Johnson & Johnson (NYSE: JNJ) agreed to acquire Vogue International LLC from private Equity firm Carlyle Group LP (NASDAQ: CG) and the company’s founder and CEO Todd Christopher, for $3.3 billion in cash, representing a windfall for the sellers.
Vogue International is a leading manufacturer and distributor of salon-heritage hair care and other personal care products.
The acquisition will be made by J&J’s subsidiary Johnson & Johnson Consumer Inc., and will include the OGX collection of shampoos, conditioners, treatments, styling products, body care and bath products, the FX line of hair styling products, and the Proganix and Maui Moisture hair care lines.
As recently reported by ExitHub, Goldman Sachs Group (NYSE: GS) was said to be shopping the company on behalf of Carlyle, in a bidding process that included several major personal care industry rivals of J&J.
The Carlyle Group acquired 49% of Vogue International in February 2014 out of its Carlyle Partners VI fund, reportedly for about $400 million, giving the company an $800 million approximate total value at the time. The company’s founder and CEO Todd Christopher, kept a 51% stake.
Within a year, the company issued over $650 million of debt instruments to fund a massive dividend distribution to its shareholders, Christopher and Carlyle. “The dividend — the company’s first since the recapitalization in early 2014 — is evidence of increasingly aggressive financial policies,” Moody’s said.
Vogue’s revenue for the 12 months ended September 2014 was less than $300 million, according to Moody’s Investors Service.
The news comes a few weeks after private equity firm Brynwood Partners agreed to sell its competing hair care and personal care portfolio company High Ridge Brands Co. to private equity firm Clayton, Dubilier & Rice for $415 million. High Ridge Brands is America’s 4th largest nationally branded hair care manufacturer, and its brands include VO5, Rave, White Rain, Thicker Fuller Hair, LA Looks and Salon Grafix, according to the company. It also owns Zest, Coast, and White Rain skin cleansing brands. High Ridge, with approximately 45 employees, outsources 100% of its manufacturing needs.
“Our acquisition of Vogue International’s full line of leading advanced hair care products sold in the U.S. and in 38 countries will strengthen our global presence in this important category. Vogue International’s commitment to quality, innovation, and consumer preference complement our Consumer portfolio, while also presenting attractive hair care category growth opportunities for Johnson & Johnson,” said Jorge Mesquita, Worldwide Chairman, Consumer, Johnson & Johnson.
The closing is subject to antitrust clearance and other customary closing conditions, and is expected to close during the third quarter of 2016.
Headquartered in Clearwater, Florida, Vogue’s products are distributed to retailers through food, drug, and mass channels in the US and internationally, in 38 foreign countries. “We are constantly recreating the company so we are always offering innovative products to a very savvy consumer,” said Christopher.
Christopher founded Vogue International in 1987, after working for his uncle’s hair salon. He invented hair treatment capsules under the Pro-Vitamin brand, which he and his wife sold out of their car, according to Smart Business Magazine.
Vogue International has grown to become one of the largest privately owned hair care and beauty companies in the US, with its OGX brand consistently ranking as one of the top 10-premium hair care brands, SBN says. In 2014 Christopher received the EY Entrepreneur of the Year Award under the Retail & Consumer Products category in Florida. A significant factor in the company’s success is its colorful packaging and presentation.
Vogue’s main brand is OGX, with its styling brand FX Effects accounting for less than 5% of revenue, according to Moody’s. Vogue has a good market position in a niche segment of the hair care category, it experienced recent significant market share gains, and positive projected free cash flow during the past few years, Moody’s commented in connection with its February 2015 ratings.
While the company has good insight into consumer preferences for shampoos and conditioners, and is benefiting from significant distribution gains in recent years, Vogue is also heavily reliant on its founder, which creates succession risk, Moody’s noted. It further added that Vogue’s small scale relative to much larger competitors, its product and customer concentration, and its moderately high financial leverage, subject the company to potential earnings volatility.
In December 2012, Vogue re-formulated OGX shampoos and body washes to remove Cocamide DEA from all products. In August 2013, Vogue paid $6.5 million to settle a false advertising class action filed in November 2012, accusing it of falsely labeling its Organix skin and hair care products as organic. It then rebranded the product as OGX.
After 2014, the company phased out the allergen Hydroxyisohexyl 3-cyclohexene carboxaldehyde (HICC, commonly known as Lyral) from all OGX products. It also made a commitment to eliminate the use of the colorants Red 17 (CI 26100) and Yellow 11 (CI 47000) by the end of 2015, and to eliminate the use of the preservative Methylisothiazolinone from its products, by 2017.
Johnson & Johnson Consumer Inc., based in Skillman, N.J., is one of the world’s largest consumer health and personal care products companies. Its consumer companies produce many of the world’s most trusted brands, among them Johnson’s Baby, Band-Aid, Neutrogena, Tylenol, Motrin, and Listerine.
Johnson & Johnson researches and develops, manufactures, and sells various products in the health care field worldwide. It operates through three segments: Consumer, Pharmaceutical, and Medical Devices. The company employs 127,500 people at more than 250 operating companies throughout the world. Johnson & Johnson was founded in 1885 and is based in New Brunswick, N.J. The company has a market capitalization of $315.69 billion.