The FTC Keeps Throttling Razor Brand Acquisitions, But It Doesn't Spell Doom for the DTC World

Last week, the Federal Trade Commission announced it was filing a suit to halt Procter & Gamble's acquisition of Billie, a direct-to-consumer razor brand. If that sentence inspires an episode of déjà vu, there's a reason: Not even a year ago, the FTC filed another suit to block a similar acquisition, that of Harry's, another DTC razor brand, by personal care giant Edgewell. What happened to Harry's after that suit was filed offers a blueprint for what may occur with Billie as well: A week after the suit was announced, Edgewell backed out of the acquisition, citing the resources that would have been required to fight the suit in court, as well as the uncertainty of the result. Harry's subsequently threatened legal action, though no suit has yet come to fruition. When Edgewell backed out, co-CEOs, Jeff Raider and Andy Katz-Mayfield, summed up the company's next steps in a statement: "Moving forward, we will continue to do what we do best: develop, manufacture and sell exceptional products at an honest price, and always put our customers first.” Read: Harry's will continue on as before. Now, it seems Billie is set to suffer a similar fate. The FTC's suit comes at a time when antitrust laws have bubbled up to the top of the consumer consciousness. Major mergers—much more high profile than either Harry's/Edgewell or Billie/P&G would have been—have occurred over the past few years, including Disney's purchase of 20th Century Fox in March 2019, AT&T's purchase of TimeWarner in June 2018 and the Viacom-CBS merger in August 2019. And the FTC (along with 48 states) sued to break up Facebook last week and Google is at the center of an antitrust lawsuit of its own. These razor brand acquisitions are no small potatoes—Edgewell was going to pay $1.37 billion for Harry's. But they're not on the scale of, say what the FTC has been doing with regard to Facebook. After all, one's a tool that serves as a primary way nearly three billion people worldwide get information and news, while the other is a more simple CPG item. Still, these DTC product deals have clearly become a sticking point for the FTC. In part, the FTC appears to be serving up a warning sign to other DTC brands hoping to be snatched up by CPG conglomerates. But main reason is that the agency is looking to address a situation exclusive to that category. "When you have only a small number of incumbent suppliers, who have often had large market share for quite some time, who are being challenged by disruptive competitors, there's a real push to try and preserve that disruptive potential of these nascent competitors," said Ben Gris, a partner in the Antitrust practice at Shearman and Sterling LLP. "The concern that the FTC is articulating is that they're trying to buy that threat out, rather than have to compete against it." It's true that the world of razors is a small one, in terms of the numbers of brands in the space. There are two major legacy players, Gillette, owned by P&G, and Schick, owned by Edgewell. The category was one of the first to be hit by the DTC disruption, first, for men, with Dollar Shave Club, in 2011, then with Harry's in 2012. The shakeup to the women's category came a little later, with the launch of Billie, which is targeted towards women in 2017, and Harry's launching a women's line of its own, Flamingo, in 2018. The razor market is not so completely devoid of rivalry, after all, there are two major players in Gillette and Schick. But in comparing that with other personal care categories, such as haircare, or skincare, and the contrast is stark: There are countless shampoo brands lining drug store aisles, A category with only two options is not exactly the picture of healthy competition, particularly if the two legacy players are buying up the companies that brought the biggest shakeups in decades. And once the Harry's deal was torpedoed, it set a precedent that ultimately condemned the Billie deal, too. "If P&G is going to buy Billie and and Edgewell is going to have Harry's, again, this goes back to the initial concern, which is the market is just going to be restricted to these big players," said Paul Munford, founder of ecommerce newsletter Lean Luxe and investor in DTC brands such as Great Jones and Parade. It is the landscape of the razor category, both Munford and Gris said, that likely contributed to the demise (actual and pending, in Billie's case) of these deals. And that's why the news about Billie and Harry's shouldn't inspire fear in the hearts of DTC brands hoping to be acquired by a conglomerate themselves. That conclusion also helps answer another question in the FTC razor saga: If the Harry's and Billie deals were an issue, why was Unilever allowed to acquire Dollar Shave Club, as it did in 2016 for $1 billion? The answer offers another sign of hope to DTC brands and the conglomerates hoping to acquire them. According to Gris, because Unilever did not own a razor brand pre-Dollar Shave Club acquisition, that meant that they weren't competition, despite being one of the world's largest CPG conglomerates. "If you're not an incumbent player in the space and you're buying a disruptive player, you're probably buying them to continue that disruption," said Gris. "An incumbent provider has a very different incentive as to what they might want to do with this company they are acquiring versus one who not in the market in the first place." While DTC brands can take a breath when it comes to their acquisition prospects, it might be a lesson in managing expectations for these brands from the get go. Particularly, for venture capitalists considering investing in DTC product brands. Despite the sleek branding and digital-first approach, ultimately, a brand like Harry's has more in common with a Gillette than say, a Slack. "A lot of these brands were backed by venture capitalists to come from the tech scene," said Munford. "They expected these brands to have the same sort of revenues and growth in scale that a lot of their tech investments did. In the brand world, that just isn't typically the case at all." That means that expectations for these brands should be different, too—both from investors and the brands themselves. Perhaps, Munford said, the goal shouldn't be a billion-dollar purchase, but simply building a profitable business that can stand on its own. "At the end of the day, maybe the end result isn't going to be [an acquisition], but that doesn't necessarily mean that these companies were failures," he said. "They can still be very powerful, viable companies that serve a need for specific consumers, they're maybe not $5 billion in valuation, but are still comfortable and healthy businesses that are creating change in a positive way for the consumer market."