Yellow Wood sees new M&A opportunities as it acquires Suave from Unilever

Private equity firm Yellow Wood Partners, based in Boston, recently announced it will acquire personal care product brand Suave from Unilever. PE Hub sat down with Yellow Wood managing partner Dana Schmaltz to discuss the transaction and his outlook for the legacy brand and the sector overall.

How did the deal come about? Why Suave and why now?

We follow around 100 brands all the time, and we knew Unilever was de-emphasizing and were working on a relationship with them for a long time. It’s something that comes out of Yellow Wood focusing exclusively on consumer and understanding these channels and brands where some are growing and some are not but have other attributes to them which make them attractive for investment purposes in our eyes.

What makes this an attractive investment?

Twenty-five percent of American households have a Suave product on their shelves. The brand awareness is among the highest of its peers in the hair care and body wash categories, the awareness to trial is extremely high and the trial to repeat usage is extremely high. Those are metrics we at Yellow Wood look for in our brands.

Zest, another legacy hygiene and cosmetics brand, was acquired by a Brynwood portfolio company a while back by Procter & Gamble and now discontinued. How will this be different?

Number 1 is selecting the brand that works with your operating strategy. We tend to focus on those brands that have consumer metrics that we think are strong enough to survive outside of a large consumer packaged goods (CPG) company. We then implement our operating strategy. We had to replicate a production and distributions network for over 250 million units that are sold annually. If you’re not operationally focused and in constant partnerships with packers and other providers in the industry, it’s tough to do that. Big CPG companies tend to do best with large global brands, where Suave, although a large brand in the US, is only really in the US. I think at the value price that Suave is and that it was geographically limited in its distribution, as Unilever is working through their portfolio you can see where Suave wouldn’t fit.

How will Yellow Wood’s operating strategy benefit Suave?

We have a different model than most of private equity. We focus on fewer opportunities and tend to be more operationally focused than others. We spend time with these businesses every month working through strategic and tactical priorities, so we tend to focus on fewer companies and be more involved. We believe this strategy will lead to better returns in a concentrated portfolio.

What challenges will Suave face in the next couple of years?

Every day is a challenge for shelf space. Whether it’s on Amazon or in Walmart or Dollar General, it’s a constant battle. These retailers are extremely Darwinian in their use of data. If you start underperforming in terms of velocity or margin and each retailer looks at that slightly differently, we understand how each retailer looks at it so we try to create our pricing models to match the different distribution channels.  Whether it be on a mass scale at Walmart or Target or whether it’s the value channel understanding how each retailer looks at velocity and sell-through is really important and that’s part of our success and hopefully being able to expand our shelf space with Suave. Improving distribution, improving margin and bringing new product development, innovation to these brands is very important because consumers want new things all the time.

Will Suave be a platform investment?

We hope so. The infrastructure that the size of this brand brings allows us to look at other brands in multiple categories for add-on acquisitions which might not have the distribution or efficiency channels that Suave has. With our operating strategy we can increase the sales through potentially better distribution or increase the efficiency through the operating strategy that we bring to Suave or others.

What are the exit opportunities?

Our theory is that if you can grow a brand with an attractive ROI or capital each year then you’re going to open yourself up to strategic and PE buyers. We have less than 15 investors – some of the largest endowments in the world. If we are still getting a return on investment from a platform investment after four or five years, we may keep that deal.

The transaction is expected to close some time in the spring.