The Personal Care Ingredients Sector Remains Ripe for Consolidation
Long gone are the days when personal care was limited to a twice-daily encounter with a bar of carbolic soap. The modern bathroom seems to be overflowing with every conceivable product to make us cleaner, healthier, happier - and even look younger!
These products – usually divided into categories such as personal wash, skincare, haircare, and oral care – are complex formulations with many and varied ingredients, some of which didn’t exist even just a few years ago. A substantial sector within the global chemicals industry has become dedicated to the development and manufacture of this evolving range of novel ingredients, in addition to supplying more traditional raw materials.
The global market for personal care ingredients is estimated by various commentators to be growing at 4-6% per annum, slightly above recent GDP trends. However, this average rate disguises much higher growth for novel ingredients, e.g. anti-aging actives in skincare and slower growth, or even decline, in some older, more mature product segments.
Many manufacturers have reorientated themselves as suppliers of novel ingredients, partly through organic research and development and partly through selective mergers and acquisitions (M&A). This is particularly true of companies such as Croda, Lubrizol, and Solvay in the surfactants sector.
Unsurprisingly, the personal care ingredients market has become a hotbed for M&A activity, with major drivers including:
- The search for novel ingredients with faster growth prospects, particularly actives which underpin solid “on-pack” efficacy claims
- The acquisition of complementary ingredients, in order to offer a “one-stop” formulation shop
- The trend towards natural ingredients (and away from crude oil-based chemicals)
- Access to intellectual property (IP) and know-how, both in ingredients and formulations
- Access to key customers and their product development programs
- Gaining exposure to higher geographical growth rates and innovations, e.g. skincare in Korea, India, and China
- Securing channels to market
Finding suitable targets at sensible prices has become a major challenge, with valuations having hit new highs over the last few years as acquirers chase quality companies, particularly those possessing novel ingredients, IP, and strong applications know-how. Having dipped after the 2009 financial crisis, valuations have been above 10 x EBITDA (earnings before interest, taxation, depreciation and amortization) for five years or more and 2020 has shown a further upward tick. Prices have been underpinned by acquisitive strategics, but also by private equity players such as Carlyle, Berkshire Hathaway, Bain and Cinven, who have concluded some sizeable deals in and around the space.
So how do you find a target which is worth acquiring and at a price worth paying? Waiting for the next global recession may be an option, but is unlikely to be received with enthusiasm by shareholders!
The first thing is to be clear about your strategy. Random serial acquisition of highly- (maybe even overly-) priced targets is unlikely to create value and careful selection of niches and targets is a must. Be clear about what you wish to acquire and how you can add value to it in ways that others will struggle to emulate. This will put you in a strong position to act when the right assets become available and to ignore all other distractions in the meantime.
Notwithstanding the flurry of M&A activity in recent years, the market for many personal care ingredients remains relatively fragmented, mainly due to the diverse nature of the materials concerned and the constant stream of innovation. There is still a pond out there to fish in! Seeking out small and medium-sized targets which fit well with your strategy but won’t necessarily be on the radar of every potential global buyer can be a sensible approach, but requires systems and resources for market intelligence gathering and the discipline to keep in touch with a potentially long list of companies and their owners, maybe across a range of countries and continents.
That is where CDI Global can help. We are highly experienced in working with specialty chemicals companies in order to identify, contact and acquire targets with the right fit and willingness to engage in a proprietary sale. We can assist with any or all aspects of the process from initial scanning and target profiling through to due diligence, negotiations, and deal closing. Our goal is to provide the resources and expertise to help our clients do deals. We have offices across the globe and are equally at home engaging with a privately-owned Chinese or Indian business as we are with a North American or European public company.
So, whether your interest is in acquiring novel products and technologies, or driving consolidation in a maturing market, please contact us to discuss how we can help you achieve your goals!
CDI Global Partner & Chemical Industry Co-Leader