by Maureen Flanagan
Under new ownership, European Touch Ltd. ll has reaffirmed its leading position in the pedicure spa industry and secured a solid foothold for future opportunities. In a November 2, 2001 transaction, European Touch was acquired by American Capital Strategies (Nasdaq: ACAS), a publicly traded buyout and mezzanine fund with capital resources exceeding $1 billion.
Since its inception in 1985, European Touch has become the foremost designer, manufacturer and marketer of high-quality foot care appliances and related salon furnishings, selling to professional beauty distributors as well as end-users in the United States and abroad. The company has been enormously successful in its market. In fact, its sales are more than double that of its closest competitor.
European Touch's products are sold through 210 distributors and used in more than 24,000 salons and spas worldwide. Its products include salon chairs, whirlpool foot spas, manicure and pedicure tables, footrests, portable salon accessory carts and related accessories. Solace Spa, known as the "Cadillac" of the pedicure spa industry, is the company's flagship salon appliance. Positioned in the highest value-added segment of the market, Solace Spa incorporates the industry's leading features and benefits, including a chair massage system. Omni Spa, the company's original pedicure spa appliance, was the first product of its kind that allowed spa owners to incorporate a dual-service concept to perform both pedicures and manicures. Targeting smaller customers, European Touch's Petite Spa is a small freestanding pedicure foot spa that provides foot care treatments economically and with space-saving efficiency. The company also produces complementary furnishings such as unique hand-shaped salon chairs and other equipment for salon and spa needs. The company employs 36 workers at its facilities in Butler, WI.
In 1998, European Touch was acquired by Styling Technology Corporation (STC), a diversified manufacturer and marketer of professional beauty supply products. As an independent company, European Touch will focus on updating its product designs and launching new marketing campaigns to enhance its market share. It also has plans for further product development and new products that could significantly boost growth. The company is currently developing industry cleaning products and a new generation of pedicure chair.
"American Capital's investment allows us to devote resources to upgrading our products, developing new ones, and promoting them in an expanding marketplace," said European Touch CEO Connie Meyer-Weissling.
"European Touch is the top brand in salon appliances, with an unmatched reputation for quality and service," said Gordon O'Brien, American Capital Managing Director. "Their experienced, innovative and highly respected management has established the dominant brand name and market share in the pedicure spa industry. The company is capitalizing on the remarkable growth in the spa industry tied to long term demographic patterns and household consumption trends resistant to economic downturns."
To accomplish the $26 million buyout, American Capital provided a complete financing package consisting of senior debt, senior subordinated debt, junior subordinated debt and common equity.
American Capital invests senior and subordinated debt in middle-market companies in need of capital for growth, acquisitions, employee and management buyouts, liquidity and recapitalizations. The investment in European Touch is American Capital's third financing in the personal care products industry. In September 1999, ACAS invested $4.2 million in Caswell-Massey Holdings Corp., and in September 2001 provided $12 million of financing to BLI Holdings, an outsource manufacturer and packager for the personal care products industry. Since 1997, ACAS has invested $860 million in 55 companies in a wide range of industries.
The spa and beauty salon industry - European Touch's market -- has fared well during the recent economic downturn and is expected to continue to grow. The spa market is already sizable - conservative estimates place the number of spas in the United States as of August 2000 at just under 5,700. Spa locations have been growing rapidly, doubling in the last five years. In fact, during the 1990s the number of spas grew by a staggering 314%. Growth in 2000 has continued to be strong with day spas and medical spas accelerating the fastest. Pedicures -- representing the sixth most popular service at day spas -- are an integral part of the spa treatment.
Driving this growth is increasing consumer demand, evident in the growing number of spa visits by the baby boomer and aging generation who have more leisure time, more financial resources and a greater interest in an improved lifestyle. Analysts forecast a 20% to 25% annual growth for the spa industry over the next decade.
The beauty salon industry is also thriving. The growing number of salons and increasing revenues have brought rapid growth in the number of nail care treatments. Currently, 45% of the more than 242,000 salons offer pedicure services and that percentage is expected to rise as demand increases and salons diversify their services. Citing manicure and nail treatment among their biggest growth areas, many operators are purchasing additional spas and new salons are placing initial orders for chairs and other appliances.
As the dominant supplier of pedicure spas to the industry, European Touch is well positioned to take advantage of the growing market opportunities. The company is also expected to benefit from the consolidation of the beauty supply industry which favors bigger companies such as European Touch that have the resources to effectively service large distribution companies.
Another opportunity lies in further penetration of international markets. The non-U.S. market for professional salon products represents approximately 50% of the worldwide market. In 2001, European Touch obtained the CE designation - the European equivalent to UL - giving the company an opportunity for significant European sales. European Touch is the only U.S. company that has obtained both CE and UL designations for its pedicure spa products.
European Touch instituted cost savings initiatives in 2001 that have put the company on a solid footing as it implements its growth strategy. With its increased management focus, the company will likely identify additional cost saving opportunities. Most importantly, though, is the loyalty of European Touch's customer base. The company's products, they say, are unequalled in the industry.
With its long standing history and the proven quality of its products, European Touch has indeed secured a solid foothold in the market - one that delivers the ultimate in pedicure treatments.
