Coty Inc. acquired a 51 per cent stake in Kylie Cosmetics for $600 million on Monday, adding the beauty and skincare line to a roster of brands that includes Rimmel, Max Factor and Covergirl. The four-year-old startup has generated $177 million in net revenue over the past 12 months, according to its new parent company.

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“Today's announcement changes the growth profile of our core business by partnering with a high-growth, digitally native beauty brand,” said Coty chief financial officer Pierre-André Terisse during a call with analysts. “Kylie Cosmetics will expand our presence in both premium cosmetics and skincare, two categories where we are currently under-index and are focused on growing.”

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Since his appointment in January, Terisse has been working with chief executive officer Pierre Laubies on a turnaround plan aimed at returning the company to growth — sales were down by 4.4 per cent last quarter — and expanding margins from 8 to 16 per cent by focusing on Coty’s core fragrances, cosmetics and skincare businesses. The acquisition of Kylie Cosmetics falls in the third phase of the turnaround, expanding Coty’s portfolio presence in premium, skincare and digital.

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Following the completion of the acquisition, Coty will assume control of portfolio development, distribution and licensing for skincare, fragrance and nail products, while product and communication initiatives will remain with Jenner’s team. In addition to expanding into new product categories, Coty plans to dramatically extend Kylie Beauty’s distribution overseas, where Jenner has over half of her social media followers. “By combining our global network in many different forms and countries with the power of a brand that has been able to expand at such a quick rate in the US without the network we have, there is an obvious case for value creation,” says Terisse.

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Beauty conglomerates, including Shiseido and Estée Lauder, are turning to acquisitions to fuel top-line growth and consolidate their respective positions in the market as digitally native, direct-to-consumer brands increase their pull on younger consumers.

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“Kylie brings incredibly strong brand equity as both a person and as a brand... This exposure to much younger consumers is something currently lacking in Coty portfolio and beauty brands,” says Terisse. Jenner has 270 million followers across her personal and brand social media channels. She is the seventh most-followed person on Instagram, with three-quarters of her followers between the ages of 18 and 34. Amongst beauty brands, Kylie Cosmetics has the second-highest number of followers.

The acquisition follows the May launch of Kylie Skin, a skincare line that sold out in the first 10 hours and is on track to reach $25 million sales by the end of the year. Skincare, one of the fastest-growing categories in prestige beauty in the US, is becoming increasingly important for beauty companies as cosmetics growth stalls. According to NPD, US skincare sales grew by 13 per cent in 2018, contributing 60 per cent to prestige beauty’s total gains, while makeup grew only 1 per cent.

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During the call, Terisse dispelled doubts about a cool-off in Kylie Cosmetics’s popularity and growth. According to Rakuten Intelligence, which analysed online receipts, Kylie Cosmetics’s revenue dipped by 68 per cent for the year ending July 2018, before recovering slightly in the following 12 months. According to Terisse, the brand’s revenue of $177 million represents a more than 40 per cent increase over 2018’s calendar year. “We see strengths everywhere.. in cosmetics [and] in skincare, both in DTC and in the launch at Ulta,” he says.

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Still, some analysts raised eyebrows over the price tag. “For a brand that is almost surely a fad in the makeup category that is clearly slowing, we certainly question the amount of money and valuation on this deal,” Ali Dibadj, senior vice president and managing director at Sanford C. Bernstein, writes via email.

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Others see the strategic value. Jane Hali, chief executive officer of Jane Hali & Associates, likens Coty's investment to Estée Lauder's acquisition of social media-friendly brand Too Faced for $1.5 billion in 2016. “It doesn’t appear to be overly expensive because Coty is desperate to appeal to a younger audience, namely Gen Z,” Hali writes via email. “Coty paid $600 million with projected yearly revenue for 2019 coming in at $200 million… Coty can take this brand global and make their money back in no time.”

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Terisse expects to see a full return on invested capital by year three. “We are making a deal which, as opposed to other skincare deals that I have seen on the market, is very accretive for Coty and shareholders.”