up the popular self-tanner and skincare brand Bondi Sands, in a deal estimated to be worth $450 million.   Prior to that, in April, French cosmetics giant L’Oreal paid $3.7 billion for luxury skincare and beauty brand Aesop. The deal marked an enormous increase in the brand’s valuation since Brazil’s Natura & Co purchased a 65 per cent stake in Aesop for about $70 million in 2012, signalling its unparalleled standing as a category leader. And these are just some of the latest examples. Last year, Swedish health and hygiene company Essity paid $140 million for leak-proof underwear brand Modibodi, and L’Occitane Group bought a majority stake in clean beauty brand Grown Alchemist for an undisclosed sum reportedly in excess of $50 million.  And, in June 2021, PLBY Group paid $443 million for local lingerie label Honey Birdette, while US retail platform a.k.a. Brands acquired streetwear chain Culture Kings for $307.4 million plus 23.3 million shares of a.k.a. Domestic players have been getting in on the action, too. Tattarang, one of Australia’s largest private investment groups, bought R.M. Williams from US-based private equity giant L Catterton with reports of a $190 million deal in 2020, bringing the brand back under Australian ownership. Here, Inside Retail looks at the factors driving global interest in Australian retailers, as well as the challenges and opportunities that can follow acquisition. Justifying the billion-dollar price tags Rather than signalling the strength of Australia’s retail landscape more broadly, the  acquisitions of Aesop and Zimmermann reflect the quality of these particular brands and the global recognition they have achieved, Grant Thornton Australia’s financial advisory partner, Peter Thornely, argues. Both Aesop and Zimmermann have developed a distinct design aesthetic and strong customer base over the years and have the potential to be scaled internationally, which would have been key reasons why they appealed to investors.  Thornely, who was not involved in either transaction, explained that L’Oreal is likely to retain key elements of Aesop, while expanding its products and distribution through its global footprint. Meanwhile, Zimmermann founders, sisters Nicky and Simone Zimmermann, who still own 30 per cent of the brand, are expected to remain involved in running the company as part of Advent International’s majority stake purchase.  “Zimmermann is a good example of a business that has received multiple rounds of private equity funding, supporting the founders [in growing] the business over a number of years,” Thornely told Inside Retail. Regarding the billion-dollar price tags of the Aesop and Zimmermann acquisitions, Thornely said these numbers were likely based on a multiple of the brands’ underlying EBITDA, and reflective of their growth potential.  Alex Downie, associate director of Sydney-based private equity firm Glow Capital Partners, noted that the gap between the best Australian brands and the rest has grown wider in the last 12 months. “As consumers have tightened their wallets, they have become more selective. We’ve seen top-tier brands continue to perform while others with less customer buy-in have seen their sales drop off,” Downie told Inside Retail. But even for the top-tier brands in the market, billion-dollar retail acquisitions tend not to happen quickly. As Liz Webster, a management consulting partner for Grant Thornton Australia, pointed out, it’s usually more of a slow burn.  “Zimmermann has been around since 1991 and Aesop since 1987. The process of establishing a brand with loyal customers and desirable products is often a long business journey,” Webster told Inside Retail. “In retail, we often talk about ‘right product, right price, right place, right time and right people’ to ensure success.” Maintaining a unique brand identity L’Oreal and Aesop have stayed largely silent about the reasons behind their deal since it was announced in April. And beyond broad statements about leveraging L’Oreal’s global footprint to expand Aesop internationally, particularly in China, where the brand opened its first store in 2022, little is known about what’s next. However, Aesop’s robust growth in recent years and its B Corp certification likely piqued L’Oreal’s interest at a time when consumers are seeking sustainability. Aesop will sit in L’Oreal’s luxe division, alongside Lancôme, Yves Saint Laurent, Giorgio Armani Beauty and Kiehl’s. A key challenge will be growing the brand without stifling it creatively.   When it comes to Zimmermann, Downie thinks Advent is well-positioned to drive the brand’s international expansion, due in part to the private equity firm’s experience working with consumer brands such as Lululemon. However, this could depend on Advent’s ability to ensure stability at the management level.  “The passion and talent of the founders built the brand, so maintaining a connection to them for as long as Advent can is important,” Webster explained. “This also allows for a natural transition and succession plan to new designers who can learn from the founders, and continue to take their vision into new markets.” Both Aesop and Zimmermann have successfully navigated acquisitions in the past, and managed to retain their brand identity throughout that process, but the retail landscape is full of examples of brands that lost what made them unique after they were bought out.  When a buyout backfires Flora & Fauna founder Julie Mathers has experienced the tumult that can occur following a larger retailer’s acquisition of a brand. In 2021, she sold the ethical and sustainable e-commerce company that she founded, Flora & Fauna, to beauty manufacturer BWX for about $30 million. She left the business about nine months later, and proceeded to acquire baby clothes brand Snuggle Hunny in March 2022, taking on the CEO role.  BWX – which was valued at roughly $860 million about five years ago – went into receivership earlier this year, and Mathers used the opportunity to buy back Flora & Fauna alongside Nourished Life, another e-commerce business in BWX’s portfolio, in partnership with HealthPost, an online retailer based in New Zealand.  Flora & Fauna is now undergoing a comprehensive rebuild, which involves re-establishing relationships with suppliers and customers, launching a new website, setting up a new warehouse, and revitalising the business following its collapse. While she couldn’t have predicted this turn of events, in hindsight, Mathers would have done some things differently.  “If you’re selling a business, be very clear what you want your role and involvement to be going forward. Also be mindful that you’re typically selling the business to a business, not one person, so make sure you meet the board and management team,” she told Inside Retail. “I didn’t, which later resulted in challenges.” Having gone through three acquisitions in the last two years, Mathers highlighted the demanding nature of the sale process, describing it as very intense and requiring flexibility, as circumstances can change quickly. She added that there were times during the initial sale of Flora & Fauna to BWX that she considered “down[ing] tools and not sell[ing]” due in part to her emotional connection to the brand she founded.  In contrast, “the reacquisition was very quick, which is the case when buying businesses out of administration. Available information was limited and you had to act quickly, [but] it wasn’t much of an issue for us, as I know everything there is to know about Flora & Fauna.” Regarding the acquisition landscape in Australia, she noted that many businesses are being purchased out of administration, a trend that tends to occur during economic downturns. This is in contrast to during the Covid-19 pandemic, when fast-growing businesses that were not necessarily profitable were being acquired at a more frequent pace.  “Now businesses being acquired need to be profitable and show good growth,” she said.  When it all goes to plan In contrast to Flora & Fauna, the recent sale of Bevilles, a family-owned jewellery business, to Michael Hill for over $45 million, went relatively smoothly.  The Beville family had taken back control of the business in 2014 via a deed of company arrangement and, under the leadership of CEO Michelle Stanton, proceeded to downsize the store network and refocus on the core product offering.  Beville was established in 1934. The decision to sell the 88-year-old business earlier this year was not made lightly. It required a comprehensive vision encompassing employees, suppliers and other stakeholders, and the family needed to be emotionally and mentally prepared for the exit. Bevilles partnered with the professional firm Mawson, which provided guidance throughout the process, and involved its leadership team early on.  “Our engagement with the leadership team extended far beyond due diligence. It was a strategic choice aimed at building trust and ensuring their active participation. This approach fostered transparency and helped alleviate concerns about the impending change,” Stanton told Inside Retail. She also stressed the importance of seeking to find joy during the acquisition – a tough task considering how arduous and stressful it can be. “In essence, selling such a business required a blend of emotional sensitivity and a steadfast commitment to sound business practices. It was about finding the right equilibrium between preserving the past and securing a thriving future under new ownership,” she explained. As part of the sale, Stanton has transitioned from CEO to ambassador, a move that she said will help to eliminate any confusion around reporting structures within the organisation. What lies ahead After such a blockbuster few years for Australian retail acquisitions, the question is what to expect in 2024.  Grant Thornton Australia’s Webster believes the private equity market will continue to keep a close watch on distressed brands that are failing to achieve their growth potential during the current macroeconomic climate. “A lack of [funds can] slow growth, so the opportunity for that capital to be invested in their business gives them the runway to innovate, expand their channels, and expand into new markets,” she said. When it comes to particularly high-value transactions, like Aesop and Zimmermann’s billion-dollar deals, US and European investment firms are arguably better placed to snap up brands with global appeal. Grant Thornton Australia’s Thornely said: “Our Australian capital markets would not have the [risk appetite] to make such investments. [We] still have many successful Australian retailers that are doing well in their markets and would like to see more performing strongly on a global scale.” Meanwhile, Glow Capital’s Downie expects to see ongoing investment activity in the Australian skincare space in particular – with domestic suncare brands likely to generate global interest and funding. And finally, a word of encouragement from Mathers: “If a brand works in a country with 26 million people, it’s a great foundation to launch into bigger markets with over 300 million people. Australia is a great incubator for brands, and that reflects in the valuations it attracts from international investors.” This story first appeared in the November 2023 issue of Inside Retail Australia magazine.