Niche Beauty Brands: Is 2016 the Year to Attract a Multi-National Buyer?
Are you considering selling out to an acquisitive multinational?
Right now might be a great time.
After a lull in M&A activity pre-2014, things have hotted up again with a rash of acquisitions by Estée Lauder, Unilever and Coty. And it’s not inconceivable that this trend will continue strongly throughout 2016 and beyond.
The multinationals are looking for successful niche brands that can provide points of difference within their existing portfolios. They want to acquire brands that have demonstrated sound potential and have a unique USP.Niche brands are looking for a partner/parent that can help them invest to expand to the next level or can provide them with the right in-house skills.
Which Partner/Parent has a Good Track Record Nurturing Niche Brands?
Those companies that allow the original values of the brand to be upheld, such as The Body Shop by L’Oreal and Jo Malone by Estée Lauder Companies.Since 2014, Estée Lauder has been steadily adding to its roster of brands: at the last count it had 30. Recent acquisitions include niche fragrance houses Frederic Malle, Le Labo and premium skincare brands GlamGlow and Rodin Olio Russo. Its most recent acquisition was in October, when it made its first investment in the Korean skincare company Have & Be Co. Ltd, the owner of Dr Jart+.
Unilever has also been scooping up successful skincare brands in the professional and premium sectors with a new division devoted to the development of premium beauty brands. So far, its acquisitions include Murad, Dermalogica, REN and Kate Somerville and more are expected.
Interestingly, this is not Unilever’s first foray into premium but today it intends to do things very differently: in the 1980s Unilever owned Elizabeth Arden and Calvin Klein Cosmetics, but today, its strategy is to build a portfolio of beauty brands with a proven track record in niches where it does not have a presence.
Avoiding the Pitfalls
Not every brand marriage works, though, and there are many examples of brands that have been dumped. P&G is a past master at shelving brands that are not “core to its strategy”.
According to Helen Miller, Helen Miller Consulting, the last thing companies plan is to trash brands they have bought.
“Brands are valuable. Beauty brands are all about symbolic value and corporates pay a premium for this,” she maintains.
Sometimes, a brand has been neglected and its formulations need updating to make it competitive again. By using the resources of the new parent company, it can invest in new technologies and ingredients, which often come more cheaply through economies of scale.
“This is a real win for the customer: better products at the same price,” comments Helen.
But things can go wrong in the marketing, especially if the company doesn’t “get” the new brand and its messages are off-track, resulting in customers losing interest in the brand.
“If the value or profitability of the brand is less than was thought, the company looks for cost reductions in product and packaging, or needs to sell more volume which it does by discounting. This is how brand values are destroyed and the brand may die,” warns Miller.
Stirling Murray, ceo, The Red Tree, predicts that there will be a healthy appetite for M&A in beauty in the future.
“There are a number of highly creative and inspirational niche brands coming onto the market which are likely to be snapped up by the major corporations. It makes for an interesting market.”
If you’re looking to sell out, first consider the following:
Do your homework: understand your market and where you fit in
Who are your competitors, what is their pricing and how do you compare?
Find out as much as possible about the acquiring company and whether there’ll be a mutual fit
Consider whether pros and cons of being part of a larger corporation: it may not be right for you right now
Work with an accountant or expert who can put the numbers to your strategy and business plan
Understand what risks you might face