TSG Finds Buyer In L’Oréal

Target: PureOlogy Research LLC

Price: Undisclosed

Sponsor: L’Oréal USA

Seller: TSG Consumer Partners

Financial Advisor: Sponsor: Lazard; Seller: Barrington Associates

Legal Advisors: Sponsor: Weil Gotshal & Manges; Seller: Jones Day

A year of careful planning, marketing and old-fashioned auctioneering came to fruition earlier this month, when buyout firm TSG Consumer Partners completed the sale of a high-end hair-care line to L’Oréal, the world’s largest cosmetics firm.

Neither party disclosed the sale price for PureOlogy Research LLC, a suite of shampoos, conditioners and other products designed to treat colored hair. In January, when PureOlogy appeared ready for auction, the company was reported to be worth as much as $300 million.

If the hair-care company earned even more, it’s because San Francisco-based TSG Consumer Partners, with guidance from financial advisor Barrington Associates, began positioning PureOlogy for a sale well before January rolled around. In fact, the sale process began a year ago, when Barrington and TSG identified strategic buyers as the most likely acquirers for the company.

Bankers from Barrington, a division of Wells Fargo Securities, then made the rounds to several potential buyers, including not just L’Oreal, but big names such as Wella, a division of Procter & Gamble; Goldwell, a German hair-coloring company that’s a unit of Japanese giant Kao Corp.; and Henkel, another German company that manages a broad array of personal-care brands.

“We visited with strategic buyers on their turf before the deal was put officially on the market,” said Peter Rosenberg, a Barrington managing director who heads the firm’s San Francisco office. “We just wanted to get them to start thinking strategically and about getting the M&A gears in place.”

The strategic buyers got to see enough financial information “to whet their appetite but not enough to be damaging to PureOlogy,” Rosenberg said. As it turned out, however, about a half-dozen financial buyers showed up to play, despite the fact that PureOlogy’s founders had made it clear they expected to depart the business soon after it was sold.

Most likely, the buyout firms were lured by PureOlogy’s strong revenue growth and margins that would allow leverage, he said. The presence of the financial buyers—whom Rosenberg wouldn’t name—helped heat up the auction, which got under way early in 2007. “There was nothing they could offer other than economics,” he said.

Ultimately, L’Oréal made the top bid for TSG, which specializes in branded consumer products. PureOlogy functions as a virtual company: It developed a formula for its products and nurtured a brand name, but the manufacturing and distribution are handled by third parties. L’Oréal, with its global platform, can now put PureOlogy on a much bigger stage, Rosenberg said.—J.H.