Q1 2015 Personal Care Products & Services
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PERSONAL CARE PRODUCTS & SERVICES Q1 2015 CONTACTS MERGERS & ACQUISITIONS M&A activity in the personal care industry was robust in 2014, with 81 transactions reported for Tracy Patch the year, a preliminary figure that will surely rise as additional transactions are recorded for the Vice President year. The elevated level of activity in the industry is presenting a unique opportunity for private (949) 460-6432 business owners looking to exit their business or team with a growth partner. In fact, as [email protected] valuations are generally on an upswing, many sellers have more options today than in the past five years to extract value from their companies. David Bench Managing Director Personal Care Industry M&A Transactions (949) 460-6431 120 [email protected] 100 100 94 85 81 Daniel Schultz 77 80 73 75 Director of Business Development 70 69 67 (617) 619-3368 60 [email protected] 40 20 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Sources: Capital IQ, Capstone Partners LLC research Much of the recent activity in the segment involves middle market companies. In an industry that depends on new product development and introductions, these target companies can offer buyers new and innovative products and services, as well as access to growing market niches. Among buyers, synergy is the new black, and the potential for synergies vis-à-vis acquisitions can help strategic buyers justify premium valuations. At the same time, private equity buyers remain very active in the industry, backed by readily available financing, low interest rates, strong BOSTON fundraising and plenty of cash to invest. CHICAGO 2015 OUTLOOK LONDON While 2014 was a banner year for mergers & acquisitions, activity is projected to be even LOS ANGELES stronger going into 2015. This expectation is a result of improved CEO confidence. The U.S. PHILADELPHIA economy is positioned for growth, most economic indicators have now fully recovered from the recession and more people are re-entering the labor force with better prospects for SAN DIEGO employment, all contributing to a healthy environment. But with the market likely near its peak, SILICON VALLEY many business owners are now faced with the choice to “grow” ̶ take risks and expand the TAMPA business, or “go” ̶ sell now to avoid the next downward cycle. Personal Care Products & Services Q1 2015 INDUSTRY GROWTH & TRENDS The U.S. personal care industry is projected to grow at an compound rate of 5% annually between 2014 and 2018. Demand for personal care products and services is driven by population growth, consumer confidence and spending and changing consumer preferences. While many of the products in the category are considered necessities and are purchased regardless of economic conditions, others are considered luxury items and their sales are impacted by changes in the economy. Personal care services, which include spa and salon services and cosmetic procedures, were once reserved for the luxury market but now appeal to – and are accessible to – the mass market. As a result, sales of such services are rising. The performance and profitability of individual companies depends on the effectiveness of their product innovations, sales and marketing efforts, and the efficiency of their operations. Larger companies in the industry often enjoy scale advantages in purchasing, manufacturing, distribution and marketing. However, small and mid-sized companies compete effectively by offering specialized products that appeal to niche markets. Innovative brands, companies with strong potential based on prolific R&D results, mass brands with broad appeal and recognized brand names are all in demand among industry buyers. Several trends are contributing to the industry’s attractive growth prospects, including the following: Aging Population is Driving Demand - The aging U.S. population has created substantial consumer demand for anti-aging face, hair and body care products and services. The U.S. population age 65 and over is expected to increase more than 35% between 2010 and 2020, driving demand for such purchases. This growing segment has a higher-than-average level of disposable income which they are willing to spend on their appearance. The advent of social media has also elevated consumers’ awareness of their looks and has increased their desire to look good. Along with this trend, there has been a rise in the sale of cosmeceuticals, a combination of cosmetics and pharmaceuticals. Cosmeceuticals include skincare anti-aging formulations, products for stress relief and sun protection, as well as haircare and makeup products that beautify as they address health problems or concerns. As the senior population increases in size and spending power, the focus on anti- aging products will rise. New Target Markets - The men's, tweens (9- to 12-year-olds) and ethnic markets represent growth opportunities for personal care product manufacturers. While the primary focus for personal care products has traditionally been women, these segments remain relatively untapped for products designed to meet their needs, and are considered good acquisition targets to build out product lines and brand offerings. Growth Opportunities in Global Markets - Emerging economies with expanding middle classes are presenting solid growth opportunities for U.S.- based personal care companies. Attractive foreign markets include China, Russia and India. Rising income levels in these and other developing countries are creating more consumers willing to spend on personal care products, which they consider an "affordable luxury." Capstone Partners LLC 2 Personal Care Products & Services Q1 2015 SAMPLE ACQUIRER PROFILE: L’OREAL L’Oréal S.A. is the world’s largest cosmetics maker and offers its products under the L’Oréal Professionnel, Red Ken, Kérastase, Matrix, L’Oréal Paris, Garnier, Maybelline, Softsheen Carson, Essie, Lancôme, Giorgio Armani, Yves Saint Laurent, Biotherm, Kiehl’s, Ralph Lauren, Shu Uemura, Cacharel, Helena Rubinstein, Diesel, Clarisonic, Viktor & Rolf, Urban Decay, Vichy, La Roche Posay, SkinCeuticals, Innéov, Sanoflore, and Roger & Gallet brand names. Acquisitions have been a focus for L’Oréal for years. Jean-Paul Agon, the Paris-based company’s chairman has said that he is “confident that we will find other opportunities this year or next… this is the story of L’Oréal. We are pretty good at seizing brands that are at the early stage of development and making them huge.” Acquisitions include the following and are expected to remain a strategic focus for L’Oréal in 2015. RECENT L’OREAL ANNOUNCED ACQUISITIONS Date Target Business Description Location 12/2014 ColoRight Mfg. hair coloring technology Israel 10/2014 Carol’s Daughter Mfg. hair & skincare products USA 09/2014 Sayuki Custom Cosmetics Mfg. cosmetics USA 09/2014 Niely Cosmeticos Mfg. haircare products Brazil 06/2014 NYX, Los Angeles Mfg. cosmetics USA 04/2014 Decléor S.A. & Carita Int’l Mfg. spa products France 04/2014 Magic Holdings Int’l. Mfg. skincare products China 09/2013 Cheryl’s Cosmeceuticals Mfg. hair & beauty products India 04/2013 Interconsumer Products Mfg. health & beauty products Kenya 01/2013 Lab. de Cosmeticos Vogue Mfg. toiletries Colombia 12/2012 Urban Decay Mfg. cosmetics USA In October 2014 L’Oréal announced the acquisition of Carol’s Daughter, the manufacturer of hair and beauty products for women of color sold through specialty stores, mass retailers and online. The acquisition comes about a month after Carol’s Daughter’s retail arm exited Chapter 11 bankruptcy, which generated approximately $27 million in sales in the twelve months ending September 2014. The acquisition is expected to allow L’Oreal to build on its dedicated multi-cultural beauty division. In September 2014, L’Oréal acquired Sayuki Custom Cosmetics for an estimated $150 million. Founded in just 2012, Sayuki manufactures and sells cosmetics and skincare products, and was the designer and inventor of a skincare scanning and color matching technology and software that allows a woman to match her skin color to custom cosmetic products including foundations and concealers. The Sayuki technology then formulates and produces the finished custom product for the customer onsite in a matter of minutes. Capstone Partners LLC 3 Personal Care Products & Services Q1 2015 SAMPLE ACQUIRER PROFILE: L’OREAL (CONTINUED) In September 2014, L’Oréal also announced the acquisition of Niely Cosmeticos Group, a Brazil-based independent hair coloration and hair-care company whose products are sold in supermarkets, pharmacies and perfume chains. The acquisition further penetrates one of the biggest and fastest growing hair color geographic markets in the world. Niely’s popularity with Brazil’s growing middle class complements the products offered by L’Oreal’s consumer products division. L’Oréal, which earns more than 8% of its revenue in Latin America is currently focusing on new BRICS (Brazil, Russia, India, China, and South Africa) markets. In June 2014, L’Oréal acquired NYX Cosmetics, which manufactures richly pigmented products at affordable prices. NYX had created a niche between the prestige brands sold in department stores and mass brands sold in drugstores. At the time of the acquisition, NYX was generating over $100 million in sales, with much of its success attributable to its marketing efforts in the digital space. In September 2013 L’Oréal acquired Cheryl’s Cosmeceuticals, a brand that is synonymous with superlative skin care treatments and products sold in salons. The company offers