Gordon Roddick: Why we sold The Body Shop to L’Oreal
Gordon Roddick recalls his reasons for trusting cosmetics giant L’Oréal to do the right thing by the brand he built with his wife Anita
Gordon Roddick, who co-founded The Body Shop with his wife Anita in 1976, recalls his reasons for exiting the business thirty years later – and why he trusted cosmetics giant L'Oréal to do the right thing by the brand.
We began The Body Shop in 1976. My wife Anita was the inspiration behind the whole business. We started with no idea of what the rules were, but eight years on, we went public. The share price increased rapidly and we continued to grow the business incredibly quickly, mainly through franchising, and ended up with 2,100 shops in about 60 countries. And yet none of it was planned. We didn't start the business with the view to selling it. We were much more interested in people and the brand's values than we were in cash.
Taking the company public in 1984 was probably the worst move I've made in my life. If you're doing the IPO as the exit, wonderful, it's somebody else's problem. But we did the IPO because we were poor and exhausted. At first it was great, we were able to pay ourselves properly and got some cash out of the business so we could pay off the mortgage. Initially, we outgrew the people while we grew the business, but eventually, the business and its people outgrew us.
I hated all the public company stuff. It wasn't about people. If you're a private company, you might not care if you only make 1% a year as long as you can pay your staff. You can do things you wouldn't be able to do otherwise. We were always on the hook to produce more and more profit and sometimes that wasn't what we wanted to do. But it was hard to grumble and complain because we joined the system and used all the advantages of it.
We tried about three times to purchase our shares back off the public market but by that time, the price had gone too high and we would have crippled ourselves with an incredible amount of debt. We had all the usual banks telling us there was quite an easy solution; all you had to do was go public again and you could pay down your debts. But what's the point of doing it in the first place? Of course, it was to gain heaps of cash for the investment bankers and all the others who charge incredible fees. We ambled through all of that and then started looking around for someone to purchase us because it was growing too big. We drew up a huge list of firms who would make a great buyer. Our problem was that we were a producer and a manufacturer, we made our own products. We did franchising, we did retail. That made us a dreadful business for anybody to try and buy. It wasn't of any interest to someone who was primarily a retailer because they had all of these other things going on.
Knock on the door
Eventually, the chairman of the cosmetics giant L' Oréal, Sir Lindsay Owen-Jones, called and asked if we would be interested in selling to them. He introduced himself to Anita and said, “I wanted to shake the hand of the one female in my life who's caused me more trouble than any other”. It had taken about a year and a half. We went over to Paris and we talked about his business, but working out why L' Oréal would want us was impossible. They are not retailers. The only other retail business they own is Kiehl's, which only has a few shops.
We asked Lindsay why he wanted to buy a business that was, at that point, 80% franchise and 20% company owned. “Why do you want to get into franchising? It will get you into all kind of trouble,” I told him. He said, “are you trying to put me off?” In fact, I was, because if I wasn't able to put him off, I knew he must be seriously interested.
We had a number of criteria around things that we didn't want and would not move on in terms of the brand's values. People said, “how can you hold them to that criteria?” It's true that you can all have all the agreements in the world but you have to have the impulse in your heart to do it properly. We believed what Lindsay said to us. He gave us his undertaking and so far he's kept to it.
We took a long time talking to our franchisees. I must have spent about three weeks on the road going to see them. They were frightened to hell about being in the hands of a big business. Before, they could call me up at home at three o'clock in the morning. I once had a furious argument with a franchisee on New Year's Eve and I'm from north of the border, where that night's sacrosanct! But I'm glad we consulted like that because they do a great job. The franchisee hassle was all positive, whereas the City hassle was almost always in their own interests.
We had a strong team actually running the business. Anita was there as the creative inspiration, but spent a lot of her time doing talks and things. It wouldn't have been a problem if we had walked away from doing the deal. But we trusted Lindsay and went ahead. L'Oréal offered 300p a share in a deal worth £652m in March 2006.
Anita wanted to stay with the company as an ambassador for the brand, but she didn't have to. It was almost impossible to disassociate the brand from Anita, as strong as she was. You couldn't say, “be quiet, we want the brand to be more prominent than you”, she wouldn't pay any attention. I would encourage business owners to develop their brands in line with their personalities.
Having said that, the business is doing very well now, which suggests that the perception of the importance of Anita's association with the brand might have been greater than the reality. The Body Shop is global, and if you go into one of the shops in Italy, no one will really know who Anita was.
These days, I spend my time doing the things I want to do. I'm very interested in criminal and social justice. I've been working with two guys who have been held in solitary confinement at the notorious Angola state prison in Louisiana [two of the ‘Angola Three', still protesting their innocence after being convicted of stabbing a prison guard in 1972]. I go over and see them about four times a year. I'd rather have three hours with those guys than one with some of the great captains of industry.
In March 2006, The Body Shop agreed to a £652.3m takeover by French cosmetics giant L'Oréal. Anita and Gordon Roddick reportedly made £130m from the sale. The company and its founders cultivated a reputation for social responsibility and ethical trading. Anita Roddick passed away in September 2007. Gordon has continued his work as a social entrepreneur and activist, and is a co-founder of The Big Issue, one of the UK's leading social businesses. He was speaking at a Growing Business roundtable sponsored by Coutts & Co. To find out more about Coutts' extensive research on the exit process, visit www.coutts.com/entrepreneurs
Doing the deal
Mark Priestley, client partner at private bank Coutts & Co, offers five golden rules of negotiation
- Know the deal you want to do before you do it. Set clear parameters which go beyond the financials
- Always remember that it's your business; it's up to you who you sell to. If the sale isn't right then make the decision that works for what you really want
- Be prepared on every day of the exit process to walk away
- Selling is, at the very least, a part-time job. Never underestimate how much time it will take to see it through
- As you do the deal, be prepared for the prospective buyer to be busy with other things and for the deal to go cold for a while