Sexy Hair, New Hope

Sexy Hair Concepts is no longer weighed down by excessive debt. The Chatsworth-based hair products company recently emerged from bankruptcy reorganization. TSG Consumer Partners LLC, a San Francisco-based private investment firm, announced this month that it’s the new owner. Sexy Hair now can concentrate on pumping up sales in the U.S. and abroad with new product launches and wider distribution, said CEO Karl-Heinz Pitsch, who will remain in his position under the new owners. “We will focus on an even more accretive plan to increase overall revenue for the company,” Pitsch said. Sexy Hair sells its products to more than 60,000 licensed salons throughout the U.S. and distributes products in more than 36 countries. Mike Nave, president and publisher of the Calabasas-based Beauty Industry Report, said Sexy Hair is a recognized salon brand that will likely benefit from the new ownership. “They have a new owner and investment banking company who is a very successful partner in the beauty business, and the company’s being run by a very confident and knowledgeable CEO,” Nave said. Brian Krumrei, principal of TSG, said the investment firm plans to expand the company. He declined to be more specific about those plans, but said Sexy Hair is able to invest in sales and marketing efforts and new product development instead of paying down loans and interest. “The business has been performing quite well,” Krumrei said. “It’s largely (about) continuing to do what the team has been doing.” TSG had been eyeing Sexy Hair for at least five years. Early last year, the investment firm started acquisition talks with Thoma Bravo, LLC, the investment firm which previously owned Sexy Hair, Krumrei said. Sexy Hair filed for bankruptcy in December, according to court documents. At the time the company filed for bankruptcy, it owed about $88 million. It included about $62.6 million to senior secured lenders, represented by agent Bank of Montreal, and about $25 million in subordinated notes. For $43 million, TSG took the new stock and allowed the payment of $28 million in secured debt. Another $35 million in secured claims was assumed, according to the documents. Carl Thoma, managing partner for Thoma Bravo, said shortly after his company purchased Sexy Hair in 2008, it started having problems as a result of the U.S. economic recession and unsuccessful product launches. Earnings dropped off by about 50 percent and revenues fell by about 20 percent compared to pre-recession levels, he said. “When we bought it, it was doing just fine,” Thoma said. “When the recession hit, it got in financial trouble and couldn’t meet its debt obligations.” Thoma Bravo’s investment portfolio is largely comprised of technology companies. The firm attempted to diversify its holdings when it bought Sexy Hair, Thoma said. “It was a very expensive new lesson to us,” Thoma said. “We’re no longer investing in consumer (product) companies. It’s just a too fickle market.” Looking ahead TSG invests exclusively in the consumer sector, which includes the beauty product market. It has invested in brands such as Alterna hair care, Pureology hair care, Smashbox, e.l.f. cosmetics and others. “The new owners are a much better fit for us, because they understand the consumer goods business,” Pitsch said. Sexy Hair’s revenues for the first quarter of 2011 were 30 percent higher than revenues for the same period last year, Krumrei said. In February, the company announced that salon sales last year totaled more than $150 million, an increase of nearly 20 percent compared with 2009. Thoma said that growth reflects Sexy Hair’s recovery from a major financial hit it suffered in the wake of the recession. Pitsch partially attributes the recent financial improvement to the successful launch of new products, such as the Reinvent Color Care line, Volumizing Dry Shampoo and Powder Play styling product. The company also launched a cancer patient-focused charity campaign in January 2010 with the nonprofit organization Look Good…Feel Better and ramped up its social marketing efforts. That helped increase consumer recognition for Sexy Hair products, Pitsch said. Going forward, Pitsch said he plans to increase Sexy Hair’s level of international sales from 15 percent to about 20 percent within the next two years. The company will continue to focus on growth in Europe and Latin America, he said. There also will be an effort to expand distribution at professional beauty stores in the United States, Pitsch said. “It’s more than having more stores” carry the product, he said. Sexy Hair wants to have “a better presence within these stores, supporting them better from a merchandizing and education standpoint.” The company is also preparing to unveil two products this year – its keratin filler, a product designed to make extremely damaged hair healthy; and a healthy scalp product line. The keratin filler will be Sexy Hair’s first product that is only for salon use and not intended for retail, Pitsch said. Plans for launching the products were already in place before the new owners stepped in, Pitsch said. But executing those plans wouldn’t be possible without a strong investment base. “Now we can focus on really doing what we know to do best,” he said.