International Deal of the Year: BlackRock Long Term Private Capital and Creed

BlackRock Long Term Private Capital (LTPC)’s acquisition of luxury fragrance company Creed for around $310 million in May 2020 was in some ways a typical private equity investment. But the PE playbook does not usually include hiring an archivist to research the founding of the brand through the artifacts that Olivier Creed, the sixth-generation family owner of the business, his son Erwin and their ancestors had collected.

“It was emblematic of our approach because Olivier and Erwin had built a fantastic business, but they hadn’t really spent the time and the resources to do this,” says Dag Skattum, managing director and head of BlackRock LTPC for Europe. When BlackRock did the work, “we got even more excited about the brand and the uniqueness, the legacy and the history.”

Founded in 1760 as a bespoke tailoring business, Creed later counted no less than Queen Victoria among its customers.

The total addressable market of European royalty isn’t what it once was, so in 1970 Olivier Creed switched from a private client service for prominent figures to serving the public.

Creed had historical net revenue growth CAGR of over 15 percent, last-twelve-months net revenue of €77 million and LTM EBITDA of €52 million. BlackRock saw the chance to push the business further – but like the archivist, kept turning up surprises. On top of the brand strength and customer loyalty, “it had a younger demographic than we thought when we first started work,” says Skattum.

“Even through covid, you’d think, would people apply fragrance to themselves when they’re sitting in front of a video screen?” Dag Skattum, BlackRock LTPC

BlackRock said Creed liked its “long-term, sustainable growth, partnership-first mindset, and deep appreciation of family dynamics.”

Skattum says LTPC’s conservative leverage approach also helped. It secured a €250m syndicated term loan B to fund the deal, resulting in net leverage post-closing of 4.5x LTM
EBITDA.

Royalty to retail

Investing in a fragrance business amid covid lockdowns might have seemed bad luck. But far from it.

“Even through covid, you’d think, would people apply fragrance to themselves when they’re sitting in front of a video screen?” says Skattum. “Stores were closed and people bought online. We knew that the opportunity was greater online than when we bought the business. But we should not have expected that demand would be as strong during covid. It just reinforces that in the affordable luxury category, when people can give themselves a treat, it thrives in the more extremely uncertain times like covid.” That also held true post-covid as a spike in inflation and interest rates hit consumers’ pockets.

$3.3bn

Total proceeds on the sale of Creed (purchased for $310m in 2020)

The hiring process launched during the due diligence process, which began in September 2019. New CEO Sarah Rotheram was in her chair by June, working with LTPC operating partner and new Creed chair Javier Ferrán – who had first heard the Creed family were considering a sale in June 2019 – to fill the rest of the team. They added a CFO, CMO, e-commerce director, head of production and commercial director within six months of closing, alongside building out their respective teams.

LTPC then began to adapt a business of just 25 employees. It acquired its two largest distributors – which helped push the headcount to 630 at time of exit – and its French boutiques, allowing greater retail pricing control and a higher share of profit per bottle. It invested in the production facility and processes, implemented an ERP system and launched ESG initiatives to manage the raw ingredients supply chain.

Creed also built its first global marketing function and expanded geographically, including in China. Despite covid, Creed expanded into travel retail and grew its ecommerce capabilities. The company also identified an opportunity in female-oriented fragrances, where Creed had historically had less brand recognition.

The smell of success

Creed’s performance began to attract suitors. At the time of its eventual exit, net revenue had increased by 3.7x to €285 million and EBITDA had grown 2.7x to €140 million.

In March 2023 global luxury group Kering began bilateral discussions and by June a definitive agreement to sell 100 percent of Creed to the company was agreed.

The deal yielded total proceeds of $3.3 billion to LTPC and its investors, implying a gross MOIC north of 10.5x and gross IRR north of 100 percent.

Creed has also kept the traditions that made it so attractive to BlackRock. Olivier Creed is still in the business as a fragrance ‘nose’ and evaluator, while his son Erwin has a commercial and brand ambassador position.

Fragrances are produced in-house, a rarity in the global fragrance business.