In addition to these larger transactions, the market has been characterised by high levels of activity in the mid-market as players seek out fresh challenger brands and new categories as well as the continuing lure of the growth opportunities available in emerging markets. L’Oréal in particular has been one of the most active acquirors in the space, buying a number of companies across a range of product categories and markets including smaller players such as cosmetics brand Urban
Decay, baby products brand Cadum and Columbian make-up brand Vogue.
n Emerging markets opportunities consumer products companies have been targeting the growth opportunities available in emerging markets for some time and China in particular; n Brand portfolios - larger players are keen to add fresh new brands to their portfolios in order to create appeal for particular customer segments, while also disposing of other brands where growth opportunities appear limited; n Increasing exposure to faster growing categories - corporates have sought to re-position their portfolios and gain expertise in expanding categories, such as the emerging men’s skin care category; n Channels - distribution across a range of different channels is becoming increasingly important, with significant interest in distribution into the professional / salon markets.

clearthought | Summer 2014 Consumer Insights from Clearwater
For a business which thrives on new product development, there will always be interest in upcoming brands – especially those which open up new demographics, new categories or different channels to market. In addition, we expect to see continuing interest in emerging markets.
China in particular is expected to represent a
huge market opportunity for the sector, especially in the skin care category –
Euromonitor estimates China will account for
43% of total skin care added value solutions by 2016.
L’Oréal has been one of the most active acquirors in the beauty and skin care space - the table below shows some of this activity and reflects many of the key drivers behind sector transactions as a whole, with moves into emerging markets and growing categories such as male skin care.
Announced Date Target Country Description
Deal Value
(£m)
Feb 2014
Dec 2013
Oct 2013
Sep 2013
Aug 2013
April 2013
Oct 2012
Nov 2012
Shiseido’s Decléor and Carita Brands
Interparfum’s Nickel Brand and 2 spas
Emporio Body Store
Cheryl Cosmeceuticals
Magic Holdings International
Interconsumer Products - personal care and beauty division
Laboratorios de Cosmeticos Vogue SAS’ Brand
Urban Decay Cosmetics
France
France
Brazil
India
China
Kenya
Colombia
USA
Skin and bodycare
Men’s skin care
Franchised beauty stores
Haircare, skin care
Face masks
Personal care and beauty products
Cosmetics brand
Cosmetics brand
200
NA
NA
NA
508
16
NA
250
Perhaps L’Oréal’s most eye-catching transaction has been the recently approved acquisition of Magic Holdings of China.
L’Oréal has been present in China since
1997 and is the second largest player in the Chinese beauty and skin care market after P&G.
The company has decided to focus its strategy in China on the fast-growing skin care market, rather than haircare, where
P&G and Unilever are already ahead (see above). Magic is China’s largest facial mask company – a category which is described by L’Oréal as “one of China’s beauty market’s fastest growing areas”. The company’s product list includes Magic Snail
Cream Firming Hydrating Mask and a Berry
Brightening Facial Mask, designed to lighten skin tone.
China, however, is not a straightforward market by any means. While showing its commitment to expansion in China via the
Magic acquisition, L’Oréal has had difficulties establishing some of its own brands at the same time. Earlier this year, the company announced that it would no longer sell Garnier, one of its mass market brands, in China as the entry level brand had failed to gain traction there. The company will instead focus on two of its other brands, L’Oréal Paris and Maybelline, as well as the newly acquired Magic brand.
L’Oréal’s move followed the announcement by Revlon of the US that it would close its operations in mainland China, with the loss of around 1,000 jobs. China made up around 2% of Revlon’s net sales and this is expected to result in pre-tax charges of around US$ 22 million.
While the Chinese market is undoubtedly a significant one, there have been signs of slowing growth and increasingly intensive competition. Chinese consumers have retained their loyalty to local brands, particularly at the mass-market level, and these brands have also proved to be remarkably fast-moving and have benefited from increasing levels of internet

clearthought | Summer 2014 Consumer Insights from Clearwater sales – Chinese consumers switch brands frequently, with Western brands finding it difficult to compete. Korean brands have also been successful at taking market share in the Chinese market, where they are considered innovative and are cheaper than Western brands: according to Mintel, they have been “very successful in targeting people who like Korean soap operas or K-pop”. Major South Korean beauty player Amore Pacific is building a production and research centre in
Shanghai. The company has ambitious targets for growth in China, with a goal of sales of $2.9 billion and a target to be one of Asia’s top cosmetics companies.
India is another attractive emerging market
– in July 2013, Unilever increased its stake in its Indian unit (Hindustan Unilever) to
69% from 52%, in a transaction valued at around £2 billion, in order to increase its exposure to the Indian market.
The company failed to increase its stake to the desired 75% level, but nevertheless this was one of the largest inbound Indian
M&A transactions on record. L’Oréal, again, has a major existing presence in India but in
2013 made its first company acquisition there, purchasing Cheryl Cosmeceuticals.
The Mumbai-based cosmetics company offers professional skin care and treatments used in beauty salons in India.
L’Oréal sees this acquisition as an opportunity to broaden its offering in the professional products area in the country to include skin care. M&A activity involving
India has not all been one way.
Indian conglomerate Godrej has been an active acquiror in the hair care space with 9 acquisitions since 2005, most of them overseas including Africa, Argentina and
Chile, as it focuses on growing international sales, particularly in countries with high growth potential.
n Skin care is the biggest category within beauty and personal care, with a value of c. US$ 100 billion but annual sales growth at 5% in 2012 remained at below pre-recession levels and below overall beauty / personal care growth of 6%.
n Lower growth is partly due to a slowdown in Western Europe and
North America, where markets are more mature and have suffered from economic weakness. Increasing penetration of mid-priced or masstige brands has also had an impact, providing lower cost options to consumers.
n Skin care is still expected to remain the leading beauty / personal care category with annual sales growth averaging 3% to reach a value of US$
117 billion by 2017, driven mainly by
Asia Pacific and Latin America.
n 3 of the top 10 markets in 2012 came from Asia Pacific (Japan, China and South Korea) and by 2017 there will be 4, with Indonesia replacing Italy in the world’s largest skin care markets.
n Face masks are expected to be the top growth category in skin care over 2012-17, with a CAGR of 5% and the majority of the growth coming from Asia Pacific, especially
China, but face masks are expected to gain popularity in developed markets as well.
It’s not only emerging markets that drive
M&A activity in the beauty sector – sometimes companies wish to rebalance their exposure or reduce their domestic reliance via M&A activity in more mature markets.
Revlon’s US$ 660 million acquisition of Colomer in
2013 allowed the company to increase its
“geographic scope”, with approximately
50% of the acquired business’s net sales in
Europe, the Middle
East and Africa.
Similarly in late 2011, Polar Orbis, the
Japanese cosmetics and skin care group, acquired Australian organic skin care company Jurlique for approx. US$ 300 million as part of a major overseas expansion strategy. Under its previous private equity owners, Jurlique had grown from being a leading brand in its Australian home market to a global beauty brand.
On the flip side, highlighting the risks of overseas expansion, Sisheido announced in
April 2013 that it had taken a write-down of around US$ 280 million to its US$ 1.9
billion acquisition of Bare Escentuals, an acquisition which had been intended to accelerate the group’s international expansion. Following this write-down,
Sisheido sold its Decléor and Carita brands to L’Oréal in 2014.

clearthought | Summer 2014 Consumer Insights from Clearwater
Announced
Date
Acquiror Target Description Country
Deal Value
(£m)
Feb 2014
Jan 2014
Nov 2013
Nov 2013
Oct 2013
Oct 2013
Aug 2013
Jan 2013
Dec 2012
Dec 2012
DCC Healthcare
Coty
Unilever Ventures
Unilever
Advent Private Equity
(Douglas Holding)
L’Oréal
Revlon
Li & Fung
Quadriga Capital & Bregal
Capital
Palamon & Sirius
Universal Products
Lena White
Syneron Beauty (51% stake)
Ioma (majority stake)
Nocibe
Decléor and Carita Brands
Colomer
Lornamead Group
LR Health & Beauty
Feelunique.com
Contract manufacturing of beauty products
Distributor of Coty brand, OPI
Home beauty devices
Luxury Skin care brand
Perfume retail chain
Aromatherapy-based beauty brands
Distributor of Revlon brands including Finesse shampoos
Personal care brands, including
Finesse shampoos
Direct sales of health and beauty products
Online retailer of beauty products
UK
UK
Israel
France
France
France
Spain
UK
Germany
UK
130
Nails have been a particular growth segment within the cosmetics space.
Strong innovation such as nail art and water washable formulas has helped boost the category, along with a perception that nail polish is an affordable luxury.
In 2012, Revlon acquired the Pure Ice nail polish brand and Bon Bon cosmetics brand – smaller upcoming brands, with affordable prices, targeted at younger shoppers - from Bari Cosmetics for US$
66 million.
This transaction followed the previous year’s acquisition of Mirage, owner of
Sinful Colours, another value nail brand.
As well as the value end, there has been notable interest in specialist brands offering salon standard nail polish. Back in 2010, L’Oréal acquired US nail company Essie for US$ 28 million.
Essie built a reputation for selling trend setting shades, with humorous names such as “Show me the ring” and “Big spender”. This was followed shortly after by Coty’s acquisition of salon nail brand OPI in a US$1 billion transaction.
Coty also bought OPI’s UK distributor,
Lena White, earlier this year.
Male grooming has also been another hot category, with many of the larger players already offering men’s lines.
To date, M&A activity in this sector has been limited but we anticipate that this will change. So far the focus, particularly in Western Europe and North America, has been on more traditional areas such as shaving.
In 2009, for example, Procter & Gamble acquired The Art of Shaving saying that it was part of a strategy to build the world’s premier male grooming company. This was followed by the acquisition of Zirh, a super-premium male skin care brand, sold through highend department stores, speciality retailers and online.
215
NA
13
NA
16
NA
442
189
430 n Men’s grooming accounted for only
8% of total beauty and personal cares sales in 2012 but outperformed all other categories, except deodorants.
n Annual growth in sales values accelerated to 7% in 2012, the growth rate for the category since
2005, reaching US$ 34 billion.
n The men’s grooming category has proved to be recession-proof, growing at an average of 6% per annum 2007-12, reflecting the necessity status of many purchases e.g. deodorants. n Within men’s toiletries, mass categories continue to dominate but premium ranges are starting to gain traction, particularly in skin care and hair care.
n Men’s skin care showed the strongest growth between 2007 and 2012 in the toiletries category, with a CAGR of 12%, largely due to growth in the Asia Pacific region where the majority of sales originate
- South Korea is the top market for men’s skin care.

clearthought | Summer 2014 Consumer Insights from Clearwater
% Value by Category
North
America
Latin
America
Western
Europe
Eastern
Europe
Asia Pacific
Middle East
& Africa
Australia
Skin Care
Bath & Shower
Deodorants
Hair Care
Source: Euromonitor
8
23
44
25
Within male grooming, male skin care is already an important category in Asia, as highlighted earlier. There are, however, growing signs of interest in the category in
Western markets. L’Oréal completed the acquisition of Nickel, a small male skin care brand, from Interparfums of France in
November 2013.
Nickel was acquired by Interparfums in
2004 and since then sales had fallen from
¤4 million to ¤1.9 million in 2012. Nickel includes around 20 products but despite positive trends in men’s grooming,
Interparfums had failed to expand the brand. L’Oréal plans to use its superior distribution, combined with substantial
2
0
92
6
16
21
46
17
6
14
59
21 marketing spend, to expand the presence of
Nickel globally – currently the majority of sales remain in France. L’Oréal already has some coverage in the space with portfolio of brands across a variety of channels –
Vichy in pharmacies, Garnier Men, Men
Expert and Mennen in the mass market and
Biotherm Men via selective distribution.
The female skin care category has a more established track record of M&A activity, especially at the premium end. In 2010,
Coty acquired Philosophy from Carlyle
Private Equity to increase its US presence in premium skin care. We have already mentioned the acquisition of high end natural Australian skin brand Jurlique by
40
8
12
45
7
3
69
16
11
10
73
6
Polar Orbis of Japan in 2011. Again in
2011, consumer focused PE house
Langholm Capital increased its investment in Finnish beauty brand Lumene.
The brand was originally acquired in 2003 via a corporate spin-out from Nordic pharmaceutical conglomerate Orion.
Lumene uses Arctic ingredients and is the number one Finnish skin care and cosmetics brand. Langholm has internationalised the brand and expanded its footprint into the rest of Scandinavia, Russia and the US, leading to double digit EBITDA growth over the past 5 years.
Access to new distribution channels is also a significant driver of industry M&A activity. In one of the major consumer transactions last year, Revlon agreed to purchase Colomer of Spain for US$ 660 million from CVC Capital Partners.
The company was seeking to increase its offering to professional salon customers, which Revlon previously did not serve. The acquisition gives Revlon the Creative Nail professional and Shellac nail polishes as well as American Crew men’s haircare products.
The increasing importance of salons as a distribution channel was highlighted earlier this year with Coty’s acquisition of UKbased Lena White, long-time distributor of
OPI, one of Coty’s nail brands. OPI was acquired by Coty in 2010 for around US$ 1 billion and is one of the major suppliers to salons in North America. The company was originally a dental supply business known as
Odontorium Products Inc but its founder discovered that the acrylic used to make the dentures was superior to the materials used by nail professionals – he refocused the company on cosmetics and changed the name!
The acquisition of OPI’s distributor will allow
Coty to accelerate the brand’s development in the UK, its second largest market, and strengthen its position in Europe. OPI is focused on the salon professional and prestige channels. Coty also owns the Sally
Hansen mass market nail brand, which it acquired in 2008.
L’Oréal has made a number of moves to increase channel coverage. At the end of
2012, for example, it acquired Urban
Decay, a make-up brand aimed at women in their 20s. L’Oréal needed some rejuvenation of its brand portfolio and
Urban Decay offered a more up-to-date and risqué image.
Another important aspect of the transaction was the fact that products are sold mainly via specialist beauty retailers and a dedicated internet site, allowing L’Oréal to increase its sales via these channels. The company made a further move this year to boost its offering in the professional market, with the acquisition of Decléor and Carita from Japanese company Shiseido.
Decléor and Carita are both French brands
- Decléor is a leading player in aromatherapy skin care - which have been integrated into L’Oréal’s Professional
Products category and the acquisition will enable the company to build up new distribution channels within the professional beauty market, especially in day and resort spas specialising in skin care.

clearthought | Summer 2014 Consumer Insights from Clearwater
The sector is highly fragmented with lots of opportunity for consolidation. We expect to see continuing activity and high levels of interest from both trade and private equity over the rest of the year and beyond, as players seek out growth opportunities in interesting categories and markets whilst also trying to access distribution across a range of channels.
The sector has been remarkably resilient during the downturn but current positive economic trends should further underpin the attractions of beauty and cosmetics targets in more mature markets over the coming months as pressure on discretionary incomes reduces.
Clearwater International advised on the sale of the company
Clearwater International advised the shareholders on this crossborder transaction
Clearwater International advised
Fagor on its global alliance with
Haier, acquiring assets in Poland
Clearwater International advised the company and raised new bank facilities to provide additional working capital
Clearwater International advised on the sale of JNA Vinduer & Døre and
SPAR Vinduer to Inwido AB, a leading supplier of window and door solutions
Clearwater International advised the owners of Nutramino on the crossborder divestment
andreas.lauth.
jackie.naghten@cwicf.com
Associate Partner
+45 51 90 86 69
Manager
+35 918 213 379
Deal Originaton
+44 845 052 0390 perri.blakey @cwicf.com
Consumer Analyst
+44 845 052 0301 sarah.charman@cwicf.com
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