Unilever has bought itself some K-pop.
The consumer giant has acquired a slice of the fast-growing South Korean beauty market, snapping up skincare brand Carver Korea for 2.27 billion euros ($2.7 billion). The price looks a pretty one for shareholders including Goldman Sachs Group Inc. and Bain Capital Private Equity, who bought a majority stake in Carver a little more than a year ago.
It equates to seven times 2016 sales -- an even bigger multiple than the five times sales Unilever paid for Dollar Shave Club last year. On a trailing Ebitda basis, the multiple equates to 16.6 times, slightly higher than the median for cosmetics and personal care deals over the past three years.
So there's a risk that Unilever is paying top whack at the peak of the market.
South Korea has had one of the fastest growing beauty industries over recent years, helped by strong Chinese demand. Even excluding weaker sales to China, amid tensions between the two nations, that growth could moderate this year according to Catherine Lim of Bloomberg Intelligence.
Korean beauty and skincare groups face increased competition from international rivals such as L'Oreal SA and Shiseido Co Ltd, although Lim notes that more innovation and greater stability within the Korean peninsular would help the market. Moreover, as with Unilever's other deals, including Dollar Shave Club and premium brands such as Living Proof haircare and Hourglass cosmetics, the strategy is to distribute these brands through Unilever's impressive global network.
Most of Unilever's niche personal care and beauty buys are still recent. While it says they are performing well, with aggregate growth of more than 20 percent, it's still early days. The idea is for the strategy to turbo charge sales -- lifting the group's growth and margins.
Korea will be a good test. Notwithstanding the local pressures, Korean beauty is still a desirable export. There's an opportunity to expand across Asia, and put Carver brands everywhere from U.S. mass-market retailers -- where some Korean names are already present -- to high-end department stores.
If Unilever managed to use its distribution channels to double Carver 's earnings, which isn't entirely unfeasible, then the implied Ebitda multiple would drop to a less demanding 8 times.
Still, with a full entry price on conventional valuation metrics, and scrutiny of Unilever's growth and margin performance after the brief siege by the Kraft Heinz Company, Carver will really need to put its best face forward.
With assistance from Chris Hughes
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