Firm: VMG Equity Partners
Targets: Mighty Leaf; Colorescience
Sponsor: VMG Equity Partners
Financial Adviser: Mighty Leaf: BMO Capital Markets
Thanks in part to its ability to take minority stakes,
VMG Equity acquired an undisclosed stake in a cosmetics brand, Colorescience, as well as a 20 percent stake in Mighty Leaf, a loose-leaf tea company. Colorescience is reported to have $30 million to $40 million in sales, while Mighty Leaf has roughly $20 million. The firm did not disclosed transaction details.
VMG Equity Managing Director Mike Mauzé said the four consumer products companies in his firm’s portfolio typically have strong cash flows and good margins, making them attractive candidates for leverage. Even so, VMG uses a moderate amount of debt, contributing more than 50 percent equity in both the Colorescience and Mighty Leaf deals.
A big piece of VMG Equity’s deal flow comes from its joint venture with The Firm, a celebrity-oriented brand development agency that introduced the buyout shop to Colorescience.
Through its minority stake in VMG Equity, The Firm is able to participate in the upside of the companies whose brands it helps to develop by, in part, encouraging celebrity clients to be seen with the products. In return The Firm provides what Mauzé referred to as a “frothy” deal flow to through contact with “everyday luxury” consumer products companies.
But a mere foot in the door isn’t enough to win a deal with today’s savvy entrepreneurs, who, Mauzé noted, are more sophisticated about private equity compared with ten years ago. “They’re asking us, ‘I can get dollars from anyone, what can you offer?’” he said.
Although relatively new—the firm closed its debut $325 million fund earlier this year—VMG Equity’s deal pros are veterans of the consumer products space, having spun out of
Colorescience was founded in 2000 by an already successful entrepreneur, Diane Ranger, founder of Nasdaq-traded Bare Escentuals. Like Bare Escentuals, Colorescience is a mineral cosmetic company. But instead of relying on direct and retail distribution, Colorescience products are sold exclusively in spas and dermatologists’ offices, which the company said represents a growing and uncompetitive channel, Mauzé said.
Global mass-market cosmetics players such as L’Oreal and Procter & Gamble are evaluating new avenues for distribution and, down the road, could see Colorescience’s specialist strategy as an attractive opportunity to enter the professionally endorsed personal-care market.
Meantime, Mighty Leaf will explore all options for expansion, including entry into the ready-to-drink tea market, Mauzé said. Mighty Leaf is beating the tea industry growth rate of around 15 percent.
With these deals wrapped up, VMG Equity is also considering increasing its stake in a current investment, high-end bag and accessories company Timbuk2. In addition to Mighty Tea, Colorescience, and Timbuk2, the two-year-old firm has also invested in Waggin’ Train, a maker of natural pet treats.—E.G.