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Why Aurelius’ Body Shop deal caused a stink

Aurelius’ recent The Body Shop debacle is a good example of why PE has a bad reputation where beloved high-street brands are concerned.

Aurelius’ recent The Body Shop debacle is a good example of why private equity has a bad reputation where beloved high-street brands are concerned.

In November, the German buyout firm picked up The Body Shop as it announced the promise of reenergizing the UK cosmetics brand and helping to deliver “the next chapter of success.” Three months later, the company is under administration and is set to close about half of its 198 UK stores, threatening hundreds of jobs.

The Body Shop is iconic in the UK. In the ‘80s and ‘90s, the chain built its reputation for environmentally friendly products with ethically sourced ingredients before the concept of ESG was even a thing. Fans of The Body Shop, and the nostalgia with which it is suffused, will understandably be upset to see its fall from grace.

The big question is to what extent this outcome could have been anticipated by Aurelius. The business was already in bad shape when the firm acquired it for £207 million (about $261.2 million), a mere one-fifth of the price that former owner Natura paid in 2017. According to the Financial Times, Aurelius footed less than £20 million in equity to secure the deal.

The brand had been suffering for some time amid dwindling foot traffic and growing online and offline competition. However, things went from bad to worse in January when poor winter sales exposed just how dire the situation had become. This led Aurelius to shed the company’s loss-making units in Europe and parts of Asia to salvage the struggling business and protect its investment.

Conveniently for Aurelius, it is itself also a significant creditor to the business, so it will be in a position to hoover up the pieces once shops are shuttered and many more jobs are lost. It’s not a good look.

The deal has also turned out to be a bit of a PR disaster from an ESG perspective, too. The chain’s downfall has left many of its vulnerable fair-trade suppliers in the lurch with more than $1 million in ingredients that will never be bought, the Guardian reported.

I reached out, but Aurelius declined to comment. The line being repeated by sources close to the firm is that this was “not plan A.” Either way, as the company’s top creditor, plan B probably won’t be too shabby of an alternative.

Featured image by Daniel Leal/Getty Images

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