Lathering up for a buyout?: Local hair care products biz Kenra could fetch $80 million

October 24, 2005

Kenra LLC, a locally based hair-care products manufacturer that has nearly tripled its revenue in six years, is looking for a buyer.

New York-based Giulliani Capital Advisors LLC is helping the 76-year-old company find a suitor, according to sources familiar with the situation.

Kenra reported its annual sales doubled last year to $80 million on the strength of a new line called Kenra Platinum, an upscale haircare collection. Company officials told Women's Wear Daily in March sales could increase another 30 percent this year.

Kenra officials did not return phone calls seeking comment about the company's being for sale. A spokeswoman for Giulliani Capital Advisors said she could not comment about clients.

But several sources in the merger and acquisition field said Kenra is seeking a buyer willing to pay at least $80 million for the company.

While some industry sources speculated the company might need more capital to continue growth, David Millard, vice chairman of Barnes & Thornburg's business department, thinks Kenra officials could be looking to capitalize on a market flooded with private equity investors.

"Selling today is not an indictment on the company," Millard said. "Their growth would put them in a favorable light, and this might be as good a time as any to harvest this thing."

There's been a dramatic increase in acquisition activity over the last 12 months, Millard said, with acquisition prices reaching highs they haven't hit since well before the dot.com bubble burst five years ago.

"Companies are selling at six to seven, even eight times multiples of earnings," Millard said. "What you have now is a lot of pent-up demand of companies who wanted to sell earlier but couldn't get a good price, and that is combined with an influx of [investment] money in the market."

Kenra's motive to sell is also likely related to the consolidation trend in the industry, said Anna Wang, an analyst in the consumer products division of New Jersey-based Kline and Co.

"We're in a climate where a lot of buyouts are taking place," Wang said. "You can be a real good company, and it's still very difficult to maintain growth with the likes of L'Oreal and Procter & Gamble, both of which are growing through acquisitions."

Only a handful of companies have succeeded as a niche manufacturer, Wang said.

"Independents like John Paul Mitchell and TiGi have made it with aggressive marketing and advertising through the salons, but those are the exceptions rather than the rule," Wang said. "You need really deep pockets to stand out in this market, and some companies just don't have the money to compete through marketing."

Kenra was founded in 1929, making a name for itself primarily as a wax depilatory manufacturer. Thirty years later, Henry J. Meyers, a local barber and stylist, bought the company and switched its focus to hair care. The firm is still controlled by the Meyers family.

Widely acclaimed in the industry, Kenra has largely eschewed mass retail distribution channels, deciding to distribute primarily through salons.

In 1999, however, Kenra began expanding its product lines and launched a television advertising campaign for the first time.

Kenra unveiled a new line of ethnic hair care products that sent sales upward five years ago, and about a year ago launched Kenra Platinum, a line of five styling products, including a freezing gel and a texturizing taffy.

After lackluster growth during the 1990s, Kenra's revenue grew from $30 million in 1999 to $40 million in 2003, before taking off last year. Even at $80 million-plus, Kenra is still a small player in the $6.5 billion hair-care market, Wang said.

But Kenra makes its own formulas at the company's east-side facility, and Wang said its burgeoning product line and inhouse secrets should help drive the sale.

What would happen to Kenra's Indianapolis headquarters and manufacturing facilities depends largely on the buyer, Millard said.

If a company within the industry buys Kenra, jobs could be sent out of state, even overseas.

If the buyer is an investment firm with plenty of capital, but little experience in hair care products, Kenra's local facilities and jobs-including executives-should be safe.

"If that's the scenario, the company's local presence would likely grow," Millard said.

Bob Shortle, a principal with Periculum Capital Partners in Indianapolis, thinks if recent history is an indicator, the firm will likely stay in town.

"Until recently, most of the transactions we were seeing were strategic transactions, where firms were buying others from within their sector," Shortle said. "Seventy five percent of the most recent deals have been to financial firms."
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