Deal Focus: L Capital taps Korea’s cultural clout

South Korea has seen two private equity investments in skincare over the past week, as first Bain Capital and Goldman Sachs paid $350 million for a controlling stake in Carver Korea, and then L Capital Asia took a minority interest in Clio Cosmetics for $50 million. Tapping overseas demand for high quality Korean products is a feature of both deals.

"From a macro perspective, the Korean beauty sector has achieved unprecedented levels of growth not only domestically but also fueled by demand from other Asian countries," says Ravi Thakran, managing partner at L Capital Asia, who identifies beauty and media and entertainment as the most exciting sectors in Korea.

It isn't hard to see why. The country has left a firm cultural imprint on Asia as reflected in the popularity of its contemporary music and television dramas. (It is no coincidence that L Capital's other Korea-based portfolio company is record label and talent manager YG Entertainment.) Korean celebrities have become part of a zeitgeist, and so too have the fashions and cosmetics they showcase.

The combination of star exposure plus product quality and affordability - Korea is credited with various global innovations within cosmetics, while its products are competitively priced compared to global brands - clearly sells. Clio is the market leader for color cosmetics such as eyeliner and base foundation in Korea, ranking in the top two among independent domestic brands. Its three brands targeting women in their 20s and 30s, Clio Professional, Peri Pera and Goodal, are available in 800 locations across Korea, from direct stores to duty free shops, as well as online.

While domestic sales account for around 55% of Clio's revenue - said to be KRW107 billion ($94 million) in 2015 - another 35% is generated from China. Last year Korea trailed only France in terms of cosmetics exports to China, shipping products worth $1.1 billion, and Thakran believes there is more to come. "Clio is already being sold in China and we have seen some early successes," he says. "We believe that China offers the greatest near-term potential followed by Southeast Asian markets."

As the second-largest shareholder after CEO and founder Hyun-oak Han, L Capital will use its retail resources and network to provide insight into consumer markets, retail operations and product design. The GP has already helped two other beauty brands enter new markets, with Taiwan-based Dr. Wu breaking even 18 months after launching in mainland China, while China-based Marubi is expanding within Asia.

As Clio looks to deepen its own presence in China, the company will need to replicate its product development efforts in Korea and leverage what local recognition it already has. "Brand awareness is usually low for new brands, while the beauty category is already very competitive and the distribution model is more complex, especially in markets like China," Thakran adds.

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• Topics
• North Asia
• Consumer
• Expansion
• South Korea
• L Capital Asia