Summary
- Church & Dwight buys FLAWLESS as the deal multiples look modest.
- Investors like the deal given the excellent track record of the business.
- I like the deal and long-term promise as well as the track record of Church & Dwight although valuations are very high.
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Church & Dwight (CHD) continues its acquisition-driven strategy with the $475 million purchase of the FLAWLESS Brand. Investors like the deal given the modest valuation multiples (in relation to the valuation of the company itself) as the track record of the business is very good, yet these expectations are to a huge extent priced into the current valuation. While the long-term promise and appeal of Church & Dwight looks compelling, I cannot move myself to buy at the current sky-high price.
Deal Terms
Church & Dwight has reached a deal to acquire the FLAWLESS brand in a $475 million cash deal, getting its hands on the FLAWLESS and FINISHING TOUCH (electric) hair removal brands. On top of the upfront payment there is the potential for a large earn-out payment with a maximum of $425 million in cash, depending on the sales achieved in 2021.
FLAWLESS is the leading brand in women's electric hair removal focusing on brow and face, away from traditional focus on legs, a market dominated by manual razors and blades. FLAWLESS generates $180 million in annual sales on which it reports fat margins, with EBITDA coming in at $55 million a year. The company generates the vast majority of its sales from the US, with roughly a tenth of revenues generated abroad.
