The beauty industry is buzzing with high-profile celebrity brand acquisitions. These mega-deals offer significant financial wins for founders and strategic advantages for acquiring companies, but they also bring complex legal considerations. This blog explores two major celebrity beauty brand acquisitions, examining what these deals entail and the legal implications that arise from them.
Hailey Bieber’s Rhode: e.l.f. Beauty’s Billion-Dollar Bet
Just three years after its founding in 2022, Hailey Bieber’s skincare brand, Rhode, is reported to be acquired by e.l.f. Beauty, in the largest acquisition in the company’s history. The deal, valued at approximately $1 billion, comprises $600 million in cash and $200 million (approximately 2.6 million shares) of newly issued e.l.f. Beauty common stock to Rhode’s existing equity holders, subject to customary purchase price adjustments. An additional potential earnout of $200 million is tied to Rhode’s future growth over a three-year post-closing period. The cash consideration is fully backed by $600 million in committed debt financing.
This strategic move, approved by e.l.f. Beauty’s Board of Directors is expected to close in early fiscal 2026, pending regulatory approvals. Hailey Bieber, along with co-founders Michael and Lauren Ratner and CEO Nick Vlahos, will continue to lead the brand from its Los Angeles office. Bieber herself will take on new roles as Rhode’s Chief Creative Officer and Head of Innovation.
e.l.f. Beauty Chairman and CEO Tarang Amin stated that the acquisition allows them to “diversify our portfolio with a fast-growing brand that makes the best of prestige accessible”. This acquisition comes at a unique time for e.l.f., as a significant portion (75%) of its global production is from China, making it subject to the everevolving tariffs.
Legal Implications of the Rhode Acquisition:
The Rhode acquisition is a prime example of the multifaceted legal landscape in such deals:
Trademark Rights: The transfer of Rhode’s trademarks, including its name and logo, to e.l.f. Beauty requires reviewing the current status of the trademark, draft a trademark assignment agreement that includes the terms of the transfer, parties, specific trademark being transferred, consideration given for the transfer, and any warranties or representations made by the parties. The trademark assignment then must be executed by both the assignor (original trademark owner) and the assignee (the acquiring company). The agreement must also include the assignment of all associated goodwill, to make sure the new owner will inherit the brand reputation and customer recognition. Once the assignment agreement has been executed, it must be filed with the USPTO.
Trademark Disputes: e.l.f. Beauty must do its due diligence to determine if there are any ongoing trademark disputes because they can ultimately affect the valuation of the target company or potentially derail the deal. A pending trademark dispute can hurt the target brand’s image and reputation, which will influence its market value. If a target company’s trademarks infringe on third-party rights, the acquiring company risks costly legal battles, injunctions, and the loss or restriction of brand assets, hindering its ability to fully leverage the acquisition. Furthermore, integrating trademark portfolios with ongoing disputes adds significant legal and operational complexity, potentially slowing down the entire integration process.
Other Intellectual Property: Businesses can reduce the risks associated with transferring closely held proprietary information during an acquisition in a variety of ways. Some of which are as follows:
- Non-Disclosure Agreements (NDAs): NDAs define exactly what the relevant confidential information is and restrict its use. These can be tailored to the specific case and needs of the parties involved.
- Virtual Data Rooms (VDRs): Secure online platforms that manage and share documents during the due diligence period allow for restricted access based on user roles, activity tracking, and encryption.
- Phased Release of Information: Releasing information in stages as the buyer demonstrates a continued interest and commitment to the transaction allows the seller to release more sensitive information as trust is built between the parties.
- Buyer Screeening: Before sharing any confidential information the seller can qualify the buyer’s legitimacy and financial capabilities.
- “Need-To-Know: Policy: Limit access to sensitive information to only those who are directly involved with the transaction.
- Secure Communication Methods: The parties can use encrypted platforms or all communication related to the transaction.
- Making Confidential Documents: By clearly labeling confidential documents you can avoid individuals accidentally reading sensitive information without warning.
- Cybersecurity Insurance: Cyber insurance can mitigate potential financial losses from any cyber breaches during the process.
- Data Escrow: This can be used by having a neutral third-party hold information until certain conditions are met.
Competition and Antitrust Law: The acquisition may be subject to review by the Federal Trade Commission (FTC) to ensure it doesn’t lead to undue market power or harm competition by expanding e.l.f. Beauty’s market share.
Contract Law: As to how these deals look like, in terms of what documents are prepared and executed, here are some common examples:
- Purchase Agreement: The purchase agreement is the main document outlining the main terms of the deal such as the price, payment terms, and any contingencies.
- Letter of Intent: This is the preliminary agreement that outlines the basic terms of the deal and is the basis for later negotiations.
- Employee Agreements: Documents can require the retention of valuable employees post acquisition.
- Bill of Sale: If the acquisition involves assets, a bill of sale includes the transaction details, including the item sold, the price, and any agreements between the parties.
- Closing Certificates: Formal documents delivered during the closing of an acquisition to confirm that provide a written confirmation that all parties have fulfilled their obligations and the transaction can proceed.
- Consent Documents: Agreement from third parties such as landlords or creditors to transfer ownership or assets may be required to carry out the acquisition.
Due Diligence: In a business acquisition, due diligence is a critical and comprehensive investigation conducted by a prospective buyer to thoroughly assess a target company’s assets, liabilities, and overall value before finalizing a deal. It involves examining financial, legal, and operational aspects to verify information provided by the seller, identify potential risks, and enable the buyer to make an informed decision.
This multi-faceted process involves several key areas. It includes examining financial records like income statements and balance sheets to understand the company’s health, profitability, and debt. The process also assesses legal compliance, contracts, and potential liabilities such as lawsuits or regulatory issues. Additionally, it focuses on business processes, IT systems, and operational efficiency. Buyers will also look at the company’s market position, competitive landscape, and future growth prospects. Finally, it involves understanding the employee base, including their skills and integration potential, and considering the company’s environmental, social, and governance performance.
Engaging in thorough due diligence offers several significant benefits: it reduces risk by identifying problems early, enables informed decision-making through comprehensive understanding, aids in accurate business valuation by gathering essential information, and facilitates a smoother integration process by understanding the target company’s operational and cultural aspects.
Tax Implications: In business acquisitions, tax implications are paramount. Generally, the selling company will seek to avoid inheriting the seller’s tax attributes, such as net operating losses, while the buyer will inherit the target company’s assets, liabilities, and tax attributes. Sellers may face high taxes as some gain can be treated as ordinary income rather than capital gains, and for C-Corporations, an asset sale may result in double taxation. Conversely, sellers typically receive capital gains on the sale of stock, and a stock sale can avoid double taxation for C-Corporations as the transaction is taxed only at the shareholder level.
Beyond these structures, several specific tax considerations arise: Sellers may be able to defer taxes on some sale proceeds by using the Installment Sale method, spreading tax liability over time as payments are received. Goodwill, meaning intangible value, is generally treated as a capital asset, subject to capital gains tax. Depreciation Recapture rules may apply, taxing a portion of the gain from selling previously depreciated assets as ordinary income. Transaction Costs incurred during the acquisition may be tax-deductible or amortized. Furthermore, state and local taxes, such as sales or transfer taxes, can apply depending on the transaction structure and location. Given these complexities, tax planning with professionals is crucial for both parties to strategize, minimize tax liabilities, and maximize benefits.
Data Privacy: Data privacy or personal information in business acquisitions is governed by a range of laws and compliance standards, including federal and state regulations, and industry-specific standards like HIPAA and GLBA. These regulations dictate how acquired data can be used, shared, and protected. Key considerations include obtaining necessary consents, limiting data sharing, and ensuring compliance with data transfer mechanisms. The Rhode acquisition may be subject to:
- GDPR (General Data Protection Regulation): This would apply if the acquisition involves data from European residents. As a global beauty brand, it is highly probable that Rhode collects and processes data from individuals residing in Europe.
- CCPA (California Consumer Privacy Act): This would apply as Rhode is a U.S. brand and collects data from California residents.
- Federal Trade Commission (FTC) Act: The FTC has broad authority to prosecute unfair or deceptive business practices, including those related to privacy and security. Any U.S. company collecting consumer data is subject to the FTC Act.
- COPPA (Children’s Online Privacy Protection Act): This would potentially apply if Rhode’s online operations knowingly collect personal data from children under 13 years of age. Applicability depends on Rhode’s target audience and data collection practices regarding minors.
- Consents and Approvals: Rhode must ensure it has obtained the necessary consents and approvals to disclose personal information to the e.l.f. Beauty.
- Data Security: The acquisition agreement should include representations and warranties related to Rhode’s data security practices to protect customer data.
- Data Privacy Due Diligence: Thorough due diligence is crucial to identify any potential liabilities and ensure compliance with all relevant data privacy laws before the acquisition is finalized.
- Breach Notification: If a data breach were to occur, e.l.f. Beauty would need to comply with breach notification requirements under laws like GDPR and CCPA within specified timeframes.
- Data Protection Officers (DPOs): If the combined entity (e.l.f. Beauty and Rhode) conducts large-scale data processing involving European residents, the GDPR may require the appointment of a DPO.
Navigating these complex legal issues is essential for a successful and legally sound acquisition. If you would like to learn more about legal implications of business acquisitions, do not hesitate to contact one of our experienced business attorneys at EPGD Business Law, with office in Miami, FL. Call us at (786) 837-6787 or email us to schedule a consultation.
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