Deal focus: IMM seeks to ride the Korean wave

AmorePacific Corp, South Korea's leading cosmetics company, has propelled itself into the global elite by combining strong local demand with a rapidly expanding overseas portfolio. Revenue reached KRW5.64 trillion ($5.9 billion) in 2016, and while the domestic market remains the dominant contributor, overseas sales rose 35% year-on-year to KRW1.69 trillion.

More than 90% of this offshore business is conducted in Asia, where AmorePacific has positioned its brands to leverage the popularity of Korean cultural assets ranging from music to beauty products. For example, Innisfree’s following in China can be credited in part to a 2015 online video campaign featuring Korean actresses and singers Lee Minho and Yoona.

IMM Private Equity wants to replicate this success with Able C&C, which is best known for the Missha skincare brand. “The theme is operational improvement and brand renewal,” says Joseph Lee, partner and senior managing director at IMM. “Most cosmetics brands go through a renewal every five or six years. Innisfree didn’t used to be doing as well as it is now and got back on its growth trajectory after a renewal.”

Able C&C was founded in 2000 by Young-Pil Seo and is the third-largest player in Korea’s cosmetics company after AmorePacific and LG Household & Health. IMM spent six months negotiating with Seo – convincing him that it could bring about a smooth transition in control and make operational improvements – before buying a 25.54% stake from him for KRW188.2 billion.

There are no compulsory tender offers in Korea and private equity firms rarely take this course of action voluntarily. However, IMM thought it best to pursue a majority interest in order to solidify its control over the company. The tender offer closed last week with the GP having increased its stake to 53.48%. IMM’s total outlay is approximately $330 million and includes participation from co-investors.

In addition to Missha, Able C&C owns make-up, skin cream and perfume product lines under A’Pieu, Swisspure and Eau de Love, respectively. It generated revenue of KRW383.6 billion in 2016, up from KRW356.2 billion the previous year. Net income rose from KRW13 billion to KRW16.9 billion over the same period. Overseas sales account for 10-20% of revenue and IMM plans to support growth in this area, primarily through wholesale arrangements.

But Able C&C appealed to the PE firm not only for the development potential of its brands. The company has close to 750 stores across Korea and is therefore seen as a hybrid play – one that does not live or die by the success of individual products.

“You need to roll your sleeves up and do the actual store operation but we felt this model was more stable and had a lot of upside,” says Lee. “We’ve seen brands do extremely well and then lose their mojo and third-party distributors no longer want them. If you have your own channel you are not dependent on these distributors.” 

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• Topics
• North Asia
• Buyouts
• Consumer
• South Korea
• Consumer
• IMM Investment