How The Body Shop unravelled in 3 months

As shoppers were hitting the high street in the weeks leading up to Christmas last year, private equity firm Aurelius was eyeing a bargain of its own.

The London-based fund manager announced in mid-November that it had scooped up British ethical beauty brand The Body Shop, buying it from Brazilian cosmetics conglomerate Natura in a £207mn deal, of which £90mn would be payable in five years.

To do this it had invested less than £20mn of equity, according to a person familiar with the firm.

Despite the buyout industry’s chequered record of investing in the UK high street, the chain’s then-chief executive Ian Bickley had warm words for its new owner, saying he was “looking forward to working hand in hand with Aurelius . . . always with an eye on sustainable and profitable growth”.

Aurelius partner Tristan Nagler added that the firm wanted to “[work with Bickley] and his team to drive operational improvements and re-energise the business”.

Yet just three months after the deal was announced and six weeks after it was completed, Bickley is gone, The Body Shop’s international network has been dismantled and its crown jewel, the UK business, has collapsed into administration — putting more than 2,000 jobs in more than 200 stores at risk.

Left behind is a labyrinthine web of corporate entities, complex financing arrangements and angry former The Body Shop employees, some of whom say they are owed money.

The potential collapse of the chain would put more than 2,000 jobs in the UK at risk © Daniel Leal/AFP via Getty Images

The turn of events also threatens to further tarnish private equity’s already complicated relationship with the high street, after investors presided over the failure of UK retailers such as Phones4U and Debenhams.

The Body Shop’s problems predate Aurelius’s ownership with competition increasing from brands such as Lush and L’Occitane, as well as other beauty lines that developed their own products marked as ethical or sustainable.

Founded in 1976 by the late Anita Roddick and her husband Gordon, the company became famous for advocating a form of ethical capitalism in which businesses could make money and do good at the same time. It was bought by French cosmetics giant L’Oréal in 2006 and later acquired for £880mn by Natura in 2017. Last year it appointed bankers to sell The Body Shop, later admitting that it did not have the “retail expertise” to revive the retailer across the globe. 

Aurelius, which acquired sportswear retail chain Footasylum and the owner of LloydsPharmacy in 2022, was confident in its ability to run companies in tricky situations and that it would be able to lavish more time on the business than Natura had done. But its vision for The Body Shop was hardly groundbreaking: to build out the company’s digital presence and restore the brand’s status as a champion of ethical capitalism. 

The cracks were quick to emerge, with trading far worse than expected over the critical festive period when Natura remained in charge, according to the person close to Aurelius. “Performance was worse than our worst-case assumptions,” they insisted. The Body Shop also discounted heavily during the festive period, hurting its profit margins.

This has subsequently led to finger-pointing over whether Aurelius had sufficient time to conduct proper due diligence on how the asset was performing between when the deal was announced in November and completion on December 31, the person added. 

Anita Roddick set up The Body Shop in 1976. It was bought by L’Oréal in 2006 and then acquired by Natura in 2017 © Jacques M. Chenet/Corbis via Getty Images

A handful of private equity and hedge funds evaluated bids, but the process revealed in more detail the problems the retailer was facing. “We thought it was a mess,” one person who looked at the asset said.

Part of the problem was that the chain, which had 2,500 shops in more than 70 countries when Aurelius agreed its deal, was present in too many markets, some of which didn’t make money.

The UK business — along with the Canadian and Australian operations — was the most attractive, people familiar with the matter said. Even so, the UK entity lost £71mn in 2022, down from a £10mn profit the previous year, according to its most recent UK filings.

Following the shock of poor Christmas trading, Aurelius was quick to protect its investment in the struggling company.

The Body Shop took out a series of loans from Aurelius around the time it took over the business, according to corporate filings. These pledged some of the company’s most valuable assets including reams of its intellectual property and valuable real estate to its new owner, the filings show, meaning Aurelius would have a claim over them in case of a collapse.

The retailer also offered shares in its Canadian subsidiary — a comparatively strong performing unit — as collateral to borrow an unspecified amount from its new backer. 

Aurelius was now the company’s owner and a significant creditor. 

The firm considers the arrangement standard practice and protection in high-risk investments, according to the person close to Aurelius. But it meant that Aurelius now ranked ahead of other creditors if the company ran into trouble. If the company went bankrupt, then Aurelius would have claims over The Body Shop assets which were worth similar amounts to the equity the firm invested, they added.

In late January, the firm agreed a deal to sell a chunk of its lossmaking international business, including France and Germany, to a family office. The person close to Aurelius said the family office was not a connected party but it had collaborated with and sold businesses to the family office before. It had not profited from the divestments, they added.

The move was hailed by its owner as “another decisive step towards delivering a strong turnaround strategy for The Body Shop”.

The Body Shop has since also filed for bankruptcy in Germany, where it employed 350 staff in 2021.

Behind the scenes, more problems were appearing. A group of senior executives including Bickley and its general counsel left the business, while details of a dispute with a separate group of former senior employees emerged after they did not receive any payment of non-vested shares they owned in former owner Natura.

Their fight is now with Aurelius as that agreement transferred with the sale, according to one person with knowledge of the matter. The former employees were told payment would be made in January, according to people familiar with the matter. By February, they were still waiting — prompting some of the claimants to hire lawyers, one of the people said.

On Tuesday Aurelius appointed FRP Advisory as administrators for The Body Shop’s UK business. This means outstanding management bonuses will be treated like all other financial obligations by the administrator, the person close to Aurelius said.

FRP is expected to market The Body Shop to potential buyers once it stabilises the business.

As a creditor, Aurelius is in pole position to buy back a slimmed-down business, shorn of its liabilities, with other interested parties likely to have to pay more than what Aurelius is owed for it, one restructuring expert said.

“This was not plan A,” the person close to Aurelius said. “This was not the intention.”

Natura did not respond to requests for comment over the claim that the sales process had been rushed, how heavily The Body Shop had discounted over the festive period and the ultimate shape of the deal.

If Aurelius is to achieve what it said it would do and restore The Body Shop to its former glory, the path to doing so is even more complex, although the firm is unlikely to lose money.

Russell Pointon, director of consumer at investment research company Edison Group, said: “Now will come a painful cost-cutting exercise that will surely extend the brand’s shelf life but likely come at the expense of a sizeable number of the company’s UK workforce.”

Additional reporting by Olaf Storbeck

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