Turnaround Talk: Revlon Recruits New Top Execs, Decreasing Likelihood of Sale to Strategic Buyer

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Revlon Inc. (NYSE: REV) has recruited a pair of seasoned retail veterans for the top spots, as the global cosmetics maker sorts out its future. In January, billionaire Ron Perelman, who has controlled Revlon since 1985 through holding company MacAndrews & Forbes Inc., announced the maker of Revlon ColorSilk hair color, Almay color cosmetics, beauty tools, and Mitchum deodorant, would explore “strategic alternatives,” sparking speculation that company would soon be up for sale. But the additions of Fabian Garcia as CEO and Juan Figuereo as CFO decrease the likelihood that the global cosmetics purveyor is aiming for a sale to a strategic buyer. A turnaround, or a potential take-private deal by a private equity firm seem more likely now.

Juan Figuereo, who has previously held positions at Wal-Mart International (NYSE: WMT) as vice president of mergers and acquisitions, CFO of Newell Rubbermaid (NYSE: NWL); and most recently as executive vice president of NII Holdings, now holds the CFO position at Revlon effective immediately, the company says in an April 12 statement. In March, Fabian Garcia, former chief operating officer of global innovation and growth for Colgate-Palmolive (NYSE: CL), was named CEO. Garcia’s role with Revlon begins April 15.

These changes to the executive team came just months after a filing from MacAndrews that there were possible changes in play. “The MacAndrews & Forbes Reporting Persons have determined to explore strategic alternatives involving the company,” Perelman’s firm said in a Jan. 15 Securities and Exchange Commission filing. “In that regard, the MacAndrews & Forbes Reporting Persons expect from time to time to communicate with third parties as well as with the Company as to the possibility of such a transaction and related strategic, financial and other matters.”

While it was never specified which alternatives were being considered by MacAndrews & Forbes, the new appointments to Revlon’s management team surely makes it less likely that it will pursue a pure sale to a strategic buyer. Typically, when such additions occur, this is not the precursor to a sale.

Compared with other companies in the cosmetics space, Revlon is more vulnerable to changes in the economic environment and consumer’s demands for products, mainly due to its high leverage. In April 2015, Revlon purchased U.K.-based global fragrance management company CBBeauty in a deal that also included the U.K. distributor, SAS & Company. In August 2013, Revlon also acquired nail polish maker Colomer Group from CVC Capital Partners in a $660 million cash deal.

According to Moody’s Investors Service, Revlon’s acquisition of Colomer in 2013 increased its leverage to roughly 6.8 times. As of Sept. 30, 2015 the company’s leverage has been reduced to 5.5 times.   

“Mr. Perelman is an economic animal, and putting it out there that they are exploring strategic alternative could put a lot of animals out there,” Steven Davis, managing director, head of beauty & personal care at Intrepid Investment Bankers, tells Mergers & Acquisitions. “They could look at private equity or a take-private. They could be viable and likely options.”

Take-private deals, often executed by a consortium of private equity firms, can offer financial benefits. One being that management typically has more free time and can place more effort on simply operating and growing the business, as seen with beauty products retailer Steiner Leisure Ltd.(Nasdaq: STNR), maker of Bliss products. On August 20, 2015, the company entered into a $925 million take-private deal with Greenwich, Connecticut-based middle market private equity firm Catterton. The arrangement was made to provide Nassau, Bahamas-based Steiner with greater flexibility to focus on its long term business initiatives, the company said then.

A representative for MacAndrews & Forbes declined comment.

Meanwhile, Revlon’s stock reacted more positively to the news of the CFO appointment than the CEO hire, closing at 36.45 on April 12. On March 28 when Garcia was named CEO, the stock closed at 34.64. To compare, it was trading at 28.08 at close of business when MacAndrews and Forbes’ plan to look into “strategic alternatives” was announced.

Revlon reports a 4.2% growth in sales ($521.9 million) for the fourth quarter of 2015, over the same time period in 2014. Total net sales for 2015 were $1.9 billion, a decline of 1.4%, however. As of Dec. 31, 2015, the beauty products company’s long-term debt totals $1.8 billion.  

For the previous edition of Turnaround Talk, see, “Many Energy Companies Flirt with Bankruptcy and May Run Out of Options”. For more struggling companies, check out Mergers & Acquisitions' Distressed Company Watch List.

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