 - '10 CAGR

1.8%

$3.0

$3.2

$2.6
$2.2
$1.9

'05 - '10 CAGR

1.4%

'05 - '10 CAGR

(3.1%)
Department
Stores
13.9%

Premium

Non-Store /
DTC
16 8%
16.8%

'05 - '10 CAGR

1.3%

Pharmacies &
Drugstores
14.2%

2005

Source: Euromonitor.

2006

2007

2008

2009

2010

U.S. Beauty Industry Category Outlook & Growth Drivers

The $10.1 billion Skincare category grew by 2.0% in 2010, driven primarily by premium product sales
Already the largest Skincare segment, Facial Anti-Aging, and specifically Premium Facial Anti-Aging products, boasted
Skincare

5.3% and 13.0% increases, respectively; CAGR through 2015 is forecasted at 1.0% with gains in Face, Sun, and Gifts

While only 4.3% of Facial Skincare sales today, whitening treatments and spot correctors are gaining importance as
women seek to reverse the effects of sun damage

Increases in R&D budgets of large mass brands have yielded breakthroughs in Skincare technology rivaling prestige
efficacy, enabling mass brands to achieve higher price points

Representing 23.5% of the U.S. Haircare business, Salon Haircares 19.7% decline since 2005 has weighed down the
overall category, but is expected to reverse course through 2015

Haircare

Mass brands are launching value-added Haircare that rivals the efficacy of salon brands
Hair Color sales increased 3.0%, rebounding to 2008 levels
Growth in Styling Agents, Salon Haircare, and Hair Extensions are expected to counter the decline in Haircare dollar
sales

Color Cosmetics made a remarkable turnaround, growing 3.8% in 2010 to reach $9.4 billion in retail sales, after a two year
decline

Color
Cosmetics

Nail products outperformed other segments with growth of 12.0% in 2010, benefiting from women performing DIY manicures
and pedicures; Nail Polish achieved impressive sales growth of 16.0%

In Prestige, the Lip segment gained 7.4% in 2010 and 7.0% from January to April 2011; Lip Color specifically increased 11.0%
after almost a decade of decline

Eye Makeup is still strong, posting a 4.5% increase in 2010, and is expected to maintain a 2.1% CAGR through 2015
Likewise, forecasts of the entire category turned for the better, with updated expectations for a 1.2% CAGR through 2015
U.S. Fragrance sales have steadily declined since 2005; nevertheless, subtle consumer optimism helped boost sales by 1.7%
in 2010; by 2015, Fragrance is expected to decline by 0.5% CAGR

F
Fragrance

Roughly 5 times larger than Mass, Premium Fragrances at $4.3 billion bounced back by 3.1%, while Mass suffered a 3.8%
d li
decline

Brand fragmentation continues as celebrity and designer launches are a dime a dozen, and typically a 1 2 season shelf life
Unisex scents fell out of favor in both Mass and Prestige channels, realizing double digit decreases in 2010
Classics continue to dominate the top 10 best seller list
The $5.4 billion Bath & Shower category declined 2.0% in 2010, after growing by 3.5% in 2009; sales are not expected to

Bath &
Shower

rebound through 2015 as the category is heavily promotional

Body Wash & Shower Gel experienced a 7.5% increase in 2010

Majority of sales come from the Mass channel, with private label and cover label sales accounting for ~25% share
Increasingly, brands are adding anti-aging technology in core body products in order to achieve higher price points

Source: Euromonitor, Mintel, NPD, GCI, and Beauty Cross Channel Monitor.

Beauty Retail Trends

The astounding pace of consumer adoption of mobile commerce is altering the retail landscape
in the U.S.

Mcommerce

Beauty brands of all sizes are utilizing social media and mobile apps in order to cement

Ecommerce

relationships with consumers, garner feedback, and provide real-time services such as product
locaters, efficacy ratings, tutorials, and interactive beauty advisors
Within 4 years, mobile usage is expected to overtake PC usage in terms of accessing the Web

Ecommerce grew 16% globally and 10% in the U.S. in 2010

Beauty-specific internet sales reached over 5% of all Beauty retail, or $3.2 billion

After 18 months of de-stocking, retailers are replenishing stock and increasing on-hand weeksRe-Stocking

Services
Drive
Traffic

of-supply (WOS), creating a smoother supply chain and allowing brands to forecast with
better accuracy
Average WOS stock increasing 50 60% since low point in 2009

Prestige and mass retailers alike are adding lash & brow bars, self-tanning, blowouts, nail bars

and makeover studios within current retail environments to entice frequent visits and a higher
average basket
Consumers are drawn to instant services,, tips
p on technique,
q , and makeover opportunities
pp

With the onslaught of private flash sale sites and daily deals, consumers are becoming
ConsumerCentric
R t il
Retail

desensitized to paying value prices for top brands; furthermore, consumers are more in control
as they demand free shipping, prefer to name their own price, leverage social media platforms
to aggregate
gg g
purchases,
p
, and use mobile devices to compare
p
p
prices and discounts
Top 4 flash sale sites claimed 2.7 million unique visitors in December 2010, each up 15% - 50%
over 2009

Source: Euromonitor, WWD, comScore, and Morgan Stanley.

Beauty Brand & Innovation Trends

Perceptive brands are launching products targeting specific generational groups,

Niche
C
Consumer
Segments

whether Gen D (the D-igital generation that believes access to information is their
birthright) or Boomers, which represent the fastest growing segment in developed
countries and have unique personal care needs

At 75 million consumers strong, or 29% of the U.S. population, Boomers will double in
size in the next 20 30 years, representing a significant opportunity to deliver
products with anti-aging benefits in all categories and packaging options customized
for portability, ease, and value

Topical beauty products have the potential to be delivered efficaciously via infused
Unconventional
Delivery
y
Systems

clothing, sleepwear, and bedding; shapewear not only has the potential to physically
shrink ones appearance, but also to actively reduce the signs of cellulite or stretch
marks on the skin

Textile manufacturers have cracked the code on embedding fabric with active

ingredients, making wearable garments the newest delivery system for cosmeceuticals

New legislation aims to update the U.S. Food, Drug, and Cosmetics Act of 1938 by
Regulation

mandating more stringent practices on ingredient labeling across all categories,

causing concern over massive repackaging expenses

First signs of increased intervention are evident in the recently announced new FDA

guidelines for the labeling of sunscreen products that will take effect in the next 12
months

Source: Euromonitor, WWD, The Futures Report, BW Confidential, GCI, and The Doneger Group.

Overview of Public Market Comparables in the Global Beauty Industry

Overall, public valuations have improved marginally with subtle improvements in the economy; the sector is expected
to grow as economic outlook remains cautiously optimistic
Median EV / EBITDA

Stock Performance Index Graph Last 2 Years

400%

Median 2011 = 9.8x

Median 2010 = 8.2x
8 2x
Meidan 2009 = 8.2x

350%

10.9x 11.1x 11.2x

300%

9.3x 9.3x 10.1x

9.3x

9.6x

250%

7.4x
6.6x

6.0x

200%
150%

2.5x

100%
50%
Jul-09

Sep-09

Dec-09

Specialty Retail

Feb-10

Apr-10

Large and Mid-Cap

Jul-10

Sep-10

Nov-10

S&P 400

Feb-11

Small-Cap

Apr-11

Jul-11

Global Mega-Cap

Global Mega Cap

07/22/09

Historical vs. Estimated Revenue Growth CAGRs

2.1%

6.4%

Large and Mid-Cap: All for One, Amorepacific, Avon Products,

Beiersdorf, Church & Dwight, Clorox, Este Lauder, Kao Corp.,
Natura Cosmeticos
Cosmeticos, Oriflame Cosmetics
Cosmetics, Shiseido

4.9%

Small-Cap: Elizabeth Arden, FANCL Corp., Helen of Troy, KOSE

Corp., Mandom Corp., Mannatech, Nu Skin Enterprises, Obagi
Medical Products, Physicians Formula, Prestige Brands, Revlon,
Unihair

Specialty Retail

Specialty Retail: Limited Brands, Regis Corp., Sally Beauty, Ulta

S l
Salon

1.9%

(1.3%)
Global Mega-Cap

Large and Mid-Cap

Last 2-Year

Small-Cap

Specialty Retail

7/22/11

Global Mega-Cap: Colgate-Palmolive, Henkel AG, Johnson &

Johnson, LOral, Procter & Gamble, Unilever NV

13.5%

5.0%

Small-Cap
07/22/10

Median Change in Last 2 Year to Next 2 Year CAGR = 5.8%

5.9%

Large and Mid-Cap

Next 2-Year

Source: Capital IQ; LTM data as of July 22, 2011.

M&A Trends in the Beauty & Personal Care Industry

Transaction volume increased 45% in 2010 with 2011 projected to exceed 2010; valuations continue to rebound with
strategics generating the majority of deals in the sector through both bolt-on and transformational acquisitions
Strategic vs. Financial Sponsor Acquisitions

Median Transaction Multiples

13.6x
12.0x

11.7x

11.2x

12.5x

25.0%

31.0%

75.0%

69.0%

62.0%

2005

2006

2007

38.0%

29.2%

27.3%

70.8%

72.7%

2008

2009

11.8%

17.1%

88.2%

82.9%

2010

2011

9.7x

9.5x

2.0x

1.5x

1.2x

2005

2006

2007

2.0x

2.0x

22
2.2x

1.7x

2008

2009

2010

2011

Median EV / Revenue

Strategic

Median EV / EBITDA

2005 2011 Median EV / Revenue by Category

Financial Sponsor

2005 2011 Median EV / EBITDA by Category

Overall Median = 11.9x

Overall Median = 2.0x

2.3x
2.0x

2.2x

1 8x
1.8x

Color Cosmetics

Haircare

Skincare

13.6x

13.0x

Bath & Body

1 7x
1.7x

10.5x

Oral Care

Color Cosmetics

Source: Public company filings, press releases, Capital IQ, & Demeter Group estimates as of July 22, 2011.

Haircare

10.5x

12.3x

Skincare

Bath & Body

Oral Care

Select 2011 M&A Comparables

Closed

Enterprise

Date

Target

Acquirer

Target

Enterprise Value/

Value*

Revenue

EBITDA

Revenue

EBITDA

N/A

Skincare
Pending

Dermik Laboratories, Inc.

Valeant Pharmaceuticals International

$425

$240

N/A

1.8x

Pending

H20 Plus, L.P.

Pola Orbis Holdings, Inc.

91

N/A

N/A

N/A

N/A

Marbert Holding AG (Marbert Brand)

Straub GmbH

N/A

N/A

N/A

N/A

N/A

Jul-11
Jul-11

Freeze 247 Skin Care Brand

TPR Holdings LLC

N/A

N/A

N/A

N/A

N/A

Jun-11

Laboratories Dermatologiques dUriage SA

Exea Corporation (Puig Beauty & Fashion Group S.L.)

N/A

N/A

N/A

N/A

N/A

May-11

Pomega, Inc. (Private Placement)

mBeach Software, Inc.

N/A

N/A

N/A

N/A

N/A

May-11

Aero Pharmaceuticals Inc.

Biozone Pharmaceuticals Inc.

321

N/A

N/A

N/A

N/A
N/M

Apr-11

Paras Pharmaceuticals Ltd.

Reckitt Benckiser Group plc

717

88

$24

N/M

Feb-11

Beiersdorf AG - Juvena brand

Troll Cosmetics GmbH

N/A

N/A

N/A

N/A

N/A

Feb-11

Nude Skin Care

LVMH Moet Hennessy Louis Vuitton

N/A

N/A

N/A

N/A

N/A

Feb-11

Ole Henriksen of Denmark, Inc.

LVMH Moet Hennessy Louis Vuitton

N/A

N/A

N/A

N/A

N/A

Jan-11

Tjoy Holdings, Ltd

Coty Inc.

400

N/A

N/A

N/A

N/A

Mean

1.8x

N/A

Median

1.8x

N/A

Haircare
Pending

Darling Group Holdings

Godrej Consumer Products Ltd.

$219

$224

N/A

1.0x

N/A

Jul-11

Fing'rs (Europe) AG and Fing'rs (Deutschland) GmbH

Pacific World Corporation

N/A

N/A

N/A

N/A

N/A

Jun-11

Oscar Blandi Haircare

TPR Holdings Inc.

N/A

10

N/A

N/A

N/A

May-11

Alberto-Culver Co.

Conopco (Unilever)

3,732

1,551

$248

2.4x

15.0x

May-11

Sexy Hair Concepts, LLC

TSG Consumer Partners

N/A

N/A

N/A

N/A

N/A

Feb-11

Beiersdorf AG - Marlies Mller brand

Troll Cosmetics GmbH

N/A

N/A

N/A

N/A

N/A

Feb-11

Kenra Limited

TSG Consumer Partners

N/A

N/A

N/A

N/A

N/A

Jan-11
Jan
11

Vanart and Select Brands

Genomma Lab Internacional SAB de CV

85

42

N/A

2 0x
2.0x

N/A

Jan-11

Namast Laboratories, LLC

Dermoviva Skin Essentials Inc

140

90

N/A

1.6x

N/A

Mean

1.7x

15.0x

Median

1.8x

15.0x

Color Cosmetics
Pending
Jun-11

Somang Cosmetics Co.

KT&G Corporation

N/A

N/A

N/A

N/A

N/A

COVER FX Skin Care, Inc.

Catterton Partners (Private Placement)

N/A

N/A

N/A

N/A

N/A

Jun-11
Jun
11

Collection 2000

Li & Fung Limited

N/A

N/A

N/A

N/A

N/A

Mar-11

Mirage Cosmetics, Inc., Certain Assets

Revlon, Inc.

N/A

N/A

N/A

N/A

N/A

Feb-11

Barielle, Ltd.

Fisk Industries, Inc.

N/A

N/A

N/A

N/A

N/A

Jan-11

Dr. Scheller Cosmetics AG

Coty Inc.

N/A

$70

N/A

N/A

N/A

Jan-11

E.l.f. cosmetics (Private Placement)

TSG Consumer Partners

N/A

N/A

N/A

N/A

N/A

Jan-11

Paris Presents

Mason Wells

$82

70

$8

1.2x

10.0x

Mean

1.2x

10.0x

Median

1.2x

10.0x

Overall Mean

1.7x

12.5x

Overall Median

1.7x

12.5x

Note: $ in millions. *Enterprise Value = Value of Shareholders Equity + Debt Cash.

Source: Public company filings, press releases, Capital IQ, & Demeter Group estimates as of July 22, 2011.

10

Demeter Group Overview

Latest Transactions
In the last 6 months,
months Demeter Group has closed 4 transactions totaling +$400 million in Enterprise Value
Value, with each
sold at a strategic multiple to a global Consumer portfolio

Has Been Acquired By

Has Been Acquired By

Has Been Acquired By

Has Been Acquired By

May 2011

March 2011

February 2011

December 2010

12

Demeter Group
N ti
Nationally
ll recognized
g i d iinvestment
t
t bank
b k focused
f
d exclusively
l i l on high-growth
high g
th Consumer
C
and
dR
Retail
t il companies
i
Advisory Services

Overview

Advise global, multi-channel, high-growth brands and

concepts in the following sectors:

Raise growth equity capital ($10 million to

$50 million) from global private equity funds
and family offices in non-control
transactions

Obtain strategic transaction multiples by

leveraging our strategic perspectives to
match our clients unique industry direction
and shareholder objectives with buyer
capabilities

Develop tailored investment theses and

identify potential targets that leverage
i
investors
t and
d buyers
b
core capabilities
biliti so
they can be pre-emptive yet competitive on
valuation and terms

Private
Placement

Food & Beverage

Beauty & Personal Care
Apparel & Footwear
Specialty Retail
Direct-to-Consumer (DTC) and Ecommerce

Advise privately-held, founder-led, and family businesses

with enterprise values between $25 million and $300
million

Sell-side

Median transaction size ~$100 million

Deal teams run day-to-day by CEO

Buy-side

Note: Securities offered through Demeter Advisory Group, LLC, member of FINRA / SIPC.

13

Jeff Menashe
Chief Executive Officer
menashe@demetergroup.net

Jani Friedman
Managing Director
friedman@demetergroup.net

100 Spear Street, Suite 1115

San Francisco, CA 94105
(415) 632-4400
www.demetergroup.net