French cosmetics maker L’Occitane International SA is drawing bids from private equity firms, including Advent International, the Financial Times reported on Tuesday.

The retailer, whose shares are listed in Hong Kong, may consider bids from other buyout funds and industry peers, the report added, citing sources. L’Occitane and Advent International were not immediately available for comment.

BUYOUT - A FRAGRANT OPTION?

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The Provence-inspired soap-and-skincare brand has struggled of late, in part because of a costly expansion. But a clean balance sheet, prospects in China and a resolutely unglamorous share price suggest an alluring makeover target.

When the company listed in Hong Kong in 2010, just before other luxury names such as Prada headed east too, it touted Asian opportunities. The price came in at the top of its expected range. Yet it hasn’t impressed since, with shares trading marginally below their debut level. Total annualised returns since listing have clocked in at roughly 2 percent, against closer to 7 percent for the overall Hang Seng index.

That makes interest from buyout shops like Advent International understandable. The retailer has decent cash flow prospects and nearly $250 million in net cash, making it easier for a buyer to pile on debt. China, where sales for the six months to September rose 13 percent, could expand faster, as could makeup: L’Occitane raised its stake in U.S. cosmetics company LimeLife earlier this year.

Paying 30 percent above the 10-day moving average of L’Occitane’s share price - to smooth out the impact of a sharp drop after poor half-year earnings on Monday - gets to an enterprise value of $3.5 billion. That’s equivalent to 14 times estimated EBITDA for 2019, and relatively cheap compared to Estée Lauder and Beiersdorf, which trade at closer to 17 times. The bigger problem may be leverage, absent an increase in profitability. Indeed, if a buyer uses debt to cover 40 percent of the deal - less than half, given likely rent commitments - the resulting burden would be a hefty six times EBITDA.

There are other headaches: how to restore once-stellar margins and revive less-than-impressive sales in mature markets like Japan, France and Britain, for one. It’s also unclear whether boss and controlling shareholder Reinold Geiger, who took control of the retailer in 1996, would sell, even at 71.