Mergers, Acquisitions & Investments in the Natural Personal care Industry shows that following a subdued 18 months, investors are returning to this sector as a result of improved economic conditions and increased financial liquidity.
High market growth rates and profitable product categories make natural personal care companies a particularly attractive investment, say Organic Monitor.
North America leads the way
The report profiles the major deals that have taken place since 2005, which revealed that the majority of investment activity took place in North America.
The Estée Lauder brand, Aveda, which was purchased in 1997, has evolved to become a global natural brand, and according to Organic Monitor, investors are looking to replicate its success.
Whether it is large cosmetics companies looking to enter this potentially lucrative market, or venture capital firms and private equity companies focused on high capital appreciation, the number of potential investors means large sums are involved.
Purchase price 3-5 greater than sales revenue
As a result, natural cosmetics and personal care companies have been purchased at a value that is 3 - 5 times its sales revenue, noted Organic Monitor, citing Bare Escentuals and Burt’s Bees as examples.
In 2007, bleach manufacturer Clorox paid $925m for Burt’s Bees, which, at the time of the acquisition was expected to achieve annual sales of $170m.
Likewise, Japanese cosmetics giant Shiseido recently agreed to pay $1.7bn for all the outstanding shares in Bare Escentuals, a company that has an annual turnover of over $600m.
Europe spells big opportunities
The report revealed that as a result of the substantial investment activity that has taken place in North America, relatively few suitable privately-owned companies remain.
Therefore, Europe, with its high concentration of privately-owned natural personal care companies, is a prime target for investors in 2010.
In addition, it was noted that the companies to have shown positive growth following investment are those that continue to operate as separate entities, such as Burt’s Bees and Aveda, rather than those that are assimilated into larger corporations.
According to Organic Monitor, one of the key reasons for this is the fact that typically, natural personal care companies are small, with strong ethical values, something which doesn’t always sit easy with larger organizations focused on profits.
Organic Monitor’s Sustainable Cosmetics Summit in New York will highlight key findings in the report, and explore investment options available to natural personal care companies, as well as specifying the key criteria investors look for.