General Atlantic-backed Forma Brands, a cosmetics platform that helped superstar Ariana Grande launch her REM Beauty brand, filed for Chapter 11 protection from creditors Thursday.
The company has an agreement with an investor group set to finance the company’s restructuring and allow it to emerge from Chapter 11 protection. Jefferies, Cerberus Capital and pre-bankruptcy equity holders including GA made what’s known in bankruptcy court as the stalking horse bid, intended to help restructure the company and fund its emergence out of Chapter 11. Bankruptcy court must approve the sales agreement, which could be supplanted by a higher bidder.
The covid lockdown in March 2020 took a heavy toll on businesses that relied on brick and mortar customer sales. Some were able to weather the shutdown, especially those that relied on government assistance, but many companies were forced to close as business dried up.
“Demand for makeup products in 2020 decreased as a result of lockdowns and at-home seclusion,” according to chief restructuring officer Stephen Marotta in bankruptcy documents.
“In particular, premium beauty segments were more impacted by the covid-19 pandemic due to specialty store closures, whereas the mass beauty segment was better protected due to more mass beauty retailers qualifying as essential businesses and remaining open to sell both beauty and non-beauty products.”
As of the filing, the company had about $868 million of funded principal debt and interest obligations, the filing said. The investor group has provided a bankruptcy loan of up to $33 million to continue operating through the restructuring process.
GA created the platform Forma Brands in 2019 with its majority investment in Morphe Cosmetics, which valued the company at $2.2 billion, according to media reports at the time. Existing investor Summit Partners retained a stake in the business as part of the deal.
Morphe was formed in 2008 by Chris and Linda Tawil and grew it into a global beauty brand. GA created its platform Forma Brands with Morphe and other brands like Bad Habit, Lipstick Queen, Jaclyn Cosmetics and Playa Beauty.
The company’s products are sold through beauty retailers worldwide including Ulta Beauty, Sephora, Mecca, Douglas and Target, according to bankruptcy documents.
The company began to experience liquidity and operational pressures as a result of the pandemic, which kept shoppers out of stores and changed consumers’ beauty habits, bankruptcy documents said.
Forma Brands also terminated its relationship with two influencers whose YouTube recommendations helped drive business, accounting for more than 40 percent of Morphe’s revenues between 2016 and 2019, the company said.
By September, the company formed a committee to consider options and hired Configure Partners to run a sales process, bankruptcy documents said. The company received no viable bids by its deadline, and entered into the agreement with the investor group and filed for Chapter 11, the documents said.
Ariana Grande asked to terminate its agreement with Forma earlier this year, in which it helped the singer develop her beauty brand. As part of the agreement, Forma got rights to the trademark and other intellectual property, as well as licensed products like color cosmetics, skin and body care, hair care and other tools and accessories, documents said. Forma also had the right to use Grande’s persona related to the operation of the REM business, the document said.
“The Debtors believe a definitive asset purchase agreement with respect to a REM asset transfer will be executed shortly and anticipate filing a motion seeking court approval of the transaction in the coming days,” the company said in bankruptcy documents.
Forma also will close all of its Morphe retail locations in the US and focus on e-commerce and wholesale operations, the documents said. The company still operates Morphe retail locations in Canada, Europe and Australia.