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Commerce M&A is on the rise, is the eco-friendly consumer company next?
"'Why not? Why can't that be us? Why can't we build a foundation to become that [P&G] over the course of the next 100 years?'" said Brian Lee, co-Founder and CEO of The Honest Company, on stage with Bambi Francisco at Vator Splash La in 2014. Lee was responding to a question about Lee's vocal aspirations to become the next P&G.
Well -- why not? Startups need to think big, after all. But a lot has changed since then - namely a rocky economy that's started a lot of M&A, and big ones in the commerce industry. There was Unilever buying Dollar Shave Club for $1 billion, and Walmart buying Jet for $3 billion.
Now The Honest Company, the subscription service for eco-friendly baby and family products, could be the next commerce to be snapped up.
The Santa Monica company, which was founded by former ShoeDazzle CEO Lee, along with actress Jessica Alba, is currently in talks to sell to what is described as "a big consumer product company," most likely either Procter & Gamble or Unilever, according to report from ReCode on Friday.
It's not a surprise. As Lee talked about at Vator Splash LA in 2014, P&G could use a little bit of The Honest Company's fresher and theoretically more eco-friendly brand.
"We are trying to build a foundation for a modern day family brand. You look at these large CPG companies that exist, they all start at some point. I mean P&G, it was either Mr. Procter or Mr. Gamble that was selling ivory soap out of the back of his truck, and they grew from there. And, so, we kind of look at these large companies out there and say, 'Why not? Why can't that be us?" said Lee.
If this deal goes go through, whoever winds up buying Honest will be putting down a good chunk of change. The company has raised $222 million in funding, most recently a $100 million round in August of last year, which valued it at $1.7 billion.
Founded in 2011, the company designs and manufactures all of its own products, such as diapers, wipes and bath/skin care. The Honest Company also formulates and manufactures household cleaning products, such as laundry detergent, surface cleaners and dish soap.
In late 2015, Honest launched its own line of beauty products as well.
The company sells "bundles" of items at set costs, including the Diapers & Wipes Bundle; The Essentials Bundle, which allows users to pick five cleaning items to ship every month; and The Health & Wellness Bundle, in which users pay for two vitamin/supplement items.
In addition to selling directly to customer, The Honest Company makes money by selling products wholesale to various retail partners, such as Target, WholeFoods, Nordstroms, and Costco, among others. ReCode reports that the company saw revenue of around $300 million in 2015, up from $170 million in 2014, and $60 million in 2013.
Even as revenue is rising, not everything has been going well, though, as Honest has been facing accusations and lawsuits over some of its products.
In 2015, the company saw hit with multiple lawsuits from consumers claiming that its sunscreen was "ineffective." Honest was also accused, earlier this year, of selling detergent with a chemical it had said it would avoid.
Alba dismissed these allegations in an interview with the Today Show earlier this month.
“If an organization wants to bring awareness to their cause, I’m an easy target and our brand is an easy target obviously, because I get a different kind of attention than other brands would,” she said. “We stand by our ingredients, the effectiveness of the products and we’re pretty optimistic that we’re going to win every case.”
On the more positive side of things, The Honest Company has also been a frequent target of IPO speculation, with reports earlier this year that it was working with Goldman Sachs and Morgan Stanley to prepare to go public. By this summer, however, those plans had been put on hold.
During his Splash LA interview, Lee also spoke about his thoughts on a potential IPO for Honest , stating that he had no intentions to ever sell the company.
"We never started this company with the intent of selling it. We started this company really with the idea that we could make a difference in this world and really create safer and healthier environments for everybody," he said.
"I think that, to achieve that, you have to reach a certain scale. You're not changing the world, you're not saying that many people, if you're doing $20 million in revenue. Even $100, $200, $500 million. You get there by being dramatically large and I think the only way we can achieve that by is taking the company public."
Spokespeople for Unilever and The Honest Company would not comment on the report.
VatorNews reached out Procter & Gamble for comment on any ongoing talks. We will update this story if we learn more.
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The Honest Company (www.Honest.com), founded by Jessica Alba, Christopher Gavigan, Brian Lee and Sean Kane, was created to ensure that parents have access to non-toxic, eco-friendly, effective and beautiful family products that don't break the bank. Honest.com offers essentials for every family member including diapers, wipes, bath, skin care, home cleaning and health & wellness products conveniently door-delivered through a monthly subscription service of customized product bundles or single item purchase. As a certified B Corporation, The Honest Company strives to promote sustainability, engage employees and community, and support non-profit initiatives working to solve critical health and social issues affecting children and families. Available in the U.S. and Canada.