Manufacturing Platform SV Labs Diversifies Category And Geographic Reach With Sigan Industries Acquisition

SV Labs, the beauty contract manufacturing platform owned by San Francisco Equity Partners, has acquired Sigan Industries Group for an undisclosed price to expand its competencies and geography.

SV Labs CEO Graham Orriss, former SVP of operations and supply chain at Anastasia Beverly Hills and VP of supply chain at Coty, will guide operations at Sigan, which will be integrated into SV Labs’ business. Sigan’s existing shareholders, including co-founder Dean Gangbar, will retain what’s described as “meaningful” interest in the company. The majority of Toronto-based Sigan’s sales are in the haircare category, although it extends to skincare, body care and over-the-counter products as well.

The acquisition of Sigan is SFEP’s third beauty contract manufacturing deal. In 2021, it purchased Watsonville, Calif.-based SV Labs, a specialist in anhydrous products like bath bombs, shower steamers, scrubs and salts, and a year later it scooped up Prescott, Wis.-based Diversified Manufacturing Corporation to amplify its liquid fill capabilities. Together, the three companies span four facilities and 500,000-plus square feet. According to Scott Porter, managing partner at SFEP, SV Labs’ revenues ticked up a double-digit percentage last year.

Along with other private equity firms, SFEP was drawn to beauty contract manufacturing as a way to play in the beauty industry without the higher risk of banking on a single brand. The firm understands the risk of investing in single brands, however, because it does that along with investing in manufacturing. Jane Iredale, a makeup brand aimed at the professional beauty channel, is in its portfolio currently, and Yes To and Japonesque were previously in its portfolio.

Once private equity jumps into the fragmented beauty contract manufacturing field, it tends to assemble multifunctional platforms that cross locations and strengths to maximize profits and set them up for exits to bigger entities. Wind Point-backed Voyant Beauty, Knox Lane-backed Elevation Labs, Cornell Capital- and KKR-backed KDC/One and CORE Industrial Partners-backed Cohere Beauty have gone the platform route. In the future, Potter foresees SV Labs potentially being sold to a bigger private equity-backed manufacturing platform.

Scott Potter, managing partner at San Francisco Private Equity Carlie Statsky

As it was evaluating its role in the beauty contract manufacturing sector, Potter says SFEP spotted a gap in it between manufacturers that support innovation and those that support scale, and it’s constructing SV Labs to handle both. The goal is to draw cutting-edge emerging brands and not to lose customers—SV Labs has more than 100 of them—as they mature and advance their retail footprints.

For emerging brands, though, private equity firms’ takeovers of manufacturers can spark concerns that smaller orders will no longer be prioritized as the acquired manufacturers go after sizable established brands. Potter stresses SV Labs isn’t abandoning emerging brands. He details SFEP’s main objectives when it takes over a manufacturer are to systematize packaging, ingredient sourcing and production lines, make capital expenditures forecast to pay off in an 18 to 24 months and improve the commercial strategy by pursuing clients in skyrocketing segments that could grab market share.

To emerging brands, Potter says, “We never want to lose sight that you can be the next $100 million brand. We want to make bets on you, and we’ve built a facility that allows us to do that.”

At SV Labs, Potter notes its focus on the natural body care category has been a winner. “You look at what’s happening in areas like natural deodorant or feminine hygiene, those brands are taking significant share from legacy brands,” he says. “We’ve been pretty thoughtful around targeting the subcategories within massive categories that are growing and taking share, and then acquiring assets and building capabilities that are servicing those ends of the market. I’d rather be making a stick of natural deodorant that’s $13 than a more commoditized $4 deodorant [to achieve a] lot more growth and margin for everybody in the value chain.”

In circumstances not unique as venture capital and private equity deals have been down in recent months and years overall, there’s been a lull in mergers and acquisitions in the beauty industry involving brand and manufacturer transactions. Potter predicts B2B deals driven predominantly by private equity firms will rebound faster than brand deals where strategic buyers are a greater component of the acquirer mix.

Graham Orriss, CEO of SV Labs

He says, “Investment committees were looking for reasons to say no, and they’re now starting to look for reasons to say yes, and I can’t overemphasize how important that is inside the room, particularly for larger private equity.”

SV Labs expects to continue to make manufacturing deals. Potter identifies clinical skincare and aerosol manufacturing as areas it’s considering. On its website, SFEP discloses it typically invests $15 million to $40 million in companies generating $15 million to $100 million in revenues and $3 million to $15 million in earnings before interest, taxes, depreciation and amortization (EBITDA).

Stikeman Elliot LLP and Morrison Foerster LLP provided legal counsel to SV Labs on its acquisition of Sigan, and McMillan LLP provided legal counsel to Sigan. Willam Blair was SV Labs’ financial advisor, and Dyens & Co. was Sigan’s financial advisor.

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