Morphe files for Chapter 11 bankruptcy protection

March 2023 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

March 2023 Issue

In mid-January, a week after makeup brand Morphe took to Twitter to announce that it would be closing all its US stores, Forma Brands LLC, Morphe’s parent company, filed for Chapter 11 bankruptcy protection in Delaware. The company is to be taken over by lenders including Jefferies Finance LLC and Cerberus Capital Management.

Forma Brands and its portfolio of brands including Morphe, Morphe 2, Jaclyn Cosmetics, Bad Habit, Lipstick Queen and Playa Beauty, filed bankruptcy protection with, according to court documents, between $500m and $1bn in liabilities.

Forma reached a deal with its lenders, including Jefferies and Cerberus Capital Management, which will see its secured creditors take over the company’s wholesale operations, online platforms and international Morphe retail stores, while providing $33m of new money in debtor-in-possession (DIP) financing, subject to court approval, according to a company statement.

“We will have additional financial resources available to invest in our multi-category portfolio, product launches, and innovative brand and marketing strategy as we advance our vision to inspire creativity, promote inclusivity and connect with consumers around the world through beauty,” said Simon Cowell, president of Forma Brands, in a statement. “We appreciate the continued support of our financial partners and believe this is the best path forward for Forma Brands as we position the business for the long term.”

“Over the last year, Forma Brands has implemented initiatives to stabilize our business and reposition our organization for long-term growth,” he continued. “This agreement is a testament to the strength of our brands most meaningful to our consumers, including Morphe and Morphe 2. We are excited to reinforce our focus on the opportunities we see ahead for our brands and continue bringing our thoughtfully selected beauty products to consumers through our individual online brand platforms, retail partners and Morphe stores outside the U.S.”

Forma Brands has appointed Stephen Marotta as chief restructuring officer. Mr Marotta is a senior managing director at Ankura Consulting Group, LLC, and previously served as chief restructuring officer at Brooks Brothers and Payless ShoeSource, among others.

According to a statement from Forma Brands, the company remains committed to collaborating with its global creators and partners to enable its family of brands to bring next-generation beauty products to new and existing audiences. The company’s product development initiatives, brand launch plans and marketing collaborations remain in place. Throughout the bankruptcy and sale process, customers can continue to shop Forma’s portfolio of brands through their various online platforms and at retailers.

Forma Brands has fully embraced beauty influencers in recent years, forming partnerships with the likes of Jeffree Star and James Charles, which helped drive revenues above $400m in 2019, according to Bloomberg. However, these relationships have since soured and were severed after Mr Star was accused of racism and harassment in 2020 and Mr Charles was embroiled in sexual misconduct claims in 2021. Influencers are now among the company’s largest unsecured creditors, according to court documentation.

According to court documents, Forma also intends to end its licensing agreement with pop star Ariana Grande’s r.e.m. beauty, a brand which has previously reported disappointing sales, according to Bloomberg.

In 2022, Forma also revamped and reorganised its leadership team. Eric Hohl, longtime president of Too Faced, was named chairman and chief executive of Forma Brands, succeeding Myles McCormick.

Morphe was founded in 2008 in Los Angeles and gained the beauty spotlight thanks to its affordable prices and a steady stream of product launches. In August 2020, in an effort to move away from its reliance on influencer fuel, Morphe rebranded as Forma Brands, an incubator that would both acquire and build other lines.

In 2019, private equity firm General Atlantic acquired a majority stake in the business, a deal that then valued Forma at $2.2bn.

Richard Summerfield