L Capital targets Chinese beauty

Between 2001 and 2011, China's skincare and cosmetics market expanded by 17%, while sales of luxury products alone increased by 22.35%, according to Mirae Asset Global Investments.

"We are seeing potential growth in this segment, particularly within the East Asian female segment. They are more willing to spend more on cosmetics, and not only for the functional purpose of avoiding dry skin," says Hanji Huang, managing director at the private equity firm.

He adds that the segment is also fragmented compared to Taiwan, Japan and South Korea, which means there are consolidation opportunities. L Capital hopes that Marubi Biological Technology Stock, can become a prime mover in this space and last week bought a minority stake in the Guangdong-based skincare manufacturer for an undisclosed sum.

L Capital focuses on mid to high-end companies, so the strategy differs from that of its luxury sponsor, LVMH Group. Even though, Marubi, known for eye care products, has a nationwide presence, its revenues mainly come from second- and third- tier cities. Last year, sales reached RMB3 billion ($490 million) and L Capital plans to support development through the acquisition of other brands.

"When we say we will help Chinese companies on M&A deals, we don't mean helping them expand overseas - we don't think they are all ready," says Huang, "In the case of Marubi, the idea if to acquire foreign brands or R&D capabilities, bring them to China and develop new products for the local market."

Marubi can also expect to see its brands - Wanmei and Chunji - benefit from tie-ups with LVMH in China, sharing distribution channels with the likes of Christian Dior. China's largest cities have traditionally been the domain of multinational brands sold through department stores, while local players rely on cosmetics shops in second- and third-tier locations. But Huang believes the line is now blurring.

"We would like to see more local brands gaining more market share, at least within China," he explains. "One example is Herborist, which is owned by Shanghai Jiahua. It is a local skincare brand that is growing in China and in Europe. Marubi has the potential to do that."

L Capital Asia was set up in 2009 and the Marubi investment came from its debut fund, worth $650 million. The PE firm has four other portfolio companies in Hong Kong and mainland China: Emperor Watch &Jewelry and Ming Fung Jewelry, as well as fashion labels Trendy International Group and Xinhe Fashion.

"The Chinese retailers we invested in don't need money," says Huang. "They're mainly looking for partners to help them grow the business."

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• Topics
• Expansion
• Consumer
• Greater China
• China
• L Capital Asia
• Consumer
• Growth capital