Why Church & Dwight (CHD) Is Buying Acquire Hero For $630 Million

By Amit Chowdhry ● Sep 6, 2022
  • Church & Dwight Co., Inc. (NYSE: CHD) is buying Hero Mighty Patch for $630 million. This is why.

Church & Dwight Co., Inc. (NYSE: CHD) announced it has signed a definitive agreement to acquire the Hero Mighty Patch brand (Hero) and other acne treatment products for $630 million, consisting of cash and Church & Dwight restricted stock. Mighty Patch is the #2 brand in the acne category in the United States and the #1 patch brand in acne. The deal, which is subject to customary closing conditions, is expected to close in the fourth quarter.

Hero’s financials: Hero’s net sales for the trailing twelve months through June 30, 2022, were approximately $115 million. And the acne patch is the fastest growing treatment form in acne. The products are currently only marketed in the U.S.

Hero’s trailing twelve months EBITDA as of June 30, 2022, was approximately $45 million, with a 40% EBITDA margin. And Church & Dwight expects to expand Mighty Patch’s limited distribution by leveraging its US retailer relationships and international footprint.

2022 outlook: The company now expects full-year reported sales growth of 2% to 4% (previously 4% to 5%), reflecting the incremental growth from Hero offset by continued softness across our more discretionary brands.

For Q3, the company now expects reported sales to decline -1% (previously growth midpoint of 3%) reflecting lower demand for Waterpik, Vitafusion, and Flawless. EPS affirmed at $0.65 (no change to previous Outlook).

The acquisition is expected to be dilutive to the Company’s 2022 EPS by ($0.05), inclusive of transition costs, acquisition-related expenses, interest expense, intangible amortization expense, and incremental marketing. We now expect 2022 adjusted earnings per share (EPS) to be $2.97, inclusive of the $0.05 dilutive EPS effect of the acquisition. In addition, adjusted earnings in 2022 and 2023 will exclude the impact of $0.03 and $0.11, respectively, to exclude charges related to the restricted stock which will be treated as compensation.

Looking forward to 2023, the acquisition is expected to be 3% accretive to cash earnings and neutral to adjusted 2023 EPS, inclusive of transition costs, interest expense, and intangible amortization. And next year, Hero’s annual net sales are projected to grow approximately 15% to $150 million.

KEY QUOTES:

“Mighty Patch represents a powerful addition to our existing Specialty Hair and Skin portfolio which includes Nair, Batiste, Viviscal, Flawless, and Toppik. The Mighty Patch® brand is a problem/solution product with a strong position in a growing category. The total acne treatment category in tracked channels is approximately $700 million. The patch form has grown to 18% of the acne treatment category as more consumers transition away from lotions and ointments to a patch solution. The brand skews towards younger consumers and consistently has a high level of brand loyalty and repeat purchase.”

“Hero is located in New York City with a highly capable management team led by the 3 founders, Ju Rhyu, Dwight Lee, and Andrew Lee. In addition to cash, approximately 10% of the purchase price will be conveyed to the founders in restricted stock. The founders are expected to remain and continue to run the business while leveraging Church & Dwight’s scale and capabilities. We intend to maintain the NYC location and retain Hero employees. We are pleased to welcome them to the Church & Dwight family. Hero is nimble and asset light and should be an excellent fit at Church & Dwight.”

“We are excited about adding Church & Dwight’s 15th power brand. This acquisition meets our long-standing acquisition criteria: (1) #1 or #2 brand in a category; (2) asset-light; (3) a growing brand; and (4) gross margin accretive to the Company. Acquisitions have been a key driver of Church & Dwight’s consistently strong shareholder returns.”

— Matthew Farrell, Church & Dwight Chief Executive Officer

“We are excited to combine a brand that people love with Church & Dwight’s expertise and scale to continue driving success and growth in the market. Our cultures are a strong complement to one another and we are ready to take Hero into the next chapter and beyond as part of the Church and Dwight family.”

— Ju Rhyu, Co-Founder/CEO, Hero