Hilbert taking on tanning niche

September 24, 2007

Indianapolis-based New Sunshine LLC's new ownership regime is consolidating the indoor tanning industry in unprecedented fashion.

Less than two years after the company was bought by a group led by former Conseco Inc. CEO Stephen Hilbert, New Sunshine's Australian Gold division has acquired its top two competitors, amassing 80 percent of the indoor suntan lotion market, according to industry experts.

Australian Gold acquired Phoenix-based Designer Skin this month for an undisclosed amount. Designer Skin, which has more than 70 employees, is known for its industry innovations and unique packaging along with an extensive line of lotions and a "rock star" image, industry experts said.

Australian Gold officials were on the road breaking the news to salon owners nationwide and not available for comment.

The most recent acquisition comes on the heels of Australian Gold's acquisition last December of Los Angeles-based California Tan.

Australian Gold is the market leader in indoor tanning lotion sales, said industry experts, while California Tan and Designer Skin hold the No. 2 and No. 3 positions, respectively.

New Sunshine also has a line of lotions designed for outdoor use, but its bread and butter is products sold at salons. The indoor lotions are used for moisturizing and to speed tanning for those who use tanning beds.

"Suffice it to say, this is a big acquisition," said Judie Bizzozero, editorial director for Looking Fit magazine, a Phoenix-based trade publication that follows the tanning industry.

Observers noted that Hilbert is employing the same tactics he used at Conseco to roll up insurance and finance companies into one of the state's largest conglomerates. His goal now is to turn New Sunshine into an industry behemoth in the $5 billion indoor tanning market, which includes tanning beds and spray booths in addition to the lotion market New Sunshine already dominates.

"The new players within [New Sunshine] are becoming well-known in this industry," said Rick Matoon, president of American Tanning Institute, a Glendale, Ariz.-based company that offers national certification and training for the indoor tanning industry. "They have a track record of deal making, and they're making their mark on this industry.

"[New Sunshine] is not acquiring mom and pops, they're acquiring firms with huge customer databases. This type of consolidation is something this industry has never seen."

Industry insiders posting on tanningrelated Web sites show there's a mixed reaction among distributors and salon owners.

While some are optimistic New Sunshine will extend its generous co-op programs for salon owners to its new lines and improve distribution and product training, others voiced concerns the company will shrink the product lines of its latest acquisitions and reduce quality and customer service in cost-saving moves.

Sources close to the deal said New Sunshine has no plans to downsize Designer Skin's product line.

Others are concerned that New Sunshine will force out of business smaller lotion manufacturers with a devoted following.

New Sunshine's latest move could be just the beginning of a serious growth push, industry experts said.

In May, the company announced a $9.2 million local expansion that will grow the company's management, logistics and manufacturing work force and bring upgrades to its production facilities and computer equipment. Company officials said the expansion would add 55 new jobs to the company, which employed about 320 here before its most recent acquisition.

New Sunshine's corporate headquarters is near West 71st Street and Interstate 465. Additional offices and a manufacturing and distribution facility are on the south side.

The recent acquisition included Designer Skin's manufacturing arm in Tempe, a Phoenix suburb. It will give New Sunshine more capacity to push its growing product line to market.

"[New Sunshine] already has a solid distribution network, and I think this could really enhance it," said Ed Cobb, owner of Sun Kiss Tan, on Indianapolis' south side. "Now they have almost every niche of this market covered. If they can manage this growth, and keep all their customers happy, they would be in a great position."

Cobb, who learned about the acquisition only after a reporter's phone call, said New Sunshine officials should be fast and thorough in notifying their customers.

"When something like this happens, there are bound to be questions," Matoon said. "I think it benefits [New Sunshine] to keep everyone in the loop, and I think they will."

In addition to handling the California Tan and Designer Skin labels, New Sunshine sells under the brand names Australian Gold, Swedish Beauty, Colorology and Caribbean Gold.

Cobb thinks the industry is ripe for consolidation, which probably lured Hilbert and his posse of investors.

"This industry has a solid future, but the fact is, it's down slightly right now," Cobb said. "Some of the lotion companies are a little distressed, so it might be a good time to make these acquisitions."

Most people in the industry attribute recent slow sales to the rising cost of everyday necessities, such as gasoline, and concern in the health community about the safety of indoor tanning facilities, especially for teens and children.

Oddly, Hilbert stumbled onto New Sunshine by accident, when his wife, Tomisue, found a dog belonging to the company's former owners. When she returned the dog, a black lab named Tigerlily, she discovered her neighbor owned the company that made the tanning bed she and her husband owned.

Trevor and Edna Gray founded the company in 1984 and guided it through steady growth in the tanning bed and indoor tanning lotion industry.

After becoming friends, the Grays told the Hilberts they were looking to sell. Stephen Hilbert was instrumental in putting together the deal in which the Grays sold the firm to a group that included MH Private Equity Fund LLC--which is led by Hilbert and financially backed by home improvements store billionaire John Menard. Three executives under the Grays--Leslie Hartlieb, John Keiffner and Bill Pipp--also are among the new ownership group.

New Sunshine also includes a division, ETS Inc., which designs and makes tanning beds and spray booths, and Helios, which designs and makes software to manage tanning salons.

Once New Sunshine digests its most recent acquisition, industry observers said, it could turn its eyes toward the tanning bed and booth sector, where it still has several major competitors.

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