Coty wins a $12.5bn beauty contest

Coty beat other rumoured bidders to win P&G’s beauty business in a US$12.5bn purchase which will make it the world’s biggest perfume maker, ahead of L’Oréal, and the number three in makeup. ‘Transformational’ is an over-used word these days, but this deal genuinely merits it – it won’t just reshape the entire Health & Beauty sector, but also double Coty’s revenues at a stroke. The deal is interesting not just for its size, but for its rationale. And the word here is ‘focus’: P&G is continuing its divestment of non-core assets to concentrate on its household goods portfolio, and Coty – in the words of its CEO - is looking to be a “highly focused, pure-play leader”.

Portfolio realignments like this have been driving deal volumes in consumer goods for at least the last three years; other deals in this quarter’s top ten illustrate some of the other issues prompting M&A activity.

Reynolds’ sale of the Natural American Spirit cigarette brand, and Douwe Egberts’ of Carte Noire, were portfolio re-organisations dictated by the regulators rather than by strategy, in the wake of the Lorillard and Mondelez deals, respectively. With more megamergers in the offing, there could be a lot more disposals like this in the pipeline.

Cargill’s sale of a pork business, and purchase of a fish-related one, were part of a deliberate diversification away from meat into other sources of protein, which is a growing trend in the primary production end of the food sector (more on this later). And the fact that PE houses are present in the top ten only as sellers, not buyers, shows how tough it still is for private equity to compete with the price cash-rich corporates are prepared to pay.

The three-way Coca-Cola bottling deal involving Spanish, French and German operators, will create the world’s largest independent Coke bottler, Coca-Cola European Partners. The scale of the new business will help counter consumers’ growing preference for non-sugary drinks, and open up opportunities in healthier categories like bottled water. The Quorn sale is another example of the ongoing interest in health foods, with established brands in this segment now selling for very healthy multiples indeed.

The fact that Quorn sold to a Philippines buyer, and Cargill’s meat business to a Brazilian one, illustrates the continued strength of demand from emerging markets players – some are looking for Western brand names, others for established distribution networks or manufacturing capabilities. At the same time, the big consumer goods manufacturers are still looking for opportunities to buy assets in developing economies, such as Kellogg’s purchase of the Nigerian Multipro Enterprises and Egyptian Mass Food Group. Even though no deals like this made the top ten this quarter, the same thinking is a major factor behind AB InBev’s blockbuster acquisition of SABMiller, with its unrivalled penetration right across Africa. More on this next time…

To learn more about some of the key deals that took place in Q3 2015, read our new publication, 'the Consumer' here.

How do you see the rest of 2015 playing out? Share your thoughts below or schedule a meeting to discuss your situation in confidence.

Richard Hughes |  Director, Transaction Services
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Wendy Giles |  Director, Transaction Services
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