Connection Capital clients invest £3.5m to support growth of online beauty retailer as shift to e-commerce accelerates.
- High HNWI demand suggests that appetite for private company investments is starting to return to pre-pandemic levels
The clients of Connection Capital, the specialist private client investment business, have made a £3.5m investment into online beauty retailer Gorgeous Retail Group Ltd (GRG), to support its growth plans as the shift to e-commerce in the cosmetics market is accelerated by Covid-19.
Demand from Connection Capital’s private high net worth investor (HNWI) client base was strong and exceeded capacity, leaving the deal oversubscribed - suggesting a resurgent appetite for private company investment opportunities.
The deal provided a five-year senior loan facility to enable Gorgeous Shop Ltd (GSL), an online retailer of premium cosmetics, haircare, skincare and other beauty products to acquire Beauty Flash, another online beauty business, which will then both combine to become GRG. It will also provide working capital for GRG’s ongoing operations and support its further organic and acquisitive growth strategy.
The acquisition will diversify the Group’s product offering, provide significant cost synergies and broaden its channels to market. Its portfolio includes a range of established brands as well as emerging challenger brands which are growing in popularity.
Both businesses have seen strong trading performance throughout 2020. A move towards online shopping in the cosmetics and skincare industry has been underway for some years, particularly among younger female consumers, which is their key target demographic. This trend has been fuelled by the impact of Covid-19 lockdowns and social distancing.
GRG operates in a rapidly expanding market. The UK cosmetics market was worth almost £10bn in 2018 and is expected to grow faster than the retail sector as a whole, with market growth of 4% compound annual growth (CAGR) forecast over the next four years*. E-commerce is by far the fastest growing part of the retail market. However, online beauty retailing is also a fragmented market, ripe for consolidation.
CEO, Mark Frey, and Finance Director, Ruth Salsbury, co-founded Hertfordshire-based GSL in 2006. Both have track records of starting, growing and exiting successful businesses (including those with acquisitive strategies), one of which went on to list on AIM. A Non-Executive Chairman (NXC), Jeremy Seigal, will join the board, having been introduced by Connection Capital. Mr Seigal is a former CEO of Superdrug and founder of The Perfume Shop.
A flexible, supportive lending structure amid disruption in the SME banking market
Connection Capital’s lending structure for GRG is more flexible than that typically on offer from a traditional lender. GRG’s management team were also looking for a partner who could add value to its overall “buy and build” strategy – a role which Connection Capital is well-placed to fulfil given its wider activities as both a private equity as well as private debt asset manager. The deal gives GRG access to some of the most flexible capital in the market as it pursues its ongoing buy and build strategy alongside organic growth. Connection Capital’s business model is predicated on offering SMEs constructive, expert advice and guidance as well as funding from its private client base.
Disruption in the SME banking market stemming from the pandemic, in which traditional lenders are focussing on delivering emergency government-backed loan schemes and on their own existing loan books, is another factor spurring small and medium-sized businesses like GRG to investigate specialist sources of lending.
Doug Wilson, Investment Director at Connection Capital, comments, “The incredibly high level of interest our clients showed for this opportunity suggests that HNWI appetite for private company investments is starting to return to pre-pandemic levels.”
“Private capital is on the lookout for good opportunities to diversify investment portfolios and support UK SMEs in the process and GRG represents just that.”
“This is an exciting opportunity to invest in a resilient, ambitious business in a fast-growing sector with attractive market dynamics. We believe that GRG’s experienced and driven management team are more than capable of taking the company forward to take advantage of favourable market conditions and generate real value.”
“The Covid-19 pandemic has turbocharged the trend towards online shopping, as we have seen across a number of e-commerce platforms, not least another Connection Capital portfolio business, Virgin Wines. Even when life returns to ‘normal’, given that online shopping for beauty products was already gaining momentum, this should be a permanent shift.”
Mark Frey, CEO of GRG, comments, “As a business with growth aspirations within a vibrant sector we were keen to partner with a team who would understand the commercial potential of the company and would be able to provide a flexible approach to our funding requirements.”
“Working with the Connection Capital team has been a pleasure. From the outset it was clear that they have great commercial experience and this was key to the successful funding structure agreed.”
“Their approach allowed for a mix of traditional debt funding with an equity interest in the business the structure of which allowed us to conclude a strategic acquisition at completion.”
“This transaction was concluded during the peak of the pandemic, and despite this the Connection Capital team were totally professional and efficient. It is hard to imagine the same would have been true in a traditional banking environment.”