Should Natura Reunite Avon?

When Avon Products Inc. spun off the struggling North America business in 2016, it was shedding a problem.
The deal was meant to allow the business to focus on international markets, while handing over the North America project to private equity firm Cerberus Capital Management, which bought an 80 percent stake in that company. Since the deal, both parts of Avon have continued to struggle.
Now, with Brazilian direct-seller Natura in preliminary talks to buy both businesses, they could come back together.
It's something industry sources expressed skepticism about on behalf of Natura, noting that the Brazilian company is still working to turn around its 2017 acquisition of The Body Shop. But sources said that the deal could potentially have synergies for a reunited Avon.
"You'd expect some synergies in bringing them back together, even in overhead, R&D," said Coye Nokes, partner at OC&C Strategy Consultants. "It's quite a tall order to ask them to integrate, plus turn around. If you think about the number of items on the to-do list, that's a lot."
Another source suspected there were few synergies to be had. "If you're the , why would you want a weight around your ankle, weighing you down?" the source said.
Both sides of Avon have posted recent losses, though broadly Avon Products is thought to be a much healthier business than New Avon, which is what Cerberus has been calling the property since the 2016 takeover. Industry sources said that segment's sales dipped to $625 million for 2018, down from $725 million in 2017.
The international business, which is public, posted about $3.75 billion in net sales for calendar 2018, down about 10 percent from the prior year.
There is a case to be made for buying the international business, experts agreed, citing Avon's global reach, which includes Brazil as its largest market. But the case is tougher when it comes to the North America business. One source went as far as to speculate that once Natura digs into the New Avon numbers, they'll leave it behind.
"Avon does have a decent Brazilian business," the source continued. "It would strengthen their domestic presence."
Both Avons have been slow to modernize their traditional direct-selling model, where sales representatives buy inventory and sell the products to their respective networks. Other, newer companies, like Rodan & Fields, Beautycounter and Glossier, have developed new methods of direct selling, now frequently referred to as "social selling," that have fared much better in today's digital age.
"Beauty direct-selling as we knew it is dead-ish, if not dead," said one financial source.
"You have followers, leverage them," is the more modern model, said an industry source.
And even as Avon works to digitize, they'd have to recruit a sales force that can keep up, Nokes noted.
"You have a sales force that behaves in a certain way, and that would be difficult to change," she said.
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