Governance, Disclosure, Decline: Legal Lessons from Revolution Beauty

Revolution Beauty’s unexpected decline has become the new textbook example of how reputational damages bleed into legal disputes and M&A devaluation.

Irina Mechkarova

London, UK

Photo by Siora Photography on Unsplash

The global success that is Revolution has seen faced a trajectory over the past decade that reveals how regulatory non-compliance, as opposed to general market volatility following the COVID travesty, led to its collapse. The brand, with its beloved products found at the bottom of makeup bags and at the centre of beauty rituals for millions since 2014, failed to legally align across three key frameworks: the Companies Act 2006, the Financial Services and Markets Act 2000 (FSMA), and the UK Corporate Governance Code. These violations demonstrate how weak disclosure and public infights drive the erosion of shareholder confidence and, by extension, acquisition value. But how did a revolutionary brand - once taking the affordable beauty industry by storm, dedicated to inclusivity, elected the fastest-growing beauty brand in the UK by The Sunday Times, and praised for its innovation - go from riches to rags?

Under the Companies Act 2006, s.177(1), directors must declare any direct or indirect interest in company transactions. The 2021 Medichem acquisition, established by Revolution’s co-founder Tom Allsworth, exemplifies a breach of that obligation. A meagre £7 million of the £26 million purchase price was paid by the 2022 financial year. Even more damningly for the once-beloved brand, undisclosed loans to distributors connected to company executives emerged during the subsequent investigation. The failure to declare such interests constitutes a breach of fiduciary duty and renders these suspicious transactions potentially voidable, meaning that Revolution - its directors and shareholders alike - could have chosen to rectify them once the conflict had been identified. In the case of Revolution’s undisclosed dealings, shareholders may have determined that they were unwillingly involved in such transactions, in the absence of their authorisation. This unsurprisingly carries severe implications for any acquisition, as due diligence enquiries would almost inevitably diminish the company’s value, with buyers losing confidence amid the risk of financial resyndication of the loans. In other words, the tragedy of Revolution’s 2022 accounts depressed enterprise value, as both investors and potential acquirers began distrusting the company’s integrity.

A second legal issue arose under FSMA 2000, s.90A, which imposes liability where issuers publish or approve misleading statements to investors. Revolution’s 2022 accounts were later revealed to have overstated sales by roughly £9 million, while omitting the disclosure of loans. Whether these omissions were reckless or merely negligent, they constitute statutory issuer liability regardless, evidenced by the catastrophic decline in share price from £1.70, at their inception on the stock exchange, to an eye-watering £0.0082 following the controversy. Such conduct nullifies warranty liability, meaning a buyer cannot rely on representations of financial stability when they are founded on unreliable disclosures. In effect, Revolution’s exceptionally poor leadership was not only reputationally damaging but critically impaired its marketability to consumers and private equity buyers.

The UK Corporate Governance Code compounds this liability. Principle A and Provision 25 demand high internal oversight and independent auditing, conditions clearly unmet when BDO, Revolution’s auditors during the controversy, refused to approve the company’s accounts. This inability to secure audit approval is often interpreted by markets as evidence of poor future projections and put simply, questionable governance. This likely explains the company’s current share price, sitting at a meagre £0.0255. Adding fuel to an already unrelenting fire, Provision 26 requires that company reports be ‘fair, balanced, and understandable’. In public markets, failure to comply invites regulatory scrutiny and, more importantly, triggers a ‘governance discount’, known as a downward valuation revision reflective of mistrust. This helps to explain Revolution’s present struggle to attract a buyer on terms it deems favourable. True, a private equity firm, had offered the buyout Revolution sought before the return of former executives Minto and Allsworth, vowing to revive the brand. Given its 90% share collapse since 2021 and persistent public humiliation, Revolution’s rejection of what could have been an opportunity to salvage a once-iconic drugstore staple seems, at best, irresponsible. Theirs is a different kind of revolution. Share prices have not risen even remotely to their initial stock listing, consumers report a decline in quality, and its executives have built up and destroyed what was once the symbol to accessible beauty.