M&A series2: Acquisitions targeted for China

[previous] M&A series1: Global beauty M&A landscape

  • The sales market share of China in global beauty companies has been increasing sharply for the past couple of decades. Although the actual Chinese demand is divided into mainland China’s sales and travel retail sales, it is hard to tell what percentage in exact terms. However, we expect the number for companies such as Estee Lauder or L’Oreal to be around 20%, or even more.
  • Chinese market demand for cosmetics is growing at a high single-digit every year, surpassing any other country’s growth rate.
  • For global beauty brands, China has become one of the most important markets to target. This has led many of them to embark on M&As specifically aimed for China.
Table1. M&As targeted for China | Source: MeasureChina

AHC x Unilever

  • Unilever’s acquisition of AHC has a big implication on how global companies view the market. At the time, AHC’s mother company Carver Korea generated about 20% of its revenue in China, and the number was growing fast. The fact that Unilever put a high premium in acquiring the company meant that if a company is well performing in Chinese market, it looks attractive to a top tier beauty group.
  • AHC’s exponential growth was attributed to a success in home shopping channel in Korea and fast spread of word-of-mouth in China.
  • Signature product ‘Eye cream for face’ was extremely popular within Daigous. AHC’s affordable price coupled with good quality skincare products has made itself famous among local consumers.

3CE x L’Oreal

  • 3CE started in 2008 as a part of online clothing mall ‘Style Nanda,’ and became popular as the mall gained more popularity over time.
  • Every time 3CE released a new product category, it was an immediate success among Korean and Chinese consumers creating virals, and thus they were able to expand their product portfolio.
  • The brand grew up to be a competitive color cosmetics brand by introducing unique designs and various colors. L’Oreal acquired 100% stake in 3CE as of May 2018, and the acquisition price is known to be around 600 n won.
  • 3CE does not appear in the brands list of L’Oreal website at the moment. We expect that it would go through some procedures to get ready to properly target China.

Ci:z Holdings x Johnson&Johnson

  • Japanese company Ci:z Holdings is a mother company of the brand Dr.Ci.Labo. All of its three brands have a strong image of professional skincare, and especially Dr.Ci.Labo has a great popularity in China, leading Johnson&Johnson to pay a high premium in its acquisition.
  • This could also imply that J&J may be interested in expanding its skincare category, which is relatively smaller than its personal care and home care category.
Figure1. Revenue trend of acquired companies in Alibaba platform | Source: MeasureCommerce
  • Common features of these brands that were acquired to target Chinese market are: 1) they are brands from countries that is located closely to China, and 2) they have already built a certain level of popularity and brand loyalty among local consumers.
  • 1) AHC and 3CE are both Korean brands. Dr.Ci.Labo is from Japan. The two countries are both geographically close to China. The advantage coming from this is that since the people from countries close to the target market have similar skin types and skin tones, there is less need for further adjustment in skincare or makeup products in terms of textures and shades. This means the acquired brands can keep selling the products they used to sell even after the acquisition.
  • 2) All three brands generate an increasing trend in its sales in China. The acquisition can be a great opportunity to enhance the presence of these brands if accompanied by good marketing schemes.
  • Hence, it will be noteworthy to keep a keen eye on these brands.
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