Despite current market conditions, dealmakers are looking for ways to add value to their firms. Large strategic buyers are exploring ways to leverage existing relationships and business opportunities to add value in a way that makes sense to their firms. Estee Lauder is building on the growing trend of beauty firms taking a share of the revenue from their licensors.

Estee Lauder, a manufacturer and seller of cosmetics, is in talks to acquire Tom Ford SA, a luxury fashion house founded in 2005 by Tom Ford, in a deal that could be worth $3 billion. The two firms already have an existing business relationship through Estee Lauder’s licensing agreement for Tom Ford’s beauty and fragrance lines.

Katy Lukaszewski, partner, Sidley Austin says, “Estee’s interest in Tom Ford makes a lot of sense – Estee Lauder and Tom Ford already have an existing licensing arrangement for Tom Ford’s beauty and fragrance lines, so this acquisition serves as both an expansion of an already-existing (and presumably successful) business strategy, as well as an addition of a new and potentially accretive business line (Tom Ford’s fashion business).”

The consumer and beauty M&A market is currently facing challenges amidst macroeconomic conditions with M&A professionals anticipating a slowdown following a more frenzied pace from the first half of 2022 and 2021. As a result, beauty brands are looking within their own portfolios to investigate the viability of transactions with existing business arrangements.

“This may serve as a blueprint for how a more traditional beauty strategic can absorb a luxury brand that both expands its existing business and adds additional and complementary lines, and potentially even reposition itself as a company with multiple lines of luxury businesses with products in multiple channels,” says Lukaszewski.

Estee Lauder’s possible integration with Ford will also see the firm control a larger segment of the market. As opposed to paying a royalty fee for distributing a luxury brand like Tom Ford, firms like Estee Lauder can now control a larger portion of the market and share the profits without starting from ground zero.

Should the deal work out, expect to see other large, strategic buyers follow suit.

-Cole Lipsky