Differences between the Domestic and Foreign Acquisition of Cosmetics Enterprises

Zhang Jing

Guangzhou Zizhuang Network Technology Co., Ltd., China

Background

In recently years, a rising number of brands are eyeing for entering into the huge market of cosmetics industry.For the purpose of pursuing further development, various enterprises prefer to acquisition, by which they can re-organize resources or explore new markets, in a bid to gain a foothold among the competitive cosmetics market, and those who have been acquired may break through development bottleneck when they encountering difficulties.

The year of 2018 could be regarded as the “Year of Acquisition” in terms of the cosmetics industry.Across the globe, a number of 34 acquisitions cases were made during January to July within the whole industry.Fujian Green Pine Co., Ltd.(hereinafter referred to as Green Pine), the largest turpentine deep processing business in China, issued 39 announcements late at night on November 8ththat it would purchase 90% shares of Nox Bellcow Cosmetics Co., Ltd (NBC) by means of issuing shares and cash paying at the price of 2.43 billion yuan.

Unsatisfactory or satisfactory

On February 28th, 2019, Green Pine released its official notice, announcing that it would pay 1.51 billion yuan by issuing shares and 920 million yuan by cash.Issuing of shares and payment by cash to purchase assets and raise supporting funds and related transactions were approved by China Securities Regulatory Commission (CSRC), conditionally.At that point, it was a defining event that Green Pine Co., Ltd.acquired NBC.

Three days before the announcement by Green Pine, Qingdao Kingking Applied Chemistry Co., Ltd.introduced an announcement that it was scheduled to sell the 100% equity of Hangzhou UCO Cosmetics Company under its holding with 1.4 billion yuan as the transaction price.Despite the previous two successful acquisition cases, China's cosmetics companies met twists and turns.By the end of December, 2018, both Yu Jia Hui's acquiring of AFU's parent company, Beijing Maosi Trade Company, and LAF's acquiring of Shanghai Jinjia International Trade Co., Ltd.failed.

In February, 2019, Huaren Pharmaceutical Co., Ltd.announced to delay its acquisition of Hanhoo for the moment.Huaren Pharmaceutical published an announcement that two parties decided to delay the major asset restructuring temporarily through friendly negotiation due to the unsolved matters concerning the advertisement contract conflict and litigation between Hanhoo and a company affiliated to Beijing HLBN Film Co., Ltd.As agreed, the reorganization of the assets would be pushed forward until the conditions were mature.But to date, it remained unresolved.

By contrast, the acquisition cases of foreign businesses went off smoothly.Unilever acquired four big enterprises as Quala in Latin America, Hourglass, an American cosmetic company, Carver Korea as well as Sundial, a personal care product company in America.P&G prioritized the segmented market acquisition, a bit of conservative in comparison with Unilever.Shiseido has long been aiming at the streamlined technology, having acquired three technology companies in order to use high-tech to support its products.L'Oreal purchased CeraVe, AcneFree and Ambi, all of which were cosmeceutical brands, at the price of 1.3 billion U.S.dollars.

In fact, foreign businesses were not highlighting the acquisition of their domestic brands.Chinese brands have long been acquired by foreign companies for a long term.In 1994, Unilever obtained the holdings right of Shanghai Toothpaste Factory; in 2003, L'Oreal group acquired Mini Nurse, which used to be one of the three big skin care brands in Chinese market; and in 2007, Johnson & Johnson acquired a quite well-known Chinese brand——Dabao.

Acquisition is a milestone for foreign cosmetics giants during their expansion.L'Oreal bought “Lancôme” and managed to enter into the “premium cosmetics market and perfume market” shifting from the “hair-dressing business”.It marked L'Oreal's first step stepping towards the high-end cosmetics domain.Later, L'Oreal acquired over 40 brands covering various segmented categories and became the indisputable “No.1” in the field of cosmetics.P&G acquired Gillette in 2005, which was really a strategic and unprecedented step of decision-making with profound influences.Thanks to the “biggest acquisition ever recorded in the cosmetics history”, P&G surpassed its original second position and ranked first place in the area of daily consumer goods.Following its acquisition of Gillette, P&G owned 21 brands worth of more than one billion U.S.dollars, with the market share overtaking Unilever and becoming the champion in daily chemical business.

Differentiation of Chinese and foreign businesses' acquisition approaches

Nowadays, fierce competition remains in the cosmetics market.Many domestic businesses in China cannot satisfy their needs for development, so they are forced to choose the way of being acquired.In order to pursue the long-term development, teaming up with a big enterprise with a large market is very likely to break the bottleneck.It is also possible that such businesses could risk being hided.

Recent years have witnessed the rising of local brands.The high-end foreign brands have to seek a way out due to the impact from niche brands.They successively step into the mature or emerging market by way of tapping into new market through brand acquisition.Generally, acquisition brings nothing but benefits to both sides, which could reap the win-win results by drawing on advantages from each other.The acquisition of local businesses, comparatively, refers to the re-organization of upstream resources in the cosmetics industry instead of the difficulty of survival.Both Green Pine's acquisition of NBC and Guangzhou Lonkey's planned acquisition of Guangzhou Baihua are upstream resource reorganization due to raw materials' cost increase.

In 2017, government stepped up efforts to inspect the environmental protection performance of enterprises, and shutting down some ones which were found to have illegal pollution problems.It caused the decline in supply and rise of cost.A number of small and medium-sized plants had been ordered to close down as soon as environmental policies are introduced.In fact, the sudden increase of the intensity of environmental protection inspection is only a microcosm of the state's regulation and control of enterprise products, which leads to the cost rise of raw materials, enterprise mergers and acquisition as well as other optimization of resource allocation, is an embodiment of the market de-capacity.

From the view of market growth, it may be good.The acquisition in the upper stream industry is just a case in point.But from a higher level, the government is strengthening efforts to carry out policy regulation which covers all industries such as the cosmetics industry.For each and every entrepreneur, they are confronted by more pressure.The capacity reduction endeavour regulated by government makes it more intense regarding market competition and the acceleration of the survival of the fittest.On the other hand, foreign companies try to expand their market segments by acquiring niche brands.Acquiring popular brands in line with the trend of cosmetics industry helps brands be more diverse and complete.With a view to gaining a foothold in the increasingly competitive international market and achieving substantial development, domestic cosmetics enterprises must be skillful at learning from excellent foreign enterprises and better improve their own strength while examining their own shortcomings and making use of their own advantages.

But be it local cosmetic business or foreign cosmetic company, the purpose and original target are seeking survival and further development.So, it could also be a new start for brands by acquiring.