EWING, N.J.–(BUSINESS WIRE)–Church & Dwight Co., Inc. (NYSE:CHD) has signed a definitive agreement to acquire the Hero Mighty Patch brand and other acne treatment products for $630 million, consisting of cash and Church & Dwight restricted stock. Mighty Patch is the #2 brand in the acne category in the United States and the #1 patch brand in acne. The transaction, which is subject to customary closing conditions, is expected to close in the fourth quarter.
Hero’s net sales for the trailing twelve months through June 30, 2022 were approximately $115 million. The acne patch is the fastest growing treatment form in acne. The products are currently only marketed in the U.S.
“Mighty Patch® represents a powerful addition to our existing Specialty Hair and Skin portfolio which includes Nair, Batiste, Viviscal, Flawless, and Toppik,” said Matthew T. Farrell, Church & Dwight Chief Executive Officer. “The Mighty Patch® brand is a problem/solution product with a strong position in a growing category. The total acne treatment category in tracked channels is approximately $700 million. The patch form has grown to 18% of the acne treatment category as more consumers transition away from lotions and ointments to a patch solution. The brand skews towards younger consumers and consistently has a high level of brand loyalty and repeat purchase.”
Hero’s trailing twelve months EBITDA as of June 30, 2022 was approximately $45 million, with a 40% EBITDA margin. Church & Dwight expects to expand Mighty Patch®’s limited distribution by leveraging its US retailer relationships and international footprint.
“Hero is located in New York City with a highly capable management team led by the 3 founders, Ju Rhyu, Dwight Lee, and Andrew Lee,” Mr. Farrell continued. “In addition to cash, approximately 10% of the purchase price will be conveyed to the founders in restricted stock. The founders are expected to remain and continue to run the business while leveraging Church & Dwight’s scale and capabilities. We intend to maintain the NYC location and retain Hero employees. We are pleased to welcome them to the Church & Dwight family. Hero is nimble and asset light and should be an excellent fit at Church & Dwight.”
Mr. Farrell continued, “We are excited about adding Church & Dwight’s 15th power brand. This acquisition meets our long-standing acquisition criteria: (1) #1 or #2 brand in a category; (2) asset-light; (3) a growing brand; and (4) gross margin accretive to the Company. Acquisitions have been a key driver of Church & Dwight’s consistently strong shareholder returns.”
The three founders are thrilled about the partnership with Church & Dwight. “We are excited to combine a brand that people love with Church & Dwight’s expertise and scale to continue driving success and growth in the market. Our cultures are a strong complement to one another and we are ready to take Hero into the next chapter and beyond as part of the Church and Dwight family,” said Ms Rhyu, Co-Founder/CEO, Hero.
2022 Outlook
Regarding the 2022 Outlook, Mr. Farrell commented, “We now expect full year reported sales growth of 2% to 4% (previously 4% to 5%), reflecting the incremental growth from Hero offset by continued softness across our more discretionary brands.
For Q3, we now expect reported sales to decline -1% (previously growth midpoint of 3%) reflecting lower demand for Waterpik, Vitafusion and Flawless. EPS affirmed at $0.65 (no change to previous Outlook).
The acquisition is expected to be dilutive to the Company’s 2022 EPS by ($0.05), inclusive of transition costs, acquisition-related expenses, interest expense, intangible amortization expense, and incremental marketing. We now expect 2022 adjusted earnings per share (EPS) to be $2.97, inclusive of the $0.05 dilutive EPS effect of the acquisition. In addition, adjusted earnings in 2022 and 2023 will exclude the impact of $0.03 and $0.11, respectively, to exclude charges related to the restricted stock which will be treated as compensation.
Looking forward to 2023, the acquisition is expected to be 3% accretive to cash earnings and neutral to adjusted 2023 EPS, inclusive of transition costs, interest expense and intangible amortization. In 2023, Hero’s annual net sales are projected to grow approximately 15% to $150 million.”
Church & Dwight will host a webcast to discuss the acquisition on September 6 at 8:00 a.m. (ET). The webcast can be accessed at investor.churchdwight.com/investors/news-events.
Church & Dwight Co., Inc., founded in 1846, is the leading U.S. producer of sodium bicarbonate, popularly known as baking soda. The Company manufactures and markets a wide range of personal care, household and specialty products under recognized brand names such as ARM & HAMMER®, TROJAN®, OXICLEAN®, SPINBRUSH®, FIRST RESPONSE®, NAIR®, ORAJEL®, XTRA®, L’IL CRITTERS® and VITAFUSION®, BATISTE®, WATERPIK®, ZICAM®, FLAWLESS®, THERABREATH®, and following the closing of the transaction, HERO MIGHTY PATCH®. These 15 key brands represent approximately 85% of the Company’s product sales. For more information, visit the Company’s website.
