A still from a Dollar Shave Club ad
Founder Michael Dubin in a Dollar Shave Club ad

Unilever has bought men’s grooming start-up Dollar Shave Club for $1bn in an attempt to challenge Gillette’s dominance of the US personal care market.

On Wednesday, the FTSE 100 consumer goods company said it signed an agreement to purchase the US business, which has expanded its direct-to-consumer operation rapidly since being founded in 2012. Thanks largely to viral marketing — including a YouTube video boasting that its razors are “f***ing great” — it now has 3.2m customers and turnover of $152m.

Buying Dollar Shave Club will enable Unilever to compete with Procter & Gamble, which dominates the North American razor market through the 59 per cent market share of its Gillette brand, according to Euromonitor. Dollar Shave Club’s US market share was 5 per cent last year.

Unilever beat private equity bidders with its $1bn offer, according to people familiar with the deal.

Martin Deboo, analyst at Jefferies, said $1bn was a high price, representing five times the $200m of sales Dollar Shave Club is expected to make in 2016. “Deals in the US consumer space of this size at over four times sales are rare,” he noted, citing Danone’s recent acquisition of WhiteWave, the US organic foods company, at 3.2 times annual sales.

This price tag underscores the success of Dollar Shave Club’s unconventional marketing for its range of men’s beauty products, which also includes hair styling products and skin care all sold by subscription using home delivery.

Dollar Shave Club sends razor cartridges directly to customers for as little as $1 a month, a model attractive to consumers fed up with shopping for expensive shaving equipment.

One of its irreverent YouTube adverts went viral when it poked fun at the cost of shaving using big-brand products.

It features founder and chief executive Michael Dubin striding through the company’s warehouse explaining how Dollar Shave Club’s razors are “f***ing great” and questioning why anyone would spend $20 a month on celebrity-endorsed products when $19 of that goes to stars such as Roger Federer.

“Do you think your razor needs a vibrating handle, a flashlight, a back scratcher and 10 blades? Your handsome-ass grandfather had one blade — and polio. So stop paying for shave tech you don’t need.”

Kees Kruythoff, president of Unilever North America, said: “Dollar Shave Club is an innovative and disruptive male grooming brand with incredibly deep connections to its diverse and highly engaged consumers.”

Mr Dubin said: “Dollar Shave Club couldn’t be happier to have the world’s most innovative and progressive consumer-product company in our corner.”

Founded in 2011 with the backing of start-up incubator Science, the company is guiding that it would hit revenues of more than $200m in 2016.

Although it is not currently profitable, Mr Dubin told a conference in May he expected the company could be in profit by the year-end. At present it operates in just three countries, but Mr Kruythoff said: “We plan to leverage the global strength of Unilever to support Dollar Shave Club in achieving its full potential in terms of offering and reach.”

Mr Dubin told the Recode technology website that he had met Mr Kruythoff over dinner six or seven months ago where the original idea was that Unilever would take a stake in Dollar Shave Club. Unilever does not own a razor brand.

“We weren’t looking to be acquired but he did a really great job convincing us of a few things,” Mr Dubin told Recode on Tuesday after the deal was announced.

“I just built up a trust with this guy,” he said.

Dollar Shave Club has raised more than $160m in venture funding, including a funding round in November that valued the company at $539m. Its initial fundraising was led by Forerunner Ventures, with subsequent involvement of Venrock and Technology Crossover Ventures.

Last year, it clashed with Gillette, the world’s largest maker of razors, which accused Dollar Shave Club of using its patented razor technology without permission.

JPMorgan advised Dollar Shave Club and Centerview Partners worked with Unilever.

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