Bare Escentuals IPO
Princess Rodgers
FIN/554: Finance for Managerial Decision Making
University of Phoenix
George Peterson
October 4, 2006
Bare Escentuals IPO
In 1976, Bare Escentuals launched a line of cosmetics and skin treatments that are composed of 100% pure minerals in San Francisco, California. There are no additives or irritants in any of the company’s product formulas. According to Nasdaq, Bare Escentuals increased net sales approximately 87.5% on a compound annual basis in 2001 and during the fiscal year ended January 1, 2006, the company’s operating income was 29.8% of net sales.
For the last 29 years, Bare Escentuals has managed to remain a private entity. However, on September 29, 2006, the company decided to engage in an initial public offering. The main reason for the company’s public offering was to obtain funds to repay outstanding debts. “The company has estimated that it could potentially receive $325.2 million in net proceeds by offering its shares publicly at $22.00 per share” (http://ipo.nasdaq.com/reference/IPOs.stm). In less than a week, the price of shares has increased 33%.
The beauty industry is extremely competitive and frequently has to alter its product lines to match the changes in consumer preferences. Bare Escentuals is in direct competition with major beauty manufacturers that have larger resources at their disposal such as Avon, Clinique, Lancome, M.A.C., Estee Lauder, L’Oreal, and Neutrogena. Throughout the years, Bare Escentuals’ mineral based and chemical free product line gave the company a competitive advantage. However, this competitive advantage has diminished over the years primarily because competitors are offering products very similar to Bare’s product line. In order to compete against its rivals and meet its long term financial needs, it was in Bare’s best interest to offer its shares publicly.
Although the...