Topcuts interested in more acquisitions, but targets scarce; adding scale through buys could attract suitor, investor says

Topcuts, a privately held Toronto, Canada-based chain of hair salons, is interested in more buys, although targets are scarce, said Brad Nathan, president at Lynx Equity.

Topcuts in January acquired children’s hair care chain Melonhead, bringing its store count to 36 from 19. Lynx Equity has backed Topcuts, with about USD 10m in revenue, for five years, said Nathan.

The company would “love” to make more acquisitions in Canada, but the hair salon industry is made up of many individual players. Chains are hard to come by, although there are “a few here and there with five or 10” locations, said Nathan.

Topcuts would also like to enter the US by making an acquisition of a chain with at least 10 stores, Nathan continued. The company does not have a timeline for entering the US is not likely to do so unless it finds a buy, he added.

The company is interested in approaches from advisors about possible buys for Topcuts, said Nathan.

Topcuts is one of Canada’s largest chains of salons, after market leader Regis, but there is still a “big jump” in size between the two chains, said Nathan. Regis, based in Minneapolis, Minnesota, has a USD 992m market capitalization.

Topcuts could grow into an attractive target for Regis, but it may not be large enough now, said Nathan when asked. If Topcuts can “grab one more” acquisition, however, it would likely be large enough to attract major salon players, he said.

Lynx Equity has not started planning an exit for Topcuts, said Nathan. “If a buyer comes along, great,” he said, noting the five-year-old private equity firm has a “buy and hold” strategy and has not yet exited a portfolio company. Lynx Capital’s investors include merchant bank Succession Capital and private investors outside of the traditional private equity limited partnership model, said Nathan.

Within Canada, Topcuts sees opportunities to open new Melonhead stores next to Topcuts stores, as well as bring Melonhead into new parts of the country, said Nathan. Melonhead, with corporate owned and franchised locations, provided Topcuts with the opportunity to get into the franchise space, said Nathan.

Originally published on January 25, 2015, by Ellena Kleinman