Catterton Teases 4x Return From Hair Company

Target: Frederic Fekkai & Co.

Buyer: Procter & Gamble

Seller: Catterton Partners

Financial Adviser: Seller: Goldman Sachs

Legal Counsel: Seller: Gibson Dunn & Crutcher LLP

Catterton Partners took no haircut on its most recent exit. After two years of ownership, the Connecticut-based consumer products-focused LBO firm made more than 4x invested capital on the sale of luxury hair product company Frederick Fekkai & Co.

Consumer products giant Procter & Gamble picked up the business for more than $400 million, equivalent to 4x the company’s annual revenue, according to a source familiar with the deal. Catterton Partners in 2005 paid less than $100 million for Frederic Fekkai.

The company operated under the LBO firm’s health and beauty product management company, called Chrysallis. Catterton Partners established Chrysallis, in part, to spread the management talent of CEO Melisse Shaban across all of its health and beauty-related portfolio companies. After the sale of Frederic Fekkai, the remaining Chrysalis businesses include topical ointment maker Niadyne and British cosmetics brand Pout. The firm declined to comment because the deal hasn’t yet closed.

The price paid for Frederic Fekkai surpassed that of other LBO-backed personal-care product companies. In 2007 TSG Partners sold Pureology Research, another high-end hair-care company, to L’Oreal, and AEA Investors exited its ownership of natural products maker Burt’s Bees to Clorox. Both companies sold for lower than 4X revenue multiples during the height of the credit market. Frederic Fekkai’s high multiple demonstrates the sustained demand for luxury personal care products despite weakened consumer confidence.

“It’s showing that valuations for luxury personal care brands with growth left are still selling at luxury kinds of multiples,” said Joyce Greenburg, a managing director with boutique investment bank Financo. “Strategic buyers are still willing to pay if the growth is extendable.”

The attraction for Procter & Gamble lies in Frederic Fekkai’s ability to enter new product categories. The company makes shampoo and styling products, but has the potential to become a lifestyle brand, with new offerings in hair color and skin care, Greenburg said. For P&G, the deal is part of a strategic effort to increase its presence in high end personal-care products. Last year it bought HDS Cosmetics Labs, the maker of DDF Skin Care, from mid-market health-focused LBO shop NorthCastle Partners.

Catterton Partners paid for Frederic Fekkai out of Catterton Partners V LP, which closed in 2004 with $650 million in commitments. The firm is now raising money for a small-cap fund to complement its $1 billion sixth fund, closed in 2006.—E.G.