Clayton Dubilier & Rice bypassed a planned initial public offering for portfolio company Jafra Cosmetics International, deciding instead to sell the business to Germany-based Vorwerk & Co. in a reported $400 million deal.
Westlake Village, Ca.-based Jafra is a direct seller of skin-care, cosmetics, fragrances and other personal care products. The company, with annual revenues of $400 million, primarily targets the Mexican and U.S. markets.
CD&R, which owns an 84% stake in the cosmetic outfit, had filed in February to float Jafra in a $100 million IPO on the New York Stock Exchange. David Novak, a partner at CD&R, noted, “This deal represents a slight discount to the IPO valuation, but it gives us a full exit.”
The transaction will give CD&R a roughly five times return on its $83 million investment, including the $146 million dividend the firm realized in a 2003 recapitalization, yielding a total IRR of roughly 33 percent. The transaction is expected to close in the second quarter.
For CD&R, the sale closes the book on the 1998 investment that started with the $200 million buyout from Gillette. When the firm acquired the business, it immediately shuffled the management team, installing industry veteran Ron Clark as chairman and chief executive of the Mary Kay rival.
“Jafra wasn’t core to the business,” Novak said. “The company uses direct sales to distribute its products, and that differs greatly from the channels used by Gillette, which was taking more of a consumer product approach… We brought in a management team with a background in direct sales, and from there worked to improve productivity and costs, and that ultimately resulted in an increase of our EBITDA margin from 10% to 18 percent.”
As early as June 2002, CD&R was reported to have started shopping Jafra, with press reports at the time indicating that the firm was seeking a minimum of $400 million. However, the company’s exposure to Mexico scuttled the attempted sale, and CD&R eventually settled on a recapitalization of the company in 2003 as a way to return money to its LPs. Credit Suisse First Boston and Merrill Lynch led the $275 million recap.
Novak said, “The end result of the investment turned out a little different than our initial thesis. We were not able to grow in new markets like we had hoped to, but we were able to grow in our existing markets… When we first made the investment, though, we had bigger aspirations for growth into Latin America and Asia, but to do so would have been more expensive than we initially thought.”
However, he said the opportunity to expand in Latin America and Asia should be open for Vorwerk, which already has a global direct sales infrastructure established.
Buyer: Vorwerk & Co.
Target: Jafra Cosmetics
Seller: Clayton Dubilier & Rice
Purchase Price: $400M
Advisor: CD&R: Merrill Lynch; V&C: GF Capital Management & Advisors.
Legal Counsel: CD&R: Debevoise & Plimpton; V&C: Simpson, Thacher & Bartlett
Accountant: CD&R: Ernst & Young; V&C: PricewaterhouseCooper