Dave Fenlon building BWX into the ‘go-to’ brand

Dave Fenlon, above, has taken BWX from failed management buyout and one of the most shorted stocks on the boards to a business 100 per cent leveraged to growth as a house of natural brands.

In a market buzzing with takeovers, one stands out for Dave Fenlon, the boss of beauty and wellness company BWX.

It is the battle over pharmacy business API.

“Everybody is into the potential API transaction at the moment – what it tells you about the growth in wellbeing and beauty if someone like Wesfarmers who are a brilliant business and retailer is interested,” he said.

In the wildest of rides over three years, Fenlon has taken BWX from failed management buyout and one of the most shorted stocks on the boards to a business 100 per cent leveraged to growth as a house of natural brands.

On Thursday, BWX completed the 51 per cent acquisition of Zoe Foster-Blake’s Go-To business. Now Fenlon wants to take the House of Natural Brands to the world anchored by two Aussie labels, Sukin and Go-To.

Market Researcher Euromonitor has valued the personal care and beauty market at $US500bn ($690bn) in 2020, with “natural” now the leading product claim.

Punching through border closures, Fenlon is on his first trip to California in 18 months. In the last two weeks he has visited more than 50 stores, catching up with the team and seeing first-hand what is happening on the ground.

“There is life after Covid,” he reported from Petaluma. “Foot traffic is returning. This morning I was in a Whole Foods and a Sprouts and both stores were extremely busy, and I’ve spent weekends in discount department stores as well as the natural supermarket channels.

“It’s great to see consumers back and enjoying the opportunity to shop freely.”

Australia has been the foundation of BWX with Sukin now the No. 1 natural skincare brand in pharmacies. But it also owns Andalou and Mineral Fusion, the No. 1 brands in facial skincare and cosmetics in the US natural channel. Last year Sukin launched in 700 Target stores in the US and recently signed on Walmart.

“International is already around 43 per cent of our business and I expect with the opportunity of bringing Sukin as well as Go-To to the US, it is going to be our growth trajectory for the next couple of years, alongside Europe.”

Fenlon has a yarn to tell. Managing director ANZ of Blackmores for six years, he joined the board of BWX in 2018 as a non-executive director. Within a month, a management buyout backed by Bain Capital was lobbed at the board. Fenlon knew nothing about it.

“If I had I probably would not have arrived,” he chuckled. “I can’t say it was an easy period, joining as a director and seeing that land and the CEO and the CFO step aside because they were part of the management buyout that the board were unaware of.”

The MBO was pitched at $6.60 a share valuing the business at $860m. But after 12 weeks of due diligence, Bain walked away. The share price tanked 14 per cent that week and around 30 per cent over the next year as the shorters set in.

Fund manager Bennelong which had labelled the bid opportunistic stayed on as a 20 per cent cornerstone investor and in July 2019 Fenlon took over as CEO. He says the MBO fell over because there was no one company approach: no computer systems to account for all the brands, no synergies and no plan.

“It was a collection of brands that had been brought together with no understanding of how they would show up to consumers as a ‘house of natural’. It clearly told us what we needed to do.”

So how did he win back the investor?

“By giving them some confidence,” said Fenlon. “The investors and the board needed to be shown a simple plan: how we would grow the management team, how we were going to get really close to consumers, how we were going to show up as the only brand across the globe which is ‘all in’ on natural, which is what we have done now.”

Fenlon locked his sights on the natural consumer, the mainstream market and efficiency. BWX will bring manufacturing back to Australia, building a new facility in Melbourne.

Delivering on strategy has allowed BWX to go back to the market for two capital raisings to fund growth this year.

“We had proved in the previous two years that we would do what we said we would do. We had growth in year one of 25 per cent on revenue, 35 per cent on profit.” This year, revenue lifted 3.4 per cent to $194m and earnings before interest tax and depreciation rose 11.6 per cent to $34.5m.

Also core to the strategy was that two years ago, management identified the brands on its radar for the house of BWX. One of those was Go-To. “Did we think it would come along? No. Are we extremely grateful it’s come along? Absolutely,” said Fenlon.

Founded by Australian beauty editor Zoe Foster-Blake in 2014, Go-To’s natural skin care business generated revenues of $37m and EBITDA of $11.6m for 2021. BWX paid $89m for a 51 per cent holding, funded by a $100m raising.

“When you put a business in front of shareholders that has got compound annual growth of 39 per cent on revenue, 50 per cent on profit, a very loyal customer base, and led by a founder and management team that is hugely passionate, it’s a very compelling story.

“The raising was oversubscribed and they gave us the tick.”

Foster-Blake was also looking for growth. “We had reached the stage where we had our start-up directors and shareholders and I felt very strongly that that group of people had reached their limits,” she said.

Of a strong beauty parade of bidders, she says it was clear that Fenlon and BWX was the right partner to take Go-To international. “They trade and live and breathe the category, they had infrastructure, boots on the ground, and the expertise.”

BWX is taking Go-To and Sukin under an A-Beauty flag to US and European markets both in store and online.

“It is two brands that really want to take on the world,” Fenton said. “They are very clearly defined in the eyes of consumers. Sukin is around 10 per cent direct to consumers, Go-To is 60 per cent.”

Add to that the online brands of Nourish Life and the recent acquisition of the Flora & Fauna vegan beauty online store.

Covid has changed consumers who today shop across all channels but BWX puts a lot of effort into education. Lovers of all things natural also care about sustainability and climate change.

“Zoe and I have this idea for a university for consumers to understand their skin care regime but also how our products are treading lightly on the planet, how we can give back to the local environment. That education is something we can do better when we have a relationships directly with the consumer.”

“The whole reason I started Go-To was because I felt the skincare industry was confusing and intimidating for a lot of women and simplicity is key,” said Foster-Blake.

Go-To’s point of difference is the trust built with the consumer. “She understand and can feel confident with our products because we hold her hand at every stage.”

Go-To takes BWX into the masstige market (premium but attainable) and has branched out to Bro-To for men and Gro-To for kids. Foster-Blake is tied in for three years.

BWX expects $3m in synergies from the deal but Fenlon stressed that Foster-Blake with her valued heritage as a beauty editor and her team would operate independently. “We are not going to mess with something that is absolutely brilliant. What we will do together is take on the world. In the hour and a half when we briefed investors about what we were doing we had over 15 inbounds from retailers across the globe asking whether we could have a conversation with them about Go-To,” he said.

So far, Fenlon has managed to get BWX’s share price back to just under $5 and the short position is down from 12 to 0.2 per cent. Covid uncertainties persist but margin expansion looks promising.

All this is happening in a year where Ruffy Geminder had a tilt at McPhersons, and API is now being fought over by Wesfarmers and Sigma. Fenlon says it is too early to pick a winner but consumers will benefit.

“Good to see another player, potentially Wesfarmers come into the wellbeing and beauty space, but watch this space. “