L’Oréal announced on Monday 26 November that it signed an agreement with Castanea Partners, a private equity firm, to acquire the US make-up brand Urban Decay Cosmetics LLC — one of the fastest-growing specialty make-up brands in the US.  The acquisition is subject to regulatory approval, which is expected by the end of the year.  The agreed price has not been disclosed, but it has been estimated at between USD $300 and $400 million.  The company recorded annual net sales of USD $130 million in the fiscal year ending in June 2012.

L’Oréal is reaching beyond its traditional target by attracting younger and more upscale customers with the “fashion-forward looking image” of the brand.  Nicolas Hieronimus, president of L’Oréal Luxe, is confident that Urban Decay’s edgy packaging and avant-gardist products will “beautifully complement L’Oréal Luxe’s portfolio of iconic brands”.

Both companies will also benefit from this acquisition in terms of distribution strategy.  L’Oréal might strengthen its position in two very dynamic distribution channels in the US:  assisted self-service and e-commerce.  Urban Decay’s products – currently sold primarily through specialist beauty shops such as Ulta, Sephora and, more recently, Macy’s – will be made accessible to an increased number of consumers through L’Oréal’s multiple distribution channels.

L’Oréal’s focus on luxury markets should not come as a surprise, as demand has recently grown for higher-end and specialist products.  L’Oréal’s luxury division has propelled the company’s growth in recent months, offsetting slower business in the mass-cosmetics market, amid strong demand for prestigious labels particularly in emerging markets.