KKR’s Strategic Deal with Coty: Case Study

The consumer discretionary sector is facing its toughest challenge as businesses remain shuttered due to the coronavirus. In the wake of the COVID-19 pandemic, a growing number of companies have filed for bankruptcy in 2020. Recent high-profile bankruptcy filings include J-Crew, Neiman Marcus, J.C. Penney, and Pier 1 Imports. Without material action or intervention, more companies in this sector can be expected to file for bankruptcy.

With the backdrop of uncertainty stemming from the COVID-19 pandemic, private equity firms stand ready to deploy their capital during this market dislocation. According to data from Preqin, private equity firms are sitting on a record level of dry powder, having amassed a total $1.45 trillion in cash to invest at the end of 2019. Private equity firms have been actively seeking deals in the struggling consumer discretionary sector, which includes travel and leisure, gaming, consumer retail, luxury goods, etc.

One example of such an opportune investment was the recent strategic deal private equity firm KKR entered with the global beauty firm Coty Inc. (the “Company” or “Coty”). On May11, 2020, Coty announced a strategic partnership with KKR. As part of the strategic partnership, KKR initially invested $750 million in Coty through the sale of convertible preferred shares to KKR. Additionally, Coty and KKR signed a Memorandum of Understanding (“MOU”) for the sale of a majority in Coty’s Professional and Retail Hair Businesses, which includes the Wella, Clairol, OPI and ghd brands (together, “SpinCo”) at an enterprise value of $4.3 billion. On June 1, 2020, Coty announced that it has entered into a definitive agreement with KKR for the sale of a majority in SpinCo.