Sector Analysis: TPG Takes Stake In Skin Care Leader Rodan + Fields; PE Interest in Sector Remains Strong
This week, direct selling skin care leader Rodan + Fields announced that private equity firm TPG Capital has taken a minority stake in the firm. Terms were not disclosed. This is another data point supporting our thesis that leading innovative direct selling companies continue to attract sophisticated institutional capital. With the preponderance of PE investments in direct sellers, coupled with the recent demise of the second loud, highly visible and failed bear raid on public companies in the space over the past 12 years, we would look for increased IPO activity as valuations of the public peers improve and as private equity firms look to monetize their investments.
· Privately held Rodan + Fields, with annual sales of $1.5B according to Direct Selling News, was named by Euromonitor as the largest skin care brand in the US in 2016 & 2017.
· After buying back the company from Estee Lauder (EL; $144.93; NR; $53B mkt cap) in 2007 to move it into the direct selling channel, Rodan + Fields was among the earlier direct sellers to incorporate social media into its selling platform.
· Other TPG Capital investments include Airbnb, Spotify and Life Time Fitness according to this week’s release.
· Two members of TPG, its co-founder and co-CEO Jim Coulter and TPG Capital’s consumer sector lead Paul Hackwell, will join the board, providing expertise and resources to take Rodan + Fields on its next phase of growth.
· Coulter’s quote on the investment: “As a firm with a history of investing in businesses that are fundamentally changing their industries, we see Rodan + Fields as being at the intersection of emerging consumer trends and technology disruptions…This is exactly the kind of partnership we look for — an outstanding brand with proven success, an experienced and talented management team, and significant runway for growth."
· Other PE-involved direct sellers include Stella & Dot (Sequoia) and Modere (Z Capital Partners).
· Last year Coty (COTY; $14.35; NR; $11B mkt cap) took a 60% stake in privately held Younique, also a social selling pioneer in direct selling, with annual sales circa $500MM.
I, Douglas M. Lane, hereby certify that the views expressed in the foregoing research report accurately reflect my personal views about the subject securities and issuer(s) as of the date of this report. I further certify that no part of my compensation was, is or will be directly, or indirectly, related to the specific recommendations or views contained in this report.
Neither I, Douglas M. Lane, nor a member of my household, owns any security (ies) which is/are the subject of this research report. Neither I, nor a member of my household is an officer, director, or advisory board member of the issuer(s) or has another significant affiliation with the issuer(s) that is/are the subject of this research report. I do not know or have reason to know at the time of this publication of any other material conflict of interest.
Lane Research is an independent research company and is not a registered investment advisor and is not acting as a broker dealer under any federal or state securities laws.
Lane Research is a member of IRC Securities’ Research Prime Services Platform. IRC Securities is a FINRA registered broker-dealer that is focused on supporting the independent research industry. Certain personnel of Lane Research (i.e. Research Analysts) are registered representatives of IRC Securities, a FINRA member firm registered as a broker-dealer with the Securities and Exchange Commission and certain state securities regulators. As registered representatives and independent contractors of IRC Securities, such personnel may receive commissions paid to or shared with IRC Securities for transactions placed by Lane Research clients directly with IRC Securities or with securities firms that may share commissions with IRC Securities in accordance with applicable SEC and FINRA requirements.
As registered representatives of IRC Securities, our analysts must follow IRC Securities’ Written Supervisory Procedures. Notable compliance policies include (1) prohibition of insider trading or the facilitation thereof, (2) maintaining client confidentiality, (3) archival of electronic communications, and (4) appropriate use of electronic communications, amongst other compliance related policies.
Finally, Lane Research does not have the same conflicts that traditional sell-side research organizations have because Lane Research (1) does not conduct an investment banking activities, (2) does not manage any investment funds, and (3) our clients are only institutional investors.
Lane Research has no long or short position in any security of any of the companies mentioned in this report. The Company has no contractual relationship, nor have we received any compensation from any of the companies listed in this research report.
Lane Research assigns one of three ratings based on an expectation of absolute total return over a 12-month time frame based on the following criteria:
BUY (B): The security is expected to have an absolute return in excess of +20%.
HOLD (H): The security is expected to have an absolute return of between +/- 20%.
UNDERPERFORM (U): The security is expected to have an absolute return less than -20%.