To better understand the current M&A environment and how an investment bank can help growing companies navigate a liquidity event, I caught up with Vennette Ho, Managing Director at Financo, to learn more.
Tell us a bit about what you do and how you help brands to realize a liquidity event (either via a capital raise or outright sale) ?
We work with companies that are at a crossroads and are looking to either sell, find a partner, or raise capital to fuel growth. As investment bankers, our job is to advise owners and management teams throughout the entire M&A process. We help put together marketing materials that tell the story of the business, build a financial forecast and model, introduce companies to qualified investors and buyers, orchestrate a competitive process, and negotiate and structure the transaction. Our objective is to maximize value for our clients across the board, whether it’s valuation, contract terms, or partner fit.
What do companies need to consider when hiring an investment bank(er) ?
Companies should think about which firm best understands your business, your opportunities, and the universe of relevant buyers/investors. Take a look at the kinds of transactions they’ve done before and companies they’ve worked with; the beauty M&A world is quite specialized, so it’s good to have someone who is tapped into the current pulse of the market. It’s also important for sellers to make sure they do reference checks and talk to people the various bankers have worked with before. But perhaps most importantly, companies should make sure they choose an advisor they like, trust, and respect. For the duration of a process, companies end up speaking to their bankers multiple times a day—so you’d better enjoy talking to them!
When is the best time for a company to sell and what are some of the things an executive team can do to prep their brand for a sale ?
The best time for a company to sell is when a brand is growing quickly, has demonstrated strong connection with consumers/retailers, and has a visible path to future growth. We always tell companies that the best thing they can do to prep a company for sale/investment is to just run a great business. Overmanaging a company to “fit” what you think a buyer wants should never be the first objective—the key is creating a really compelling brand that customers love and has great financial metrics. Beyond that, there are a lot of best practices and housekeeping items that are good to have in place to ensure a sale goes smoothly. This includes solidifying your trademarks and IP, getting an audit or quality-of-earnings accounting report, and ensuring that your corporate documents and legal agreements are in order.
What are the key characteristics that drive value ($) ? What are buyers (both strategic and financial) looking for ?
Strategic buyers and financial investors are looking for many of the same things—terrific brand with solid growth, strong financial metrics, and great management teams. Buyers and investors are all seeking brands that have a point of differentiation and are resonating strongly with their core consumer. A unique product approach and innovation is an important part of that. From a financial perspective, the most interesting brands are those that are growing quickly on the revenue side and also generating solid profits. One misconception out there is that strategics care less about the management team because they simply fold companies into their own organizations; in our experience, this is not usually the case. Both strategics and financial investors are looking for great management teams and talent to help continue to shepherd the brand into the future.
The past few years have been a very active beauty M&A market, especially for younger brands. Do you see the trend continuing? How has the market shifted ?
We absolutely see these trends continuing. Today’s consumer is evolving rapidly—she is totally different than she was even five years ago. She is shopping in different places and gathering her information from new forms of media. She has a view on what brands should stand for; her purchasing decisions are a form of self-expression and identity that help define who she is. Investors and strategics see this seismic shift happening, and so they are all scrambling to make investments in brands that are well positioned for the new consumer environment.
What do you foresee being the next trends in the industry ?
Given the trends mentioned above, we are thinking a lot about brands that play in digital and direct-to-consumer, wellness/natural and have a mission of social responsibility or sustainability. It’s an incredible and revolutionary time in the industry, and we are happy to be part of it!
Founded in 1971, Financo is a leading investment bank focused exclusively on M&A and financial advisory in the consumer and retail industries. With offices in New York and London, Financo is a market leader in beauty M&A, having closed 11 beauty transactions in the last 18 months. Recent transactions include the sale of IT Cosmetics to L’Oréal, Shiseido Americas’ acquisition of Laura Mercier, the minority recapitalization of First Aid Beauty by Castanea, the sale of Kate Somerville to Unilever, the minority recapitalization of ELF Cosmetics to TSG Consumer Partners and subsequent sale to TPG Growth, Bain Capital’s investment in Sundial Brands / Shea Moisture, and General Atlantic’s acquisition of Too Faced Cosmetics.