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e.l.f. Beauty (ELF +10%) is adding to its cosmetics war chest with a cash-and-stock deal to acquire Naturium, a fast-growing skin care brand for $355 mln. Our first thought is that ELF has come a long way from its upstart status a few years ago. We think this deal signals a sense of confidence of how ELF has grown to be a key player in cosmetics. As evidenced by recent blowout quarters, ELF strikes us as being right for the times with consumers limiting spend. The majority of ELF's items retail for $10 or less.

• Let's dig into the deal, which is expected to double e.l.f. Beauty's presence in skin care to approximately 18% of retail sales. e.l.f. SKIN is one of the fastest growing skin care brands, and ELF sees Naturium's addition as a unique opportunity to significantly accelerate the potential it sees in skin care. Naturium was launched in 2019 by Los Angeles based brand accelerator, The Center, but has already grown quickly.
• Naturium seems to mirror's ELF's brand positioning by providing high performance skin care at an affordable price. Some of its best-selling products include The Glow Getter Multi-Oil Hydrating Body Wash, Vitamin C Complex Serum and Dew-Glow Moisturizer SPF 50. With an average selling price of approximately $18, Naturium products are currently available at Target, Amazon, naturium.com and select international retailers.
• ELF says the brand has seen exceptional growth, with sales growing at an +80% CAGR over the last two years, and approximately $90 mln of sales are expected this year. Naturium is also one of Target's fastest growing skin care brands.
• The deal seems pretty reasonably priced for an upstart brand at about 4x sales. We also like that the transaction is mostly cash, with only about $70 mln coming from ELF shares, so the dilution is not too bad. The small equity component is also a signal to investors that management thinks its shares are attractively valued.

Overall, Briefing.com like the deal quite a bit. Naturium sort of reminds of where ELF was a few years ago and seems to have struck the right balance between performance and price. There is a gap in the cosmetics industry between high-priced prestige beauty products and less innovative mass products. ELF's goal has always been to thread that needle by offering high-quality beauty products at an affordable price. ELF's recent results demonstrates its success. And we think Naturium threads that same needle. Also, both companies have high exposure to Target and online channels, so blending the operations should be pretty seamless. Finally, at 4x sales, the price seems pretty reasonable to add a fast growing brand.