Estée Lauder in talks to acquire Tom Ford

Industry insiders claim that The Estée Lauder Cos. has unexpectedly emerged as the front-runner to buy Tom Ford International.

The owner of Clinique, Bobbi Brown, and Jo Malone is reportedly in talks to purchase the high-end clothing line, however nothing is finalised and banking sources claim there are still other parties involved.

The Wall Street Journal broke the news that the beauty giant had been in talks with Tom Ford over the past few weeks. Tom Ford has been actively looking for a buyer with the assistance of investment bank Goldman Sachs, and sources in the industry confirmed that the price on the table is said to be around $3 billion.

Situation

Both parties are now keeping their private affairs private. A representative for Lauder declined to comment on the situation, while a spokeswoman for Tom Ford did not reply to a request for comment. In addition, Goldman Sachs did not answer to a question.

This would be the cosmetics giant’s first venture into the fashion industry, although Tom Ford Beauty has been a lengthy collaborator in a licensing agreement, and the so-called ultra-prestige brand has been doing well, particularly in the scent market.

The chief financial officer of Lauder, Tracey Thomas Travis, stated that “Tom Ford and Jo Malone are two of our largest midsized brands that are knocking on the door of being over that $1 billion threshold to be large brands over the next couple of years” at a recent Deutsche Bank conference in Paris.

Although most of Estee Lauder’s acquisitions have been in the cosmetics and skin care sectors, she said that “fragrance is an M&A possibility for us as well given the success that we’ve had with the shift in strategy that we’ve executed against.”

While there are concerns about how Lauder would manage the ready-to-wear sector, Tom Ford is already a significant contributor on the beauty side, according to Lauder’s most recent quarterly report for the three months, ended March 31.

Financial outlook

It stated that scent net sales climbed for the three months and totaled over $107 million, with Jo Malone London, Tom Ford Beauty, Le Labo, and Estée Lauder being the main drivers. For the quarter, Lauder’s fragrance sales were $579 million. According to the company, Tom Ford Beauty had a rise in sales that was “benefiting from the sustained success of Private Blend and Signature fragrances as well as the fiscal 2022 third-quarter product launches of Costa Azzurra parfum, Rose de Chine, and Rose d’Amalfi.”

According to a financial source, this could be the first step in establishing itself as a luxury brand, similar to LVMH Mot Hennessy Louis Vuitton and Kering.

Another finance source said: “It doesn’t surprise me at all that Estée Lauder would desire something like this,” noting that the majority of the value in the purchase would come from cosmetics and fragrance, with eyeglasses produced under licence.

The source estimated the sales of Tom Ford fragrances at roughly $275 million, but she issued a warning that even if the sales of eyewear and makeup were comparable, $3 billion “sounds like a massive number for value.”

Huge buyout prices frequently end up in the media in the belief that some publicity may aid in the process of negotiating the conditions of the final agreement. Nevertheless, if this purchase price is reached, it will surpass Lauder’s previous largest acquisition, which was a $2.2 billion deal for a majority stake in Deciem in 2021.

However, banking sources claim that there are further participants who are interested.

Other Companies

The owner of Gucci, Kering, recently stated that it was considering entering the beauty market during its first-half results. However, Kering did not specify whether it may imitate Hermès International by developing its own cosmetics lines or whether it was looking to acquire companies.

According to group managing director Jean-François Palus, “Beauty is clearly an area where we could explore some initiatives in the future. All alternatives are open.”

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