Mass. Shop Uses All-Equity To Purchase Cosmetics Co.

Castanea Partners has pulled the trigger on its first deal in roughly 18 months, acquiring a majority control stake in Urban Decay Cosmetics LLC, a Newport Beach, Calif.-based company, from The Falic Group.

Financial terms of the deal weren’t disclosed. Piper Jaffray acted as advisor for Urban Decay, which is known as a premium cosmetics brand with products sold at high-end specialty retailers such as Sephora and Ulta Beauty.

Robert Smith, a co-founder and managing partner at Newton, Mass.-based Castanea Partners, told Buyouts that Urban Decay was profitable but declined to provide further specifics about the company’s annual sales or EBITDA performance.

He did disclose, however, that no leverage was used in the transaction, describing the deal as a “classic growth equity investment.” Smith said the firm’s typical equity check is between $20 million and $70 million. Targets tend to have enterprise values of up to $250 million.

Smith founded Castanea Partners in 2001 with fellow managing partner Brian Knez. The pair has extensive experience working together, previously serving in co-CEO roles at both textbook publisher Harcourt General and luxury department store retailer Neiman Marcus.

The industry focus of Castanea Partners reflects this track record, as the firm’s sectors of interest include professional publishing and information services, education, training and testing services, branded consumer products and specialty retail businesses, marketing services, and human resource and business services.

As for Urban Decay, Smith said the company was especially appealing because its brain trust – consisting of Tim Warner, general manager; Wende Zomir, co-founder and executive creative director; and Eric Jimenez, worldwide retail director and international make-up artist – is going to stick around in the same roles.

“They’ve created a distinctive brand and presence and we see a significant opportunity for continued growth on both the domestic and international fronts,” he said. Right now, roughly a quarter of Urban Decay’s business is from overseas.

Smith said Castanea Partners was impressed by how well Urban Decay’s business has stood up over the past six months. The firm plans to support efforts to broaden the product line and expand into new markets.

The acquisition is the firm’s third investment from Castanea Partners Fund III LP, which is actually its second institutional fund. The pool closed in September 2007 with commitments totaling $575 million, well above its target of $425 million.

The other deals from Fund III are the acquisition of control stakes in Ippolita Inc., a New York-based jewelry designer, in November 2007, and Betsey Johnson, a New York-based fashion apparel brand, in September 2007. Financial terms weren’t disclosed for either transaction.

Smith said Castanea Partners expects to make between eight and 10 investments from the fund. He said the long gap between deals was a result of the firm biding its time.

“We’re not really financial engineers, being much more operationally inclined,” he explained. “So we were patient when the market over-heated.”

And accordingly, now that valuations have come down, the frozen credit markets aren’t expected to be a deterrent to deal-making for Castanea Partners. After all, factors like the quality of a target’s executive team have always gotten heavier weight when looking at particular deal than the amount of leverage available.

“What we’re looking for is to have a clear voice at the table,” Smith said. “The goal is to partner with and support a strong management team.”