Dana Mattioli and Ryan Dezember
May 1, 2013

Organix has a problem. It’s not organic.

That status has put a snag in the hair-care company’s efforts to sell itself.

Organix’s owner, Vogue International of Oldsmar, Fla., put itself on the block last year, hiring Goldman Sachs Group Inc. to seek buyers, with a price tag of as much as $1 billion. Private-equity firms have been interested. But as they learned more about Organix’s organic problem, which has attracted litigation, they worried about the risk of putting marketing dollars behind a brand name with baggage, said people familiar with their thinking.

Vogue is among several personal-care companies that have come under fire from the Center for Environmental Health, an anti-chemicals group, for allegedly marketing products as organic while failing to meet California’s standards for using the label.

Two years ago the group sued to get Vogue and others to stop marketing their products as organic in California, where state law mandates that consumer goods touting themselves as such must contain at least 70% organic ingredients, by weight, excluding water and salt.

As part of a settlement reached in September, Vogue agreed to stop manufacturing products destined for California that carry the Organix name, unless they meet the state’s standards, after June 1.

Under the settlement, Vogue can label its products in California as “formerly Organix,” on the back and can use the name OGX on product fronts, though the letters must be larger than those spelling “Organix” on the back.

The company didn’t admit or deny wrongdoing.

Meanwhile, it continues to defend against a lawsuit on behalf of consumers in several states making similar allegations.

Founded in the 1980s by Todd Christopher, the company began using the Organix name in 2006, according to U.S. Patent and Trademark records. A person familiar with the company’s thinking said it doesn’t claim to be entirely organic.

Its squat, round-topped, colorful bottles of shampoo call out signature ingredients including coconut milk, Moroccan argan oil and keratin. Shampoos and conditioners generally sell for between $5 and $10, putting it squarely in the mass-market range.

Distribution deals with Wal-Mart Stores Inc., Walgreen Co., CVS Caremark Corp. and other chains have helped sales soar. Last year’s sales reached about $250 million, according to people familiar with the matter. As recently as 2010, sales totaled $50 million, according to court papers, and that was up from about $9 million in 2007.

Goldman initially put a price tag of about $1 billion on Vogue, or about 12 times the company’s 2012 earnings before interest, tax, depreciation and amortization, or Ebitda, of about $80 million, these people said.

At the onset of the sales process, originally reported by Reuters, Organix was pitched to companies including Procter & Gamble Co. and L’Oréal S.A., according to people familiar with the matter.

When corporate bidders failed to bite, Goldman reached out to private-equity firms, according to some people familiar with the matter. The firms that expressed interest were generally eyeing a price in the range of $700 million to $800 million, factoring in the organic-branding concerns, these people said. Among those that have held serious talks with Vogue was European buyout shop Permira, some of the people said. Pamplona Capital Management LLP also expressed interest, one of these people said.

Some firms that looked were initially excited but then withdrew partly because the Organix/organic kerfuffle scared them off, people familiar with the matter said.

Mr. Christopher has told participants in the auction process that he prefers offers that won’t require his continuing participation in the enterprise or have payments tied to the company meeting future performance targets, even if it means selling to a bidder that isn’t the highest, some of the people said.

Original article here (requires a Wall Street Journal subscription).