L’Oréal buys Australian luxury cosmetics group Aesop in $2.5bn deal

L’Oréal has agreed to buy Australian high-end cosmetics group Aesop from its Brazilian owner, in the largest acquisition for the French company in decades.

Brazil’s Natura & Co, owner of The Body Shop and Avon brands, said it had entered into a binding agreement with L’Oréal to sell Aesop in a transaction with an enterprise value of $2.5bn.

A deal of that size marks a departure for L’Oréal because it is acquiring a relatively mature brand that already has sales of more than $500mn. Its usual strategy is to buy smaller brands and then roll them out internationally to boost sales, such as when it bought budget skincare player CeraVe for $1.3bn in 2017 and expanded it rapidly.

It is the first acquisition of significant size for L’Oréal under chief executive Nicolas Hieronimus, who took the helm of the world’s biggest cosmetics maker in May 2021. It ranks among the company’s biggest purchases over the past quarter-century, according to S&P Global Capital IQ data.

For Natura, the divestment marks a major step under a restructuring aimed at reviving its share price and financial performance in the wake of an international acquisition spree during the previous decade.

The São Paulo-based group, which prides itself as a standard-bearer for sustainability, said the deal would support its efforts to reduce debt and focus on its strategic priorities in Latin America while helping it focus on its other brands.

Chief executive Fábio Barbosa recently told the Financial Times that the cosmetics conglomerate was concentrating on improving its profit margins and cash flow instead of growth in sales.

It also signals a pullback from the global ambitions displayed when Natura purchased UK ethical retailer The Body Shop in 2017 from L’Oréal at an enterprise value of €1bn. Its $2bn all-stock purchase of door-to-door seller Avon in 2019 later turned it into one of the world’s largest pure-play beauty groups.

Aesop, which was founded in the suburbs of Melbourne in 1987, sold a majority stake to Natura in 2012, with the Brazilian company taking full ownership four years later.

The brand last year opened its first stores in China, the main growth market for luxury goods globally.

Natura had also looked at a potential stock market float of the unit, which has been a bright spot for its Brazilian parent amid recent difficulties at its other businesses.

L’Oréal shares closed 1 per cent higher in Paris on Monday before the deal was announced. That left them up 24.5 per cent so far in 2023 and about 3.7 per cent shy of their record high struck 15 months ago.

Natura shares finished 2.8 per cent higher in São Paulo. The company’s stock is up almost 17 per cent this year, recovering from a seven-year low in mid-December.