Spain’s largest beauty products company celebrated its 100th anniversary in 2014 with a four-day opening of its new Barcelona headquarters, attended by then-Prince Felipe of the Iberian Peninsula and with a glitzy party for more than 1,000 people in the world’s largest Art Nouveau complex.
But a quieter, but more significant, moment in this milestone was that that year, CEO Mark Puig, a third-generation family member, took 50 of his top employees to his alma mater, Harvard University, to plot the company’s growth path in a case study co-authored by prominent business school professor Krishna Palepu and Pedro Nueno, Puig’s then-director.
A decade later, the results of that blueprint are clear: Puig, whose iconic fragrance and fashion brands include Rabanne, Jean-Paul Gaultier and Carolina Herrera are positioned as a smaller, more upscale version of France’s L’Oreal, has more than doubled its revenue and the group is set to launch Europe’s biggest initial public offering this year.
But Puig’s sale comes as the company increasingly competes in a fiercely competitive market with well-funded luxury goods companies, from LVMH Moët Hennessy Louis Vuitton to Kering SA, and suggests it needs to keep investing to maintain growth and may need to spend heavily on acquisitions if it wants to expand its market share.
“Puig’s journey to becoming a luxury brand will not be easy,” says Xavier Brun, a portfolio manager at Torea Asset Management, which plans to buy a stake in the company. “Some of its luxury brands compete with luxury brands, but overall, its more classic fragrance lines, like Carolina Herrera and Rabanne, are a step behind.” Still, he says, “the luxury element is what attracted us to the name.”
On April 18, the company and the Puig family detailed plans to raise about 2.6 billion euros ($2.8 billion) in an initial public offering that could value the group at 13.9 billion euros, according to terms seen by Bloomberg. Puig’s shares would be valued at 11 to 15 times earnings, lower than the 18 to 22 times that more established peers L’Oreal and Estée Lauder are priced at, according to a Bloomberg Intelligence analysis. The company plans to use the proceeds to refinance recent acquisitions, fund the growth of its brands and expand its portfolio.
The IPO will make the Puig family one of the richest families in Europe, giving them a fortune of $11.7 billion at the top end of the IPO price range, according to the Bloomberg Billionaires Index.
It’s also a significant milestone for the 110-year-old family business. Currently, only two family members in their mid-to-late 60s work for the group, and the company has said the next generation will not be involved in day-to-day operations. That leaves a problem that many family businesses face: generational change. Being held accountable by the market will protect the company from the growing number of heirs to the family fortune, the company said. There are 14 heirs in the third generation alone.
The move mirrors efforts by other family-owned businesses to both professionalise and introduce tighter structures to avoid disputes as holdings within the group become more dispersed.
“It’s common for families to move in the direction of having family shares on the board, but not have a family CEO in the business,” says Jennifer Pendergast, a professor who studies such structures at Northwestern University’s Kellogg School of Management. “Typically, they recognize that the more family members they have, the more complicated things become, and there’s potential for tension and conflict within the family, so it’s easier to say, going forward, I’m going to not have family members because it’s a choice they don’t have to worry about.”
Even before announcing his IPO plans, Puig had begun making reforms at the family-run company, working in recent years to make the board more independent, with only two family members on the 13-person board — CEO Mark, 64, and Vice Chairman Manuel, 68.
In the early days, Puig was run like a family business, with the founder’s four sons discussing the company’s strategy over family lunches and holidays at the family’s villa in Vilazar de Dalt, just outside Barcelona, but now the family wants its members to be “good owners.”
The company’s history dates back to 1914, when founder Antonio Pucci withdrew from the import business in Barcelona. The story goes that a German submarine sank a ship loaded with uninsured goods, putting an end to the trading business. Antonio’s new company sold perfumes and soon began to produce its own product lines, including the first lipstick made in Spain and a best-selling lavender perfume. Much of the growth in the 20th century came from licensed perfumes. In the 50s, the second generation, led by Antonio and Mariano, focused on revamping the group’s image and marketing, and on expanding abroad, including to France, the United States and the United Kingdom.
When Marc and Manuel Puig were preparing to take over at the start of the century, it was a rocky road. Sales were falling and several new product launches were unsuccessful. A combination of poor performance and breaches of fiduciary obligations forced the company to undergo a complete restructuring in 2004. Appointed co-CEOs that same year, the pair cut a fifth of the company’s staff over the next few years, abandoned some of its mass-market products like soaps and deodorants in favor of fashion and fragrances, and turned Puig around from a loss-making business.
The company has built much of its portfolio of 17 brands over the past 13 years, spending 2.5 billion euros on an acquisition spree that included buying Swedish cult perfume maker Byredo and cosmetics brand Charlotte Tilbury. Last year, the group posted a 33 percent rise in profits to 849 million euros on sales of 4.3 billion euros.
Puig’s acquisition spree began in 1968 with a landmark deal with designer Paco Rabanne to manufacture and distribute his perfumes, which eventually led to the acquisition of Rabanne’s fashion business. Over the next few decades, Puig would employ a similar strategy of using fashion to sell perfumes through deals with Carolina Herrera, Nina Ricci, and Jean Paul Gaultier. In 2018, he bought a majority stake in Dries Van Noten, one of the last independent brands to dominate the European fashion industry, and subsequently launched a fragrance and cosmetics line.
The company also shifted away from selling licensed products and toward its own brands. The turnaround has made Puig the world’s fourth-largest company in the luxury fragrance sector, according to the IPO prospects. Two of the company’s brands, Rabanne and Carolina Herrera, rank among the world’s 10 best-selling fragrance brands, according to Euromonitor research.
But the company is facing growing competition from French luxury giants LVMH and Kering, which are moving into the high-margin luxury-fragrance market that Puig first entered with its acquisition of Penhaligon’s and L’Artisan Parfums in 2015. Last year, Kering, under the direction of a former Estée Lauder executive, reportedly paid €3.5 billion for a brand called Creed Fragrances as it builds out its own beauty division. L’Oreal is also in talks to potentially buy a minority stake in Omani luxury-fragrance company Amouage, Bloomberg reported on April 4.
“LVMH, Kering and Richemont have realised over the last few years that the big areas of profit growth are actually jewellery, watches, handbags and cosmetics,” said Linda Levy, president of the US-based industry group Fragrance Foundation. “These areas were siloed within the companies and all ran separately, but looking at the bigger picture, it looks like they’re looking to become more efficient. This will be an interesting change for the industry.”
For now, at least, Puig has an advantage in key segments, said Anne Gottlieb, a New York-based perfumer known in the industry as “the nose,” who has worked extensively with Puig.
“Puig is essentially a purely fragrance-focused company; most of our competitors treat fragrance as just one part of their wider business,” she said.
Northwestern’s Pendergast said further acquisitions were essential to future success and raising capital from the market was an ideal solution for the group.
“Because they grow by acquiring other brands and putting a lot of money into marketing and promoting their own brands, it’s pretty hard for the family to raise capital without some sort of public capital,” she said. “So if they can retain the power to elect the board of directors, pick the CEO and raise capital to help them grow, that’s a big benefit to them. That way they get the best of both worlds.”
