Commentary

Unilever Again Goes For A Cosmetic Fix, Purchasing Carver Korea

Continuing its expansion into the beauty and personal care business, Unilever is buying the cosmetics firm cosmetics firm Carver Korea for $2.71 billion, making Goldman Sachs’s and Bain Capital’s 60% investment last year look like a beautiful deal, indeed. 

Founded in 1999, “Carver’s leading brand, AHC [Aesthetic Hydration Cosmetics], is focused on age management and skin hydration and nourishment, with a line of products that includes essences, toners, moisturizers, masks and sun protection products. The company’s origins are as a professional products supplier for beauty salons,” reports David Salazar for Drug Store News.

It is the Anglo-Dutch company’s biggest acquisition in six years and comes six months after it fended off a £115 billion takeover attempt by Kraft Heinz, Alex Ralph points out for the [London] Times.

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CEO Paul Polman then anticipated in April that Unilever would stay unified but indicated that it would continue to “create value” as it sold off its margarine and spreads business and pursued the higher-margins of beauty brands.

“Unilever has made acquisitions a central part of its strategy” under Polman, Michael de la Merced observes for the New York Times.

“‘They help preserve our market position in attractive segments where we can bring our global scale and local strengths to bear,’ the company said in its most recent annual report,’ de la Merced points out. ‘They also bring us disruptive business models and business styles that are entrepreneurial, helping transform our business culture.’”

Indeed, “in 2016, personal care made up 40% of Unilever’s revenue, up from 28% in 2008, writes Saabira Chaudhuri of the Wall Street Journal

“The company has also been working to fend off an increasingly sophisticated array of local competitors that market through channels such as Instagram and YouTube and often sell directly to customers over the web. Last year it embarked on a restructuring aimed at making its local units more responsive to trends in their markets and is employing its own social-media influencers while also buying local brands,” Chaudhuri continues.

“Alan Jope, president of personal care division at Unilever, said the Carver transaction would ‘significantly strengthen our position in North Asia, the largest skincare market in the world,’” write Naomi Rovnick, Scheherazade Daneshkhu and Song Jung-a for Financial Times. “The value of South Korea’s beauty market will reach about $13 billion this year, according to market researcher Mintel. Facial skincare makes up more than half of those sales,” they continue.

“So-called ‘K-Beauty’ has become shorthand in the industry for beauty products which are driven by unusual natural ingredients, such as snail gel, volcanic ash and green tea,” explains Ashley Armstrong for the Telegraph.

“South Korean women are also happy to spend twice as much of their income on beauty products compared to American customers while South Korean men spend more on skincare than any other in the world. This is partly driven by South Koreans's goal to achieve ‘chok-chok’ skin, which Mintel says is the term given for ‘bright, fair, plump, dewy and youthful’ complexions.”

There are, no doubt, a few investment bankers walking around with their chok-chok glowing this morning.

“Bain and Goldman Sachs jointly bought about 60% of Carver for roughly $500 million last year,” a source tells Reuters’s Hyunjoo Jin and Martinne Geller. “That would have valued the whole company at $833 million, less than a third of what Unilever is paying, but Carver’s net profit nearly quadrupled last year to $117 million, from $32 million in 2015, public filings show,” they write.

“Unilever said that Carver’s 2016 sales were 321 million euros ($381 million) with core profit of 137 million euros. Based on that figure, Unilever paid 16.6 times EBITDA, in line with home and personal care deals over the past decade.”

Carver’s founder and chairman, Lee Sang-rok, still held a minority stake of about 35% after the deal in July 2016 and was going to  “participate in day-to-day management” of the business. 

Ed Han, a managing director for Bain Capital Private Equity, says in the release announcing yesterday’s deal: “This has been a great opportunity for us to partner with a leading Korean company in an exciting segment of the cosmetics space and to help support its brand, operations and growth around the world. Unilever is a strong partner to help the company in its next phase of growth and development.”

And the return sure beats that of an 18-month CD. 

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