Blackstone sees opportunity in skin care

The PE firm closed in on ZO Skin Health, an opportunity the group tracked for a couple of years.

Blackstone Group bought a majority stake in ZO Skin Health, a physician dispensed line of skincare products.

The skincare brand made roughly $140 million in 2019 sales and produced 30 percent top-line growth for the last three years, according to a market source.

The deal, which closed on October 2, was on Blackstone’s radar for the past few years and was funded through its Tactical Opportunities fund. “This is part of our healthcare efforts; investing in consumer products that are in the healthcare channel,” said Ram Jagannath, global head of healthcare for Blackstone Growth and Tactical Opportun­ities, speaking from his home office.

Although there was no auction process, the Irvine, California, label received interest from strategic and other investors.

“We knew them in the past [but] reached out to them this year,” Jagannath said. Financo was Blackstone’s buyside advisor on this deal.

Most of the work on this deal was done virtually, but some part of the due-diligence was in-person, according to the source. “When this opportunity came up Blackstone built upon its multi-year effort,” the source added.

The PE firm intends to keep ZO, an exclusively physician dispensed product. “You can’t buy this in mass ecommerce like Amazon and traditional retailing [such as Sephora],” Jagannath said. A letter of intent was signed well over a month ago.

The skincare solution brand was founded in 2007 by Zein Obagi, a renowned dermatologist. An aging population and increased focus on wellness and skin health have been tailwinds for this all-equity transaction, according to Jagannath. “Consumers want to feel good about themselves.”

Referring to possible recapitalization efforts, Jagannath said, “there was no debt involved [in this deal]; that won’t preclude us from seeking debt in the future.”

Blackstone will look to grow the company organically. This includes getting more physicians onboard and continuing to fuel international markets.

Defending the decision to invest in a consumer brand after the early year covid shock, Jagannath said the pent-up demand resurrected the company’s growth over the summer. “The company was able to recover from that [pandemic] with a huge surge in e-commerce sales.”

Action Item: Check out the press release on this deal