Coty's Deal For Good Hair Day 'Bigger Than Expected'

An article by Sky News suggested that Coty Inc COTY is in talks to acquire Good Hair Day [GHD], a UK-based manufacturer of high-end hair care products, for substantially more than £400 million. The potential acquisition would offset about half of the dilution from Coty’s planned brand divestitures and boost total sales growth by ~30bps, Barclays’ Lauren Lieberman said in a report.

Analyst Lieberman maintained an Equal-weight rating on Coty, with a price target of $28. She mentioned that the price suggested exceeds $468 million using the current exchange rate. While the Sky News article indicated that the deal could be announced as early as later in October, there have been no official comments regarding the potential acquisition.

Bigger Than Expected

“While it is widely known that Coty intends to build out its beauty portfolio via acquisition less than a month after the RMT with P&G Specialty Beauty, a potential deal for GHD would surely be sooner and bigger than expected,” Lieberman commented.

There has been concern around dilution from Coty’s panned exit of 6-8 percent of pro-forma sales. The analyst stated that the divestiture could add ~100bps to total company growth, while the potential GHD acquisition may add another ~30bps to the top-line growth rates.

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