Deal Mechanic: Mayborn Group tipped for bigger things

When London-listed private equity firm 3i Group acquired Mayborn Group in a public-to-private transaction in 2006, it was a consumer products company built around a baby products business, at the centre of which was the Tommee Tippee baby feeding products brand.

“The real gem in the business was the baby products business,” says 3i managing partner and co-head of private equity Alan Giddins.

“Not only did the business have a very strong brand, it was in a growing, non-cyclical market, which had very strong margins and high cash conversions. Mayborn is an 80 percent return on capital employed business.”

In May 2006, 3i offered 500 pence per ordinary share to acquire the business in a transaction valuing Mayborn at £137 million (€173 million; $194 million).

1 FOCUSING AND CONSOLIDATING
Top of the list of priorities post-acquisition was divesting the non-core businesses to focus management’s attention on the baby products arm.

“It wasn’t obvious that there was any synergy or benefit from having more than one activity within the group,” Giddins says.

Impex, a small arts and crafts business, was sold to management for £1 million, while a piece of land and property in south London was offloaded for £7 million. 3i then ran an auction process for Dylon, a domestic fabric dyes business, which it sold to French household products group Spotless Group for £15 million.

Under 3i’s ownership, Mayborn went from 25 percent market share in the UK to 38 percent, switching places with its closest rival, Avent, which on entry had a market share of 40 percent.

“We were able to benefit from the fact that Avent was no longer an independent competitor [but] part of a much larger group,” Giddins says. “I think there was probably a moment in 2007-08 where there was a little bit of a lack of focus in the Avent business, which gave Mayborn perhaps more of a market opening to grow into in the UK.”

Another big driver was Mayborn’s innovation, which helped it accelerate past the competition.

“Mayborn always had great innovation, but what we were able to do was say, ‘Right, let’s be a baby feeding products business and focus all the innovation in the right area,’” Giddins says.

The most critical innovation came in 2007 when Tommee Tippee introduced the Closer to Nature bottle, which is designed to mimic breast feeding.

“That was in terms of technology just a massive advance in bottle feeding,” Giddins says.

2 CROSSING THE POND
In 2010, 3i had a decision on its hands: look for a buyer for Mayborn or commit to taking the business into the US. It was a fairly straightforward decision.

“We felt the US strategy [was] so exciting, we should continue as an investor and support the business on delivering it,” Giddins says. “Once you take that decision to enter a new geography, particularly one of that size, you’ve got to buy into that on a three- to four-year period.”

Thanks to strong return on capital cash generation, the firm was able to refinance the business in 2012, taking 80 percent of its money off the table.

Having seen the success of the brand in the UK, Tommee Tippee stockist ASDA, which is owned by Walmart, and Babies R Us, which has a presence in the US, encouraged Mayborn to take the product into the American market.

In 2010 3i agreed an exclusive launch in Babies R Us in the US and quickly became one of the store’s fastest-growing brands in the baby products market. This was followed by agreements with Target and, in 2015, with Walmart, when Tommee Tippee was launched in around 1,800 of its stores.

“It has been a gradual build-up, but today Mayborn is one of the leading baby products brands in the US [with] over $40 million of [annual] revenues in the space of five years.”

3 ROUTES TO MARKET
Prior to expansion into the US, Mayborn sold into its overseas markets via distributors.

“If you want to grow a business quite quickly, that distributor model is a good way to grow it. But it has huge limitations,” Giddins says. “You don’t really control how [the distributors] speak to the retailer, how they position the product in the retailer that your customer looks at. So you’re a step removed from the retailer and therefore a further step removed from your customer base.”

3i decided when it took Mayborn into the US to go direct, building its own relationships with retailers. “Having done that and seen the benefit of the direct model in the US, [we decided] how this business should be structured [is] it should go direct in its biggest markets,” Giddins says.

3i supported Mayborn in the acquisition of its distributors in France and Australia, after which it was serving its four biggest markets – accounting for around 65 percent of sales – directly. Mayborn, which sells into 50 countries, also keeps a large number of distributor relationships.

4 REBRANDING
While Tommee Tippee was the primary branding on a number of products on acquisition, on others it was a sub-brand behind a range of different brand names. 3i worked with Mayborn to elevate Tommee Tippee to the Masterbrand across all baby products to boost brand equity and consumer recognition. The new branding was launched in 2015 to coincide with Tommee Tippee’s 50th anniversary.

Mayborn has also worked to differentiate its branding and packaging from its competitors, focusing on creating an emotional connection with mothers. Its website, which doesn’t directly sell its products, offers advice for new parents alongside product information.

“It’s tried to differentiate itself from simply medical white and be slightly different,” Giddins says. “[Mayborn has] tried to really pursue more engagement around enjoying being a parent, and that’s where [it’s] tried to pitch it both in terms of design and style and what’s on the website.”

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In the last three to four years of ownership 3i received several approaches from trade buyers interested in acquiring the business and, following the introduction of Tommee Tippee into Walmart stores in the US and the relaunch of the brand, 3i ran a full sales process.

Mayborn was acquired by Shanghai Jahwa, China’s largest domestically-owned manufacturer of personal care products and cosmetics, in a deal understood to value the business at around £300 million, delivering a total equity return of £214 million and a 3.6x return to 3i and its investors.

The new relationship will give Mayborn the power to accelerate growth into Asia, Giddins says.

“For the business, Jahwa was a uniquely interesting partner,” he says.

“I think for management it gives them an opportunity now to really accelerate the growth of the business into markets that probably in a stand-alone business we would have found quite challenging.”