Whenever I read news about bankruptcy proceedings in business news, I think about the public discourse against private equity firms. It’s hard for the general public not to have a negative perception of PE, especially when brands they’ve grown familiar with fall apart after a PE firm takes over.
And here comes The Body Shop.
This time, the PE firm took control only three months prior.
An Overview
Aurelius, an investment (PE) group, bought The Body Shop in November 2023 for £207 million, using less than £20 million of equity. The retailer took out many loans and used their valuable assets (mainly the UK, Canadian, and Australian operations) as collateral. For those unaware, this is typical of a private equity transaction, since using debt generally indicates higher returns.
On February 15 and 16, 2024, the UK and German businesses respectively appointed insolvency administrators. It’s expected that operations in Ireland, Austria, and Luxembourg will suffer the same fate in the near future.
Interesting Facts
The short turnaround is very surprising since PE transactions are usually projected for a three to five-year exit. And indeed, sources have stated that this was not the initial plan.
Allegedly, a source who was present during the bidding process for the business back in November (and saw the financials) stated that The Body Shop was in a rough state.
Was there a due diligence issue? Did Aurelius not put in the careful work to ensure this was a solid deal? Or did they decide to risk it, especially since the Christmas season was coming up?
Another PE Deal: Keeping Majority Control
A more optimistic PE deal hit the news around the same time. There aren’t many similarities, but why not take a look?
Tod’s, an Italian luxury shoe and bagmaker, plans to delist from the Milan stock exchange. They will partner with PE firm L Catterton to help improve business performance.
However, there are key differences here from Aurelius’s purchase of The Body Shop.
Tod’s founding family has majority control and will retain that control post-deal. The Della Valle family will reduce their stake from 64 to 54%, and L Catterton will take a 36% stake. L Catterton is backed by luxury goods conglomerate LVMH, which itself will maintain a 10% stake.
Will this deal look better? We’ll have to see, but L Catterton did have a profitable, non-bankruptcy-related exit recently.
L Catterton exited their deal with Birkenstock through a $8.6 billion IPO back in October 2023. The PE firm had taken a majority stake in 2021 in a deal worth €4 billion.
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