Deal focus: AGIC eyes beauty with industrial characteristics

AGIC Capital, a middle-market GP that targets cross-border deals that bridge Asia and Europe, is best known for investing in industrial manufacturing businesses. Its latest acquisition seems out of step: Pure Trade, a packaging supplier to the global beauty industry, takes a deliberate asset-light approach, relying on third-party manufacturers rather than in-house capacity.

Heiko von Dewitz, a partner and managing director at AGIC, is quick to disabuse observers of this notion. Pure Trade’s capabilities are industrial in nature, he contends, with an emphasis on supplier management and an understanding of raw materials, manufacturing processes, and quality control.

“Pure Trade often takes over the design step and advises on key sustainability options such as the use of recycled materials and the minimisation of carbon and water footprints, while the brands provide high-level product specifications and cost targets,” he said. “It also ensures that the products get manufactured in the right volumes meeting quality and lead time targets.”

AGIC acquired Paris-headquartered Pure Trade from small to midcap French investor Sparring Capital, which claims to have helped the business scale up to more than 80 staff and EUR 90m (USD 100m) in annual revenue. The size of the deal was not disclosed, but von Dewitz said it fell midway along AGIC’s typical equity cheque range of USD 50m to USD 250m.

It is not unprecedented for an Asia-based GP to reach into Europe for an asset that addresses global beauty products packaging. For example, China-focused Trustar Capital did it in 2018 with the acquisition of Axilone, a supplier of casings for lipstick, fragrance, and skincare products. This reflects the reality of an industry that has one foot firmly in each market.

“A majority of the suppliers and a large share of the end markets are in Asia, in particular China, which are served by European luxury powerhouses,” said von Dewtiz. “It’s a truly globalised business across the value chain. French and Italian premium brands are the biggest accounts, but the company is making strong inroads with the leading US and Asian brands too.”

The global cosmetics packaging market was worth USD 36.8bn in 2022, with Asia Pacific accounting for a 42% revenue share, according to Market.us, a market research and analysis provider. It is projected to reach USD 57.1bn in value by 2032.

However, the industry is segmented. Primary packaging – containers that hold products – is mainly controlled by the brands, happens relatively close to the point of sale, and is highly automated. Secondary packaging – or the outer box – prioritises the customer experience and so tends to be more complex and promotional in nature. Pure Trade specialises in the latter.

“It requires more manual skill and labour capacities, something that only Asian suppliers can provide,” von Dewitz explained, adding that it would be easier to re-shore the automotive supply chain to Europe than the luxury goods promotional packaging supply chain because of the level of automation involved.

Pure Trade’s other distinguishing feature is the asset-light or fabless business model. It was established in 1996 as part of The Brand Nation, a French advertising agency, so in-house manufacturing has never been on the agenda. This does not mean the approach is easy to replicate.

The company, which spun out from The Brand Nation in 2015, produces the likes of makeup palettes, compact cases, and pouches and bags for a blue-chip customer base. Clients include Dior, Givenchy Parfums, YSL Beauty, Lancôme, Valentino, Jean Paul Gaultier Parfums, and Prada Beauty.

No one supplier can meet the needs of every brand, so Pure Trade’s competitive advantage is in knowing which ones can fill different parts of the chain – based on considerations such as design, materials, order volume, and lead time. Relying on a network of 50 suppliers around the world, with a strong Asia foothold, the company can be highly flexible in accommodating different demands.

People and relationships are important. Sparring’s acquisition in 2020 was completed in partnership with key management team members and the same individuals are re-investing alongside AGIC. They include Asia head Mona Lee, who has been with the company for over 15 years.

“The company has invested heavily in its supplier network over the past two decades and the entry barrier is very high. Other companies may opt for in-house manufacturing because it naturally offers more direct control and can be implemented faster,” said von Dewitz.

“In contrast, the fabless approach requires a long-term strategic commitment and the development of sophisticated supply chain management skills and trusted supplier relationships.”

AGIC sees considerable headroom for Pure Trade, including further expansion of brand coverage in the US and Asia and the introduction of digitalisation across the supply chain. Bolt-on acquisitions are also likely. While Pure Trade will not leave its asset-light comfort zone, there is the possibility of entering markets beyond beauty where promotional and secondary packaging is relevant.

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• Topics
• Greater China
• Europe
• Buyouts
• Consumer
• Industrials
• AGIC Capital
• manufacturing
• beauty & personal care
• China
• Asia