Forma Brands, the parent company of Morphe makeup, has agreed to be acquired in exchange for $690 million in debt relief from lenders Jefferies Finance LLC and Cerberus Capital Management, according to a court filing.
The company filed for bankruptcy in January 2023 after its business faced a series of setbacks when Morphe terminated partnerships with several celebrities and influencers. The decision had a catastrophic impact on the business as Morphe was heavily reliant on influencer marketing. At its peak, the company was worth $2 billion, with sales reaching $400 million in 2019.
Forma Brands, which is dependent on Morphe for approximately 80% of its sales, also faced challenges due to supply chain disruptions and a decline in consumer interest in color cosmetics. As a result, revenue fell short of the company’s internal projections by around 20% in 2021, according to a company document reviewed by Bloomberg News.
Before the downturn, the brand experienced massive success with product collaborations featuring internet celebrities like Jeffree Star, Jaclyn Hill, and James Charles, who have millions of subscribers on YouTube. These collaborations, which regularly sold out within minutes, contributed to over 40% of the brand’s revenue between 2016 and 2019.
However, in 2020, Jeffree Star faced accusations of using offensive language, while in 2021, James Charles was accused of sending sexually explicit messages to minors. This led Morphe to sever ties with both individuals.
To compensate for the decline in sales, the company attempted to collaborate with other influencers and celebrities, such as Emma Chamberlain and Ariana Grande. However, the projects did not achieve the desired results as the brand was already in distress, facing a liquidity crisis and the risk of potential defaults with its creditors.
During much of 2022, the company concentrated on reducing its corporate workforce, cutting expenses for its portfolio brands such as Playa Haircare, and downsizing Morphe’s retail presence. In August and September, the company brought on board restructuring experts, including executives who had served on the boards of troubled companies like American Apparel and Sears.
The chief restructuring officer of Forma revealed that during this period, lenders Jefferies and Cerberus extended an additional $18 million of secured loans to help boost the company’s cash reserves. However, as time passed, the executives realized that restructuring efforts outside the court would be ineffective.
At the beginning of January 2023, the company shut down all of Morphe’s 20 U.S. stores and filed for Chapter 11 bankruptcy about a week later.
As the company strives to recover, Morphe will face the challenge of selling to a consumer base that is increasingly indifferent to brands endorsed by celebrities and a market wherein consumers are redirecting their spending toward skincare products over color cosmetics.
Photo credit: Morphe
