Estée Lauder Let Deciem's Own Growth Set the Price of the Last Piece It Bought

In June 2017, Estée Lauder wrote a check for a minority slice of a Toronto skin-care company most beauty buyers had never heard of. On its books, that stake carried a value of just $65 million.¹ Seven years later, when the company finally owned all of Deciem — the parent of The Ordinary, the ten-dollar serum that turned skincare into a spreadsheet — it had spent roughly $1.7 billion, net of cash, to get there.³ What's striking isn't the size of the number. It's that Estée Lauder chose, on purpose, not to know most of it in advance.

The tidy story is that Estée Lauder bought Deciem, weathered a founder scandal, and eventually took full control. Almost every beat of that is technically true and completely misses the design. This wasn't one acquisition. It was three, spaced out across seven years, and the price of the last one was written not as a number but as a formula — a bet ELC deliberately left blank, to be filled in later by Deciem's own performance.

Buying the option before buying the company: the first stake wasn't a purchase so much as a seat at the table and a right to more

Start with what the 2017 stake actually was. Estée Lauder acquired a minority interest — around 28 to 29 percent depending on whose figure you take — and carried it at $65 million.¹⁵ That is a rounding error against ELC's larger deals; by comparison, its 2016 purchase of Too Faced ran $1.45 billion.⁴ A minority stake this small buys you almost nothing operationally. You don't set strategy, you don't control the board, you don't run the P&L. What you buy is a position: insider knowledge of the numbers, a relationship with the founders, and — crucially — the structural right to buy more later. Deciem's own CEO framed the whole arrangement as understood from day one. 'When the investment happened in 2017,' Nicola Kilner said, 'it was always on everyone's mind that in the long term, this would be what would happen... One day, they would fully acquire us.'⁷ The first tranche wasn't the acquisition. It was the option on the acquisition.

Here is where the popular retelling goes wrong, and it matters. In 2018, Deciem's founder Brandon Truaxe ordered most of the brand's stores closed and fired his co-CEO, and Estée Lauder went to the Ontario Superior Court arguing his conduct was 'causing irreparable harm to Deciem's business.'⁵ The court removed Truaxe as CEO and from the board, and installed Kilner in command.⁶ It is tempting to fold this into the takeover — ELC seized control through the courts. It didn't. The order removed a person; it did not move a single share. Estée Lauder was still a minority holder the day after the ruling as it was the day before.⁵ The crisis was real and it was ugly. But it changed the management, not the ownership.

Why the middle payment was the biggest: the step that took ELC to control cost more than the first stake and the final one combined

Three years after the courtroom drama, in May 2021, Estée Lauder exercised its right to more. It paid $1,092 million in cash — including debt-financed proceeds — to lift its fully diluted equity interest from roughly 29 percent to roughly 76 percent, leaving other holders with about 22 percent.¹ WWD, reporting the terms independently, put the implied valuation at $2.2 billion and called it Lauder's largest acquisition to date by that measure.⁴ This is the tranche that did the real work: it took ELC from a passenger to a controlling owner. And notice the shape of the sequence. The first tranche was tiny, the last would be moderate, and the middle one — the leap to control — was by far the largest single outlay. Most people picture a staged buyout as three roughly equal installments. This was nothing of the kind. The company paid the most for the moment it crossed from minority to majority, because that is the moment worth paying for.

The price nobody agreed to in advance: the last tranche was written as a formula, not a figure — and that is the whole design

Now the clever part. When ELC announced the 2021 step-up, its own release described a 'Second Phase' — a commitment to buy the remaining interests after three years, with the purchase price for that phase 'determined based on the future performance of DECIEM.'² Read that twice. The largest consumer-goods buyer in the world agreed to buy the rest of a company without stating what the rest would cost. It tied the final price to how the business performed over the next three years. If Deciem grew, ELC would pay more; if it stalled, less. And the language matters more than it looks. The 2021 release read like a locked-in obligation — 'has agreed to purchase.' But the 2024 completion release corrected the impression: ELC had 'exercised its option to purchase the remaining interests.'³ It was a call option, not an automatic step. ELC could have walked. It chose to exercise, on schedule, in May 2024, for an estimated $860 million in cash on hand.³

Why do it this way? Because a fixed-price acquisition is a bet you have to make with today's information about tomorrow's value — and beauty brands are notoriously hard to price, because the thing you're buying is momentum. By staging the deal and floating the final price on performance, Estée Lauder converted a gamble into something closer to an earnout. It only paid the full premium if the premium was earned, and it let Deciem's own growth do the pricing. Kilner said the business in 2017 was 'less than 10%' of what it later became, with 2020 sales that 'nearly doubled' to roughly $460 million.⁷ ELC captured that growth as a part-owner, then paid a final price that reflected it — rather than a price fixed back when the business was a tenth its later size. In accounting terms, ELC even booked an $848 million gain when it remeasured its original stake to fair value at the 2021 step-up.¹ The early bet appreciated in ELC's own hands before it ever paid to own the whole thing.

Isn't a performance-linked price just paying more for winners?: the fair objection is that ELC handed away its upside — and the answer is what it kept instead

The honest counter is sharp: if the final price rises with performance, ELC surrendered exactly the upside a buyer wants. Buy cheap, watch it grow, keep the difference — that's the acquirer's dream, and a performance-linked price gives it back to the seller. If Deciem doubled again, ELC would pay for that doubling rather than pocket it. True. But that framing assumes the alternative was available, and it wasn't. In 2017, Deciem was a founder-run brand about to walk into a public governance meltdown; no rational buyer fixes a full-company price on that. The staged option let ELC take a small position, learn the business from inside, survive the Truaxe crisis without owning the fallout, and only commit real capital once control and clarity were in hand. What it gave up in raw upside, it bought in insurance: the right to not overpay for a company that might have imploded, and the discretion to exercise only if the numbers still made sense. It paid a fair price for a proven asset instead of a cheap price for an unproven one — and got to find out which it was before writing the biggest checks.

Estée Lauder did not buy Deciem the way it bought Too Faced — one price, one day, one bet. It bought a door in 2017, walked through it in 2021 when the coast was clear, and settled the final bill in 2024 with a figure Deciem's own growth had written for it. The genius wasn't the $1.7 billion; plenty of buyers spend that. The genius was refusing to name most of it up front — treating an acquisition not as a purchase but as a sequence of options, each exercised only when it knew more than it had before. It let the company it was buying keep quoting the price, right up until the last piece was paid for.