Church & Dwight is scooping up the No. 2 brand in the U.S. acne category, which just happens to make the No. 1 patch in the subset.
The Ewing-based manufacturer said Sept. 6 it signed a definitive agreement to acquire the Hero Mighty Patch brand and other acne treatment products for $630 million, consisting of cash and Church & Dwight restricted stock.
The acquisition, which is subject to customary closing conditions, is expected to be completed in the fourth quarter.
According to Church & Dwight, Hero’s net sales for the trailing 12 months through June 30, 2022, were approximately $115 million.
“Mighty Patch represents a powerful addition to our existing Specialty Hair and Skin portfolio which includes Nair, Batiste, Viviscal, Flawless, and Toppik,” said Church & Dwight Chief Executive Officer Matthew Farrell in a prepared statement. “The Mighty Patch brand is a problem/solution product with a strong position in a growing category.
“The total acne treatment category in tracked channels is approximately $700 million,” he continued. “The patch form has grown to 18% of the acne treatment category as more consumers transition away from lotions and ointments to a patch solution. The brand skews towards [sic] younger consumers and consistently has a high level of brand loyalty and repeat purchase.”
The acne patch, which you may have seen across smiling faces on social media or maybe stuck to one of your teens, is the fastest-growing treatment form for the skin ailment.
Of the Hero addition, Church & Dwight CEO Matthew Farrell said the company was excited to add its 15th “power brand.”
“This acquisition meets our long-standing acquisition criteria: (1) No. 1 or No. 2 brand in a category; (2) asset-light; (3) a growing brand; and (4) gross margin accretive to the Company. Acquisitions have been a key driver of Church & Dwight’s consistently strong shareholder returns.”
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As of June 30, 2022, Hero’s trailing 12 months EBITDA was approximately $45 million with a 40% EBITDA margin, according to Church & Dwight. The company says it’ll expand reach for Hero’s products, which are currently marketed only in the U.S., by leveraging its U.S. retailer relationships and international footprint.
The brand was founded in New York in 2017 by Ju Rhyu, Dwight Lee and Andrew Lee. In addition to cash, Farrell said that approximately 10% of the purchase price will be conveyed to the founders in restricted stock. Church & Dwight described the trio as being “thrilled” about the partnership.
“We are excited to combine a brand that people love with Church & Dwight’s expertise and scale to continue driving success and growth in the market,” Rhyu, also CEO of the Hero brand, said in a prepared statement. “Our cultures are a strong complement to one another and we are ready to take Hero into the next chapter and beyond as part of the Church and Dwight family.”
In his statement, Farrell said the founders are expected to stay with the company and continue to run the business. He added that Hero will maintain its location in New York City, and its employees.
According to Farrell, Church & Dwight has adjusted its outlook for the rest of the year based on the deal with reported sales growth dropping from a previous 4% to 5% to a respective 2% to 4%, “reflecting the incremental growth from Hero offset by continued softness across our more discretionary brands.”
He continued that reported sales are expected to decline by -1% for Q3, now, “reflecting lower demand for Waterpik, Vitafusion and Flawless.”
In 2023, Farrell said, the latest acquisition is expected to be 3% accretive to cash earnings. For that year, Hero’s annual net sales are projected to grow about 15% to $150 million.
“Hero is nimble and asset light and should be an excellent fit at Church & Dwight,” Farrell said.