The thing about most trends is that they are fleeting: ripped jeans, polka-dotted shirts and such. COVID-19 gave birth to many more: Dalgona coffee, TikTok dances, inflation and the consequential e-commerce boom and bust. Since mid-2022, Australia has seen e-commerce sales decline due to inflation; however, that hasn’t compelled online retailers like Adore Beauty (ASX: ABY) to give up their company’s control for mediocre proposals just yet.
Recently, Adore Beauty received an acquisition proposal from British e-commerce retailer THG plc (LON: THG), which it shut down because the Company knew its worth (in Gen-Z slang: slay?).
Adore Beauty received a non-binding, conditional and indicative proposal from THG plc (LON: THG) to acquire 100% of the Company’s shares through a scheme of arrangement for $1.25-1.30 cash per share. After reviewing the terms of the Proposal with its financial and legal advisers, the Board of Adore Beauty concluded that “the Proposal undervalued the Company, was unable to be implemented, and was not in the best interests of shareholders”.
Accordingly, it rejected the proposal. Adore Beauty said it aims to maximise shareholder value, and the THG proposal did not meet its goals.
This announcement from Adore Beauty followed an Australian Financial Review report from November 26, 2023. As per the outlet, the Manchester company, previously The Hut Group, is trying to grow its base in Australia. In September, it partnered with brands like Haircarebear, Celebrity Slim, and Skin Virtue and was trying to bag Adore Beauty.
In FY23, perhaps this proposal would have been considered more deeply when Adore Beauty saw its EBITDA fall by 88% on FY22. However, it has gained some sales momentum since then, despite inflationary pressures. In Q1 FY24, its revenue was $47.5 million, up 4.7% on Q1 FY23. Its mobile app comprised a large portion of the revenue, representing over 26% of all revenue in Q1.
Adore Beauty has been working on improving its brand and product offering, onboarding Nyx, Davines, Ralph Lauren and several other popular fragrance brands during the period. It also saw sales growth across its owned brands, Viviology, AB Lab and Adore Beauty.
It did acknowledge that trading conditions remain challenging given the higher cost of living pressures and subdued consumer sentiment. KPMG’s Australia Retail Outlook for 2023 shed light on the shift to conscious spending starting mid-2022 amid inflationary pressures. Even though this situation impacted Adore Beauty’s financials in FY23, it is not so dire yet that the Company gets acquired for a less-than-ideal amount, especially with investors looking to dive back into the e-commerce boom.
Beauty shopping online is expected to increase in the next few months, along with the overall growth of online shopping. As of September 2023, beauty was among the top ten most popular online shopping segments, with 22% of Aussie consumers saying they shopped for beauty products online. What’s more, reports suggest that the Australian e-commerce market is expected to pick up majorly in 2024 and beyond. By 2025, it is expected to be worth $73.5 billion, up from 2023’s $57.2 billion.
Although growth in online shopping is forecast to be modest in 2023, it is anticipated to see a run-up in 2024. Despite ongoing challenges such as cost of living pressures and lower consumer sentiment, Adore Beauty aims to achieve an EBITDA margin of 2-4% in FY24.
Alinda is a Business Reporter for The Sentiment
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