Sunday, November 16, 2008

Coty could look to expand presence in emerging markets through opportunistic acquisitions, CFO says

Coty could seek opportunistic buys in emerging markets to boost its fragrance, skin care and color cosmetics portfolio, CFO Michael Fishoff said in an interview. The company is a New York City-based perfume business. 
Current market conditions are favorable for deal making. “There are values to be had,” Fishoff said. The move is expected to contribute to the privately-held company’s immediate goal of reaching USD 5bn in revenues. Coty has USD 3.3bn in revenue and is owned by German consumer goods company Joh A Benckiser. 
Coty is equally interested in fragrance, skin care, and color cosmetics buys with revenues of USD 50m or more, said Fishoff. The company wants to fill small voids in its fragrance portfolio, a 60% sales generator, and there is also potential for color cosmetics and skincare. 
Attractive targets should have a presence in emerging markets such as Russia, India and other parts of Asia where Coty’s presence is underdeveloped, Fishoff explained. Europe generates 55% of sales, America 33% and Asian and other markets contribute 12% of sales. 
Coty will also continue to look at buys domestically, Fishoff said. The company has identified a few targets, but has not yet completed due diligence. “If a good opportunity came along we would acquire immediately,” he said. Murad and Bare Escentuals, both based in California, could be possible targets, said Fishoff, when questioned. 
In India, the skin care and fragrance brands of listed majors Hindustan Unilever (HUL) and ITC could be of interest to Coty, said a Mumbai-based analyst. But it is unlikely either company would consider divesting those units at this point, he added. 
Coty’s Fishoff said it was his understanding that Unilever had no plans to dispose of HUL’s skin care and fragrance business. He was not familiar with ITC. 
ITC told this news service previously that it was seeking acquisitions in the FMCG space. An HUL spokesperson declined comment on HUL’s acquisition strategy. 
Another option for Coty could be to engage in a joint venture with a domestic brand after partnering with a strong distributor, said an Indian banker. “Why does Coty want to come to India?” the banker asked. “Does it want to sell a few products at high volumes or many products at lower volumes?” Especially if Coty is after the latter, it would need to partner with a national retail chain with a strong distribution network, he said. 
While larger companies might not be willing to sell at this time, many small companies could see advantages from a tie-up – especially one with a global player, a second banker said. He pointed to Emami’s October acquisition of Zandu Phamaceuticals Works as evidence of M&A interest in the space. 
But those companies may not meet Coty’s size requirement, the analyst said. In India, not many companies hit USD 50m in sales for their skincare and fragrance brands alone, he explained. The entire skincare market in India is thought to be worth about USD 500m, with the fragrance and deodorant market accounting for a lot less. Potential deals could be done at 1x-2x sales, the analyst added. 
JPMorgan has been mandated by Coty for past M&A deals, but new advisor approaches would be considered, said Fishoff. “We are constantly looking at acquisitions and that [identification of targets] is a challenge for bankers right now.” It has used law firm Covington & Burling for past deals. 
Acquisition financing would be generated via existing cash flow, reserves from parent Benckiser and tapping the financial markets, Fishoff said. “There is available capital for deals, especially with interest rates down.” 
Outside of opportunistic buys, the company plans to grow through international alliances and organic growth. Deloitte & Touche provide accounting services. 


Post a Comment

Subscribe to Post Comments [Atom]

<< Home