Church & Dwight to Acquire Hero, creator of the Mighty Patch® Brand for $630 million

Church & Dwight Co., Inc. (NYSE:CHD) has signed a definitive agreement to acquire the Hero Mighty Patch^® brand (Hero) and other acne treatment products for $630 million, consisting of cash and Church & Dwight restricted stock. Mighty Patch^® is the #2 brand in the acne category in the United States and the #1 patch brand in acne. The transaction, which is subject to customary closing conditions, is expected to close in the fourth quarter.

Hero’s net sales for the trailing twelve months through June 30, 2022 were approximately $115 million. The acne patch is the fastest growing treatment form in acne. The products are currently only marketed in the U.S.

“Mighty Patch^® represents a powerful addition to our existing Specialty Hair and Skin portfolio which includes Nair, Batiste, Viviscal, Flawless, and Toppik,” said Matthew T. Farrell, Church & Dwight Chief Executive Officer. "The Mighty Patch^® brand is a problem/solution product with a strong position in a growing category. The total acne treatment category in tracked channels is approximately $700 million. The patch form has grown to 18% of the acne treatment category as more consumers transition away from lotions and ointments to a patch solution. The brand skews towards younger consumers and consistently has a high level of brand loyalty and repeat purchase.”

Hero’s trailing twelve months EBITDA as of June 30, 2022 was approximately $45 million, with a 40% EBITDA margin. Church & Dwight expects to expand Mighty Patch^®’s limited distribution by leveraging its US retailer relationships and international footprint.

“Hero is located in New York City with a highly capable management team led by the 3 founders, Ju Rhyu, Dwight Lee, and Andrew Lee,” Mr. Farrell continued. “In addition to cash, approximately 10% of the purchase price will be conveyed to the founders in restricted stock. The founders are expected to remain and continue to run the business while leveraging Church & Dwight’s scale and capabilities. We intend to maintain the NYC location and retain Hero employees. We are pleased to welcome them to the Church & Dwight family. Hero is nimble and asset light and should be an excellent fit at Church & Dwight.”

Mr. Farrell continued, “We are excited about adding Church & Dwight’s 15^th power brand. This acquisition meets our long-standing acquisition criteria: (1) #1 or #2 brand in a category; (2) asset-light; (3) a growing brand; and (4) gross margin accretive to the Company. Acquisitions have been a key driver of Church & Dwight’s consistently strong shareholder returns."

The three founders are thrilled about the partnership with Church & Dwight. “We are excited to combine a brand that people love with Church & Dwight’s expertise and scale to continue driving success and growth in the market. Our cultures are a strong complement to one another and we are ready to take Hero into the next chapter and beyond as part of the Church and Dwight family,” said Ms Rhyu, Co-Founder/CEO, Hero.

2022 Outlook

Regarding the 2022 Outlook, Mr. Farrell commented, “We now expect full year reported sales growth of 2% to 4% (previously 4% to 5%), reflecting the incremental growth from Hero offset by continued softness across our more discretionary brands.

For Q3, we now expect reported sales to decline -1% (previously growth midpoint of 3%) reflecting lower demand for Waterpik, Vitafusion and Flawless. EPS affirmed at $0.65 (no change to previous Outlook).

The acquisition is expected to be dilutive to the Company’s 2022 EPS by ($0.05), inclusive of transition costs, acquisition-related expenses, interest expense, intangible amortization expense, and incremental marketing. We now expect 2022 adjusted earnings per share (EPS) to be $2.97, inclusive of the $0.05 dilutive EPS effect of the acquisition. In addition, adjusted earnings in 2022 and 2023 will exclude the impact of $0.03 and $0.11, respectively, to exclude charges related to the restricted stock which will be treated as compensation.

Looking forward to 2023, the acquisition is expected to be 3% accretive to cash earnings and neutral to adjusted 2023 EPS, inclusive of transition costs, interest expense and intangible amortization. In 2023, Hero’s annual net sales are projected to grow approximately 15% to $150 million.”

Church & Dwight will host a webcast to discuss the acquisition on September 6 at 8:00 a.m. (ET). The webcast can be accessed at investor.churchdwight.com/investors/news-events.

Church & Dwight Co., Inc., founded in 1846, is the leading U.S. producer of sodium bicarbonate, popularly known as baking soda. The Company manufactures and markets a wide range of personal care, household and specialty products under recognized brand names such as ARM & HAMMER^®, TROJAN^®, OXICLEAN^®, SPINBRUSH^®, FIRST RESPONSE^®, NAIR^®, ORAJEL^®, XTRA^®, L’IL CRITTERS^® and VITAFUSION^®, BATISTE^®, WATERPIK^®, ZICAM^®, FLAWLESS^®, THERABREATH^®, and following the closing of the transaction, HERO MIGHTY PATCH^®. These 15 key brands represent approximately 85% of the Company’s product sales. For more information, visit the Company’s website.

This press release contains forward-looking statements, including, among others, statements relating to the impact of the Hero acquisition; net sales and earnings growth; adjusted earnings per share; and consumer demand and spending. These statements represent the intentions, plans, expectations and beliefs of the Company, and are based on assumptions that the Company believes are reasonable but may prove to be incorrect. In addition, these statements are subject to risks, uncertainties and other factors, many of which are outside the Company’s control and could cause actual results to differ materially from such forward-looking statements. Uncertainties include assumptions as to market growth and consumer demand. Factors that could cause such differences include, without limitation, the risk that Hero will not be integrated successfully, the risk that the cost savings from the transaction will not be fully realized or will take longer to realize than expected, and the ability of management to execute its plans with respect to the Company’s initiatives.

For a description of additional factors that could cause actual results to differ materially from the forward-looking statements, please see the Company’s quarterly and annual reports filed with the SEC, including Item 1A, “Risk Factors” in the Company’s annual report on Form 10-K and quarterly reports on Form 10-Q. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the U.S. federal securities laws. You are advised, however, to consult any further disclosures the Company makes on related subjects in its filings with the SEC.

This press release also contains non-GAAP financial information. The non-GAAP financial measures should not be considered in isolation or as a substitute for the comparable GAAP measures. In addition, these non-GAAP financial measures may not be the same as similar measures provided by other companies due to potential differences in methods of calculation and items being excluded.

Non-GAAP information:

EBITDA and Adjusted EBITDA:

This press release also presents Hero’s EBITDA and Adjusted EBITDA which are non-GAAP financial terms and represent earnings before interest, taxes, depreciation and amortization, as adjusted. Management believes the presentation of EBITDA and Adjusted EBITDA provides useful additional information to investors about trends in Hero’s operations.

Adjusted EPS

This press release does not provide a forward-looking reconciliation of adjusted EPS to reported EPS, the most directly comparable GAAP financial measures, expected for the full year of 2022, because we are unable to provide such a reconciliation without unreasonable effort. Our inability to provide a reconciliation to GAAP EPS for future periods is due to the uncertainty and inherent difficulty of predicting what these changes will be on an annual basis. For the same reasons, we are unable to address the probable significance of the unavailable information, which could be material to our future results.

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