e.l.f. Beauty, Inc 8-K, filed Aug 29, 2023
e.l.f. Beauty, Inc. (ELF)
About this 8-K
e.l.f. Beauty, Inc filed this 8-K on August 29, 2023, reporting on events of August 28, 2023.
Items reported
- Item 1.01: Entered into a material agreement
- Item 2.03: New debt or off-balance-sheet obligation
- Item 3.02: Unregistered sale of equity
- Item 8.01: Other events
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
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| ITEM 1.01 | ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT. |
Securities Purchase Agreement
On August 28, 2023 (the “Signing Date”), e.l.f. Beauty, Inc., a Delaware corporation (the “Company”), entered into a Securities Purchase Agreement (the “Purchase Agreement”) by and among the Company, Naturium LLC, a Delaware limited liability company (“Naturium”), TCB-N Prelude Blocker Corp., a Delaware limited liability company (“Blocker”), The Center Brands LLC, a Delaware limited liability company (“TCB”), Elaine J. Balady, an individual (together with TCB, the “Naturium Sellers”), TCB Prelude Holdings, LLC, a Delaware limited liability company (together with the Naturium Sellers, the “Sellers” and each, a “Seller”), e.l.f. Cosmetics, Inc., a Delaware corporation (“e.l.f. Cosmetics”), and TCB, in its capacity as the Sellers’ representative (the “Representative”). Pursuant to the Purchase Agreement, among other matters, and subject to the satisfaction or waiver of the conditions set forth therein, the Sellers will sell to e.l.f. Cosmetics, and e.l.f. Cosmetics will purchase from the Sellers, all of the Sellers’ right, title and interest in and to the outstanding equity securities of Naturium and Blocker (the “Acquisition”).
Pursuant to the terms of, and subject to the conditions specified in, the Purchase Agreement, which has been approved by the boards of directors of the Company and e.l.f. Cosmetics, the board of managers of Naturium and the board of directors of Blocker, upon consummation of the Acquisition (the “Closing”), e.l.f. Cosmetics will pay total consideration of $355.0 million, to be funded by an Incremental Term Loan (as defined below) as allowed for under the Company’s existing credit facility, borrowings on the Company’s existing revolving facility and cash on the balance sheet of the Company and its affiliates, subject to certain adjustments set forth in the Purchase Agreement (the “Purchase Price”). A total of $72.02 million of the Purchase Price will be paid in shares of the Company’s common stock, par value $0.01 per share (“Company Stock”), having a per share value of $124.6760, which is based upon the average of the daily volume weighted average sales price per share of Company Stock on the New York Stock Exchange, as such daily volume weighted average sales price per share is reported by Bloomberg L.P., calculated to four decimal places and determined without regard to after-hours trading or any other trading outside the regular trading session trading hours, for each of the ten consecutive trading days ending on and including the third trading day immediately preceding the date of the Purchase Agreement (the “Stock Consideration”).
The Company intends to issue the shares of Company Stock described herein in reliance upon the exemptions from registration afforded by Section 4(a)(2) and/or Rule 506 of Regulation D promulgated under the Securities Act of 1933, as amended. The Company also has agreed to file a shelf registration statement on Form S-3 or, if Form S-3 is not available to the Company, another appropriate form, covering the resale of the shares of Company Stock to be issued in the Acquisition. A portion of the Purchase Price, including the Stock Consideration, will be paid and issued or distributed to certain indirect equity holders of TCB and certain Company service providers who hold phantom equity units in TCB’s parent entity. Each recipient of Stock Consideration will be subject to lock-up restrictions (the “Lock-Up Restrictions”) with respect to either 67% or 80% (depending on the recipient) of the Stock Consideration received by such recipient (the “Lock-Up Stock”) for a period of one year following the Closing. The Lock-Up Restrictions will provide that 50% of the Lock-Up Stock received by each recipient will be released from such Lock-Up Restrictions on the six month anniversary of the Closing. The Lock-up Restrictions will include certain customary exceptions for permitted transfers during the applicable lock-up period.
The Purchase Agreement contains customary representations and warranties of the Sellers, Naturium, the Company and e.l.f. Cosmetics. e.l.f. Cosmetics will obtain a representations and warranties insurance policy (the “RWI Policy”), with coverage thereunder extending for three years post-Closing (six years for certain fundamental and tax representations and warranties) and such coverage serving as e.l.f. Cosmetics’ sole remedy
with respect to any breach of Naturium’s or the Sellers’ representations and warranties, except for claims related to Naturium’s or Sellers’ fraud. Coverage under the RWI Policy is subject to a policy limit equal to $35 million. The cost of the RWI Policy is borne entirely by e.l.f. Cosmetics, and coverage under the RWI Policy is subject to customary deductibles (self-insured retention) and certain exclusions and limitations. Naturium has agreed to various covenants, including, among others, an agreement to conduct its business in the ordinary course during the period prior to the Closing and not to engage in certain kinds of transactions during such period, subject to certain exceptions. The Purchase Agreement generally requires each party to use reasonable best efforts to obtain the required regulatory approvals, subject to certain limitations.
The consummation of the Acquisition is subject to certain customary conditions to Closing, including, among others, (i) the absence of any law or order that is in effect and makes illegal or enjoins, restrains or otherwise prohibits the consummation of the transactions contemplated by the Purchase Agreement (the “Closing Legal Impediment”), (ii) the expiration or termination of the applicable waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended, (iii) the shares of Company Stock to be issued in connection with the Acquisition being approved for listing on the New York Stock Exchange, (iv) subject to certain materiality exceptions, the accuracy of certain representations and warranties of each of Naturium, the Sellers, e.l.f. Cosmetics and the Company contained in the Purchase Agreement and the compliance in all material respects by each party with the covenants contained in the Purchase Agreement, (v) the termination of all affiliate arrangements and release of related liens and (vi) the absence of a material adverse effect with respect to Naturium. The consummation of the Acquisition is not subject to a financing condition. The Closing is expected to occur around September 30, 2023.
Pursuant to the Purchase Agreement, neither Naturium nor any Seller may solicit alternative transaction proposals. The Purchase Agreement can be terminated at any time by the mutual written consent of the Representative and e.l.f. Cosmetics. In addition, the Purchase Agreement can be terminated (i) by either the Representative or e.l.f. Cosmetics (A) if there is a final and non-appealable Closing Legal Impediment, provided that such Closing Legal Impediment is not due to the failure by the terminating party to perform in all material respects the covenants in the Purchase Agreement to be performed by such party (or Naturium or any Seller in the case of the Representative’s right to terminate the Purchase Agreement), (B) if the Closing shall not have occurred by 5:00 p.m. (Los Angeles time) on December 28, 2023 (the “Termination Date”), provided that such non-occurrence is not due to the failure by the terminating party to perform in all material respects the covenants in the Purchase Agreement to be performed by such party (or Naturium or any Seller in the case of the Representative’s right to terminate the Purchase Agreement), or (C) if the other party (or Naturium or any Seller in the case of e.l.f. Cosmetics’ right to terminate the Purchase Agreement) breaches any of its representations, warranties or covenants in the Purchase Agreement in a manner that would prevent or has prevented the satisfaction of any condition to the obligations of the other party at the Closing (and does not, or cannot, cure such material breach prior to the earlier of (x) the business day prior to the Termination Date and (y) 30 calendar days after written notice from the other party thereof) such that the conditions to Closing relating thereto would not be satisfied at the Closing; or (ii) by the Representative if all conditions to Closing in favor of e.l.f. Cosmetics have been satisfied and e.l.f. Cosmetics fails to consummate the Closing by 5:00 p.m. ET on the third business day following receipt of an irrevocable written notice from Naturium that it is ready to consummate the Closing.
The foregoing description of the Acquisition and the Purchase Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Purchase Agreement, which will be filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ending September 30, 2023.
Amendment to Credit Agreement
On August 28, 2023, the Company entered into an amendment (the “Amendment”) among the Company, e.l.f. Cosmetics, certain of the Company’s other subsidiaries party thereto, Bank of Montreal, as administrative agent (in such capacity, the “Agent”), and the lenders party thereto to that certain Amended and Restated Credit Agreement, dated as of April 30, 2021, among the Company, e.l.f. Cosmetics, certain of the Company’s other subsidiaries party thereto and the Agent (the “Credit Agreement,” and as amended by that certain First Amendment to Amended and Restated Credit Agreement, and as further amended by the Amendment, the “Amended Credit Agreement”) pursuant to which e.l.f. Cosmetics may borrow incremental term loans in a principal amount equal to $115.0 million under the Amended Credit Agreement (the “Incremental Term Loan”). The Company expects to use the Incremental Term Loan together with cash from its balance sheet and additional borrowings under its revolving credit facility to consummate the Acquisition and to pay related fees and expenses in connection with the Acquisition and Amendment.
The Incremental Term Loans will bear interest at a rate per annum equal to, at e.l.f. Cosmetics’ election: SOFR, plus 0.10% or an alternate base rate as set forth in the Amendment, plus an interest rate margin, to be based on consolidated total net leverage ratio levels, ranging from, (i) in the case of SOFR loans, 1.50% to 2.375%; provided that if SOFR is less than 0.00%, such rate shall be deemed to be 0.00%, and (ii) in the case of alternate base rate loans, 0.50% to 1.375%; provided that if the alternate base rate is less than 1.00%, such rate shall be deemed to be 1.00%. The Incremental Term Loans amortize at 5.00% per annum payable in equal quarterly installments of 1.25% per annum, commencing with the fiscal quarter ending on December 31, 2023.
Except with respect to customary related fees, the interest rate applicable to and the scheduled amortization of the Incremental Term Loans, the terms and provisions of the Incremental Term Loans are identical to those of the existing initial term loans under the Credit Agreement.
The foregoing description of the Incremental Term Loan and the Amendment does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Amendment, which will be filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ending September 30, 2023.
Forward-Looking Statements
This Current Report on Form 8-K contains forward-looking statements within the meaning of the federal securities laws, including those statements relating to the Purchase Agreement, the proposed Acquisition, and the performance of the obligations and covenants for the proposed Acquisition by each of the parties to the Purchase Agreement, statements relating to the timeline and closing of the Acquisition, statements related to regulatory approvals for the proposed Acquisition, statements related to the RWI Policy, and statements related to the process for termination of the Purchase Agreement and proposed Acquisition. Forward-looking statements and information presented in this Current Report on Form 8-K relate to future events, including the performance of obligations and covenants in connection with Purchase Agreement. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology.
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, actual results and the timing of selected events may differ materially from those expectations. Factors that could cause actual results to differ materially from those in the forward looking statements include, among other things, the risks and uncertainties that are described in the Company’s most recent Annual Report on Form 10-K, as
updated from time to time in the Company’s SEC filings, as well as: the occurrence of any event, change or other circumstances that could give rise to the termination of the Purchase Agreement to acquire Naturium; failure to obtain required regulatory approvals in a timely manner or otherwise; failure to satisfy any closing conditions of the Acquisition; risks associated with tax liabilities or changes in U.S. federal tax laws or interpretations to which the Acquisition and parties thereto are subject; risks related to pre-acquisition non-compliance by Naturium or Sellers with applicable regulatory requirements; failure to successfully integrate the acquired business; failure to realize anticipated benefits of any combined operations; unanticipated costs of acquiring or integrating Naturium; potential impact of announcement or consummation of the Acquisition on relationships with third parties, including employees, customers, partners and competitors; inability to retain key personnel; changes in legislation or government regulations affecting the Acquisition or its parties; and economic, social or political conditions that could adversely affect the Acquisition or its parties. Potential investors are urged to consider these factors carefully in evaluating the forward-looking statements. These forward-looking statements speak only as of the date hereof. Except as required by law, the Company assumes no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
| ITEM 2.03 | CREATION OF DIRECT FINANCIAL OBLIGATIONS OR AN OBLIGATION UNDER AN OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT. |
The information set forth under the heading “Amendment to Credit Agreement” in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 2.03.
| ITEM 3.02 | UNREGISTERED SALES OF EQUITY SECURITIES. |
The information set forth in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 3.02.
| ITEM 8.01 | OTHER EVENTS. |
On August 29, 2023, the Company issued a press release announcing the entry into the Purchase Agreement, a copy of which is attached as Exhibit 99.1 and is incorporated herein by reference.
| ITEM 9.01 | FINANCIAL STATEMENTS AND EXHIBITS. |
(d) Exhibits
| Exhibit Number |
Exhibit Description | |
| 99.1 | Press release issued on August 29, 2023, announcing the Purchase Agreement | |
| 104 | Cover Page Interactive Data File (the cover page XBRL tags are embedded within the inline XBRL document) | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: August 29, 2023 | E.L.F. BEAUTY, INC. | |||||
| By: | /s/ Mandy Fields | |||||
| Mandy Fields | ||||||
| Chief Financial Officer | ||||||
Exhibit 99.1
e.l.f. Beauty Announces Definitive Agreement to Acquire Naturium
Adds fast-growing, high performance skin care disruptor to e.l.f. Beauty portfolio of brands
Advances e.l.f. Beauty’s mission to make the best of beauty accessible to every eye, lip, face and skin concern
Acquisition expected to be accretive to e.l.f. Beauty’s EPS on an adjusted basis in fiscal 2024
OAKLAND, California; August 29, 2023 — e.l.f. Beauty (NYSE: ELF) has signed a definitive agreement to acquire Naturium, a fast-growing, high performance skin care brand for $355 million in a combination of cash and stock, furthering its mission to make the best of beauty accessible to every eye, lip, face and skin concern. The deal is expected to double e.l.f. Beauty’s presence in skin care to approximately 18% of retail sales. The transaction, which is subject to customary closing conditions, is expected to close around September 30, 2023.
“We are thrilled to welcome Naturium to the e.l.f. Beauty family,” said Tarang Amin, e.l.f. Beauty’s Chairman and Chief Executive Officer. “Naturium aligns with e.l.f. Beauty’s vision to create a different kind of beauty company with brands built to disrupt norms, shape culture and connect communities through positivity, inclusivity and accessibility. Nearing two decades in business, we continue to deliver exceptional results. In August, we raised our Fiscal 2024 outlook after posting quarterly net sales growth of 76%, marking 18 consecutive quarters of more than 20% sales growth on average. e.l.f. SKIN is one of the fastest growing skin care brands, and Naturium joining e.l.f. Beauty presents a unique opportunity to significantly accelerate the potential we see in skin care.”
Naturium was launched in 2019 by Los Angeles based brand accelerator, The Center, and propelled further in 2020 with the joining of one of the industry’s leading skin care authorities, Susan Yara as a founder, as well as a minority investment in 2021 from the female-founded growth equity firm Prelude Growth Partners. Naturium is driven by the belief that high performance skin care should be and can be clinically effective, skin compatible and affordable. The brand has seen exceptional growth, with net sales growing at an approximately +80% CAGR over the last two years, and approximately $90 million of net sales expected this year.1
Naturium is known for powerful ingredient-led formulas that combine efficacy with an elevated skin care experience at an accessible price point. Some of its best-selling products include The Glow Getter Multi-Oil Hydrating Body Wash, Vitamin C Complex Serum and Dew-Glow Moisturizer SPF 50. With an average selling price of approximately $18, Naturium products are currently available at Target, Amazon, naturium.com and select international retailers. Naturium is one of Target’s fastest growing skin care brands2 and was awarded Beauty Vendor of the Year in 2022.
“We have remained disciplined in pursuing strategic extensions that can leverage our strengths and bring complementary capabilities to e.l.f. Beauty” continued Amin. “Naturium has built something special. With efficacious products at accessible price points and a community first mindset, Naturium reminds me of where e.l.f. was when I became CEO over nine years ago. Naturium demonstrates the same spirit, values and growth characteristics we find in e.l.f.”
| 1 | In the 12 month period ending March 31, 2024, on an annualized basis. |
| 2 | Target IRI TCN Reporting (May 2023). |
“We’ve built an incredible brand, with numerous superstar formulas, a dedicated community and a world class team in less than four years,” said Susan Yara, Naturium’s Founder. “I have admired e.l.f., and their deep commitment to being a different kind of beauty company, for years now. They care about their community and their employees, which is truly meaningful to me, especially as a female founder. With our complementary missions and cultures, I know e.l.f. Beauty will be the ideal partner as we expand our reach, and continue to make high performance skin care accessible for all.”
e.l.f. Beauty plans to continue to operate the Naturium business from its headquarters in Los Angeles, CA, nurturing its entrepreneurial spirit and maintaining the brand’s passionate team of employees.
Transaction Details
The total purchase consideration is approximately $355 million, subject to certain customary purchase price adjustments. e.l.f. Beauty expects to finance the transaction using available cash on hand, borrowings under e.l.f. Beauty’s existing credit facility and approximately $70 million, or approximately 600,000 shares, of e.l.f. Beauty stock issued directly to founders and key management.
Naturium is expected to generate approximately $90 million of net sales and $17 million in adjusted EBITDA this year.3 The purchase price implies a multiple of approximately 4x net sales and approximately 21x adjusted EBITDA.
e.l.f. Beauty expects Naturium to contribute approximately $48 million in net sales, approximately $9 million in adjusted EBITDA and approximately $0.04 in adjusted EPS on a fully diluted basis in fiscal 2024. Note that this considers Naturium’s contribution for approximately half of e.l.f. Beauty’s fiscal year, based on the expected timeline for the transaction to close around September 30, 2023.
Advisors
Latham & Watkins LLP is serving as e.l.f. Beauty’s legal advisor. Financo Raymond James is serving as exclusive financial advisor to Naturium and Sidley Austin LLP and Polsinelli LLP are serving as Naturium’s legal advisors.
Conference Call Details
e.l.f. Beauty will hold a conference call to discuss the acquisition at 8:00am Eastern Time today, August 29, 2023. Interested parties may listen to the conference call via the live webcast by accessing https://investor.elfbeauty.com/news-and-events/events-and-presentations or by calling 1-844-481-2823 or 1-412-317-1848. For those unable to listen to the live broadcast, an archived version will be available on the e.l.f. Beauty website.
Presentation slides have also been posted to e.l.f. Beauty’s website at https://investor.elfbeauty.com/news-and-events/events-and-presentations.
About e.l.f. Beauty
e.l.f. Beauty, Inc. builds brands designed to disrupt industry norms, shape culture and connect communities through positivity, inclusivity and accessibility. Our deep commitment to clean, cruelty-free beauty at an incredible value has fueled the success of our flagship brand e.l.f. Cosmetics since 2004 and driven our portfolio expansion. Today, our multi-brand portfolio includes e.l.f. Cosmetics, e.l.f. SKIN, pioneering clean-beauty brand Well People and Keys Soulcare, a groundbreaking lifestyle beauty brand created with Alicia Keys. Our family of brands is available online and across leading beauty, mass market and specialty retailers in the U.S., and has a growing international presence.
Learn more by visiting https://investor.elfbeauty.com.
About Naturium
Driven by the belief that high-performance skin care should be and can be clinically-effective, skin compatible and affordable, Naturium was born. Naturium unlocks the benefits of natural botanicals and powerful actives with innovative technology, by formulating highly effective, skin care formulas that work. Naturium products are available at Target, Amazon, naturium.com and select international retailers.
| 3 | In the 12 month period ending March 31, 2024, on an annualized basis. |
Note Regarding non-GAAP Financial Measure
With respect to the adjusted EBITDA and adjusted EPS expectations above, the Company is not able to provide a quantitative reconciliation of these forward-looking non-GAAP financial measures to their most comparable GAAP financial measures without unreasonable efforts. The Company cannot provide meaningful estimates of the non-recurring charges and credits excluded from adjusted EBITDA and adjusted EPS due to the forward-looking nature of these estimates and their inherent variability and uncertainty. For the same reasons, the Company is unable to address the probable significance of the unavailable information.
Forward-looking Statements
This press release contains forward-looking statements within the meaning of the federal securities laws, including those statements relating to the Company’s expectations regarding Naturium’s net sales and adjusted EBITDA and contributions to e.l.f. Beauty’s net sales, adjusted EBITDA and adjusted EPS on a fully diluted basis in fiscal 2024, and those statements regarding the performance of the combined business. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, actual results and the timing of selected events may differ materially from those expectations. Factors that could cause actual results to differ materially from those in the forward looking statements include, among other things, the risks and uncertainties that are described in the Company’s most recent Annual Report on Form 10-K, as updated from time to time in the Company’s SEC filings, as well as the occurrence of any event, change or other circumstances that could give rise to the termination of the definitive agreement to acquire Naturium; the possibility that various closing conditions for the acquisition may not be satisfied or waived; the possibility of a failure to obtain, delays in obtaining or adverse conditions contained in regulatory or other required approvals; the failure of the acquisition to close for any other reason; the amount of fees and expenses related to the acquisition; the ability to achieve projected financial results; the Company’s ability to effectively compete with other beauty companies; the Company’s ability to successfully introduce new products; the Company’s ability to attract new retail customers and/or expand business with its existing retail customers; the Company’s ability to optimize shelf space at its key retail customers; the loss of any of the Company’s key retail customers or if the general business performance of its key retail customers declines; and the Company’s ability to effectively manage its SG&A and other expenses. Potential investors are urged to consider these factors carefully in evaluating the forward-looking statements. These forward-looking statements speak only as of the date hereof. Except as required by law, the Company assumes no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
| Investors: | Media: | |
| KC Katten | Melinda Fried | |
| VP, Corporate Development & Investor Relations, e.l.f. Beauty kkatten@elfbeauty.com |
Head of Corporate Communications, e.l.f. Beauty mfried@elfbeauty.com | |