Deal focus: CITIC sees resilience in beauty

Brands in China have started to fear a so-called consumption downgrade, as buyers cut spending and opt for cheaper goods. When retail sales growth in the country slumped to a 16-year low of 7.2% in April, suggesting that attempts to stimulate an economy beleaguered by slowing growth and trade tensions were falling short, those concerns intensified.

Beauty products appear to be bucking this trend, however. Sales of cosmetics on Alibaba Group’s Taobao and Tmall online channels increased 42% year-on-year in February – even as overall retail sales were slowing. For investors seeking assets that can ride out a possible economic downturn, such figures can’t be ignored. CITIC Capital appears to have been keeping track of the numbers. The private equity firm recently acquired Hangzhou UCO Cosmetics, a digital marketing and e-commerce services provider specializing in beauty and personal care, for RMB1.4 billion ($208 million). 

“The deal was initiated by UCO’s management team, which wanted to bring in a PE investor to help the business realize its growth potential. As for us, we have very strong conviction in three areas: the overall outlook of the beauty products market; the continued rapid growth in beauty products e-commerce; and the service capability that UCO brings to its customers, especially premium brands,” says Hanxi Zhao, a senior managing director at CITIC Capital.

UCO, which was established in 2012, generates most of its revenue by helping brands build and manage their online stores across e-commerce platforms such as Tmall and JD.com and social e-commerce platform Little Red Book. The company’s services also cover logistics, warehousing, store data analysis and customer service. It has more than 40 clients, including international brands such as Estée Lauder, MAC, Clinique, and Clarin.

“We would like to help UCO leverage its deep understanding of beauty industry trends and data-driven consumer insights to serve its customers better, whether it is large, existing brands that are seeing rapid growth in e-commerce or smaller, niche brands trying to enter into Chinese market,” says Zhao.

Future plans for UCO include possible acquisitions of smaller service providers – commonly referred to as “Taobao Partners” – that manage day-to-day merchandising, logistics and marketing for brands as well as leveraging synergies with beauty brands in the CITIC Capital portfolio.

The transaction also stands out because of the seller: Shenzhen-listed Qingdao KingKing Applied Chemistry. Zhao expects to see more carve-out opportunities from Chinese companies. “Most businesses have not felt the pain of a downturn or gone through a full economic cycle yet. As macroeconomic volatility rises, some listed entities are facing tighter liquidity and so they will come under pressure to re-focus on their core businesses. We expect to see more deals coming from these companies.”   

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• Topics
• Greater China
• Buyouts
• Consumer
• China
• CITIC Capital