Revolution Beauty Group plc (LON:REVB) has announced the acquisition of certain intellectual property assets and inventory of US cosmetics brand BH Cosmetics.
- BH Cosmetics: Badass with Heart (BH) Cosmetics was launched in Los Angeles in 2009. It produces vegan and cruelty free cosmetics targeted at Gen Z consumers with a focus on high quality cosmetics at affordable price points, in line with the Group’s wider consumer proposition. BH Cosmetics has over 6.5 million social media followers and sells through its own direct to consumer channel and through several focused retailers across the US and Germany. The brand is particularly well known for its makeup brushes, strengthening the Group’s proposition in the tools and accessories category.
- Deal terms: The Group has acquired certain intellectual property assets (including the BH brand, social media accounts and customer database) and inventory of BH Cosmetics. Total consideration of US$3.9 million has been financed through the Group’s existing cash resources. In 2019, BH generated revenue of US$55.8 million across its online and retail channels in the US and Germany. The business was significantly impacted by COVID-19 with revenue decreasing 39.6% YOY to US$33.7 million in 2020, generating an operating loss of US$22.5 million as a result of its high operating cost base, resulting in the business filling for Chapter 11 Bankruptcy in January 2022.
- Strategy: Revolution Beauty will consolidate the BH Cosmetics brand into the wider Group operations over the course of 2022, leveraging its existing product development, supply chain and distribution capabilities. BH Cosmetics brings a highly complementary brand into the Group’s portfolio; its high-quality, affordable, vegan and cruelty free proposition is fully aligned with Revolution Beauty’s core values. The acquisition will drive further growth in the important US market, whilst the Group’s established global presence can be leveraged to grow BH Cosmetics in new markets. The acquisition is in line with the Group’s stated intention to establish a British global beauty group, targeting the vast market opportunity that exists in mass beauty.
- Guidance & Forecasts: Sales attributable to the acquisition are expected to be minimal in H1 FY23E s the Group onboards new suppliers and integrates the brand into its operations. We leave our forecasts unchanged for now and will revisit at full year results, but note that pre-COVID revenue of $55.8 million in 2019 suggests significant market opportunity as the brand is re-established.
- Valuation: Revolution Beauty trades on a FY23E PE of 28.2x falling to 21.8x in FY24E, c17% below the average of its listed cosmetics company peers. Our DCF implies a share price of 200p, +65% above current levels with scope for upside to our forecasts as today’s announced acquisition is scaled.
