Unilever bets $2.7billion on S Korean cosmetics brand

Bloomberg

Unilever agreed to buy a South Korean cosmetics maker for $2.7 billion to gain a stronger foothold in the world’s fourth-largest skincare market, betting that the pop-culture-fuelled appeal of the country’s beauty products will outweigh concerns over tensions.
Unilever will buy Carver Korea, maker of AHC skincare products, from shareholders including Goldman Sachs Group Inc. and Bain Capital Private Equity, the London- and Amsterdam-based company said. Carver had sales of 321 million euros last year. For the Anglo-Dutch consumer-goods giant, whose brands include Ben & Jerry’s ice cream and Dove soap, the acquisition marks a shift from other recent purchases in niche areas like organic tea and vegan mayonnaise as Chief Executive Officer Paul Polman pursues a commitment to sustainability. The company has also been building up a “prestige” arm within its personal care business, targeting high-end brands founded in developed markets, such as Dermalogica, Ren and Murad.
Skincare sales in South Korea will reach $6.3 billion this year, and interest in the Asian country’s cosmetics companies has been heating up. Bain Capital agreed to invest about $816 million in beauty-products maker Hugel Inc. in April. AHC’s products include moisturisers, toners and sun protection. Unilever shares rose 0.8 percent on Monday in Amsterdam.
Korean cosmetics have grown popular in the Asia-Pacific region alongside a boom in the country’s cultural exports. Many of the leading brands, which compete with Japan’s Shiseido Co., Kose Corp. and others, use Korean celebrities to front their advertising campaigns. “The Korean Wave, driven by K-pop and TV series, created a desire among Asian consumers to look and feel like Korean celebrities,” said Sunny Um, a Singapore-based analyst at Euromonitor.
Korean cosmetics companies have borrowed a page from fast-fashion brands like Zara, speeding up the product development cycle to keep a sense of freshness, Um said. They’ve also appealed to Chinese consumers by using herbal ingredients that are trusted there.
While strong Chinese demand has fuelled growth, sales in China have weakened recently amid geopolitical disputes in the region. Operating profit of Amorepacific Corp., South Korea’s largest cosmetics company, dropped 58 percent in the second quarter. Tensions with China have flared over South Korea’s hosting of the US’s Thaad missile system, meant to protect against a possible nuclear attack amid saber-rattling between North Korean leader Kim Jong-Un and US President Donald Trump. China opposes the system and, in the immediate aftermath of its deployment, travel agencies stopped selling tour packages to South Korea.
Goldman and Bain said in July 2016 that they had agreed to acquire a majority stake in Carver Korea, without giving exact terms. While the price Unilever is paying seems “superficially high,” the deal makes sense strategically, said Martin Deboo, an analyst at Jefferies with a “buy” rating on Unilever shares.
“It’s right at the top end of what Unilever’s paid for things but it’s pretty profitable and 35 percent of the sales go to China, so they’re acquiring right in the heartland of current beauty trends,” he said.
The company has said investors should expect it to spend between 1 billion euros and 3 billion euros on takeovers every 12 months to accelerate its push beyond mainstream products and into healthier or ethically sourced brands.
Many of Unilever’s recent acquisitions have focussed on its food arm. But the company has also been adding to its personal-care with deals like the purchase of brands such as Savital shampoo from Latin America consumer goods giant Quala, in May.