This article was written by Rebecca Howlett, Commercial Partner and Head of Beauty and Personal Care, and Miles Hacking, Restructuring and Insolvency Director, at law firm Freeths.
It has been tough for some of the big players in the cosmetic industry recently, with Revlon and Forma Brands – the parent company of Morphe – having both entered into insolvency processes.
The stark reality is that businesses which survived the pandemic are invariably not only still feeling the ‘after’ effects, but are also now facing a multitude of challenges resulting from Covid-19 and Russia’s invasion of Ukraine.
Pressure is now being put on the supply chain due to rising inflation, increased energy costs and fierce competition over core ingredients.
The rise of small disruptor brands and celebrity backed start-ups are also having an impact on profitability and viability.
Consider the value of the business and ask yourself, when was the last time you had a professional valuation?
While insolvency is daunting for those faced with the prospect of closing their businesses, it is, at the same time, an excellent opportunity to be rescued either by existing management, a competitor or new entrants to the market.
That saviour will come with fresh ideas and a whole new outlook for a struggling brand, which can lead it to a much brighter future.
Insolvency does not always mean it is game over. Forma Brands has now emerged from insolvency and, at the time of writing, Revlon is also set to rise from the ashes. However, each situation is unique.
The following tips will help sellers polish their business and put their best face forward in this situation, while also setting out guidance for savvy buyers looking to turn the tide for a beauty brand.
Revlon is expected to emerge from bankruptcy in late April 2023
At the start of the process: Know what you are selling and who owns it
Tips for the seller: It sounds obvious, but what is it you are selling? Carry out due diligence on your business and understand what you have and who owns it.
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