[Why&Next] All Three K-Beauty Medical Device Companies Acquired by Private Equity Firms... Investment Appeal '↑'

Three Companies and Private Equity Funds Acquire Successively at One-Year Intervals
Reasons for Attention: Industry Growth and Global Competitiveness
K-Beauty's Popularity Soars, M&A Interest Expected to Continue

Beauty medical device companies are gaining attention in the mergers and acquisitions (M&A) market. Since 2022, all three leading companies in the industry?Classys, Lutronic, and JCY Medical? have one commonality: private equity fund (PEF) management firms have become the largest shareholders. The 'K-Beauty' craze, which started with cosmetics, is now spreading to M&A in beauty device companies.

According to the Korea Exchange on the 12th, the French PEF management firm Archimed announced it will acquire JCY Medical, a KOSDAQ-listed company, for a total of 990.4 billion KRW. The plan includes purchasing 94% of the shares held by the existing largest shareholders and related parties for 266 billion KRW, and securing the remaining 72% of the total issued shares through a tender offer worth approximately 724.4 billion KRW by July 22. Once the tender offer is completed, delisting procedures will proceed.

High Profitability... Some Companies with Operating Profit Margins of 50%

Among the 'big three' beauty medical device companies, Classys was the first to be acquired by a private equity fund. In April 2022, the US-based PEF management firm Bain Capital acquired about 61% of the shares for 669.9 billion KRW. In June of the following year, the domestic PEF management firm Hahn & Company acquired Lutronic, with a total acquisition amount of 964.6 billion KRW including the tender offer.

Despite the downturn in the M&A market over the past two years, beauty medical device companies have consistently attracted interest due to being a growth industry and the global competitiveness of domestic companies. Yumi Kim, partner of the financial advisory division at Samjong KPMG, said, "The high profit margins compared to other industries are an attractive point," adding, "Also, since they are showing export performance, overseas PEF management firms are interested in investing." Kim also noted, "Unlike the past when only men were economically active, the emergence of 'wealthy women' interested in anti-aging and beauty has increased the demand base."

In the case of Classys, after Bain Capital's acquisition, the proportion of labor costs in selling and administrative expenses (selling expenses + administrative expenses) decreased to 25.3% as of 2023. Meanwhile, the proportion of marketing expenses increased to 41.2%. Before the acquisition, labor costs accounted for the 40% range, and marketing expenses were in the 20% range. After optimizing the cost structure, Classys recorded its best-ever performance in 2023, with sales of 180.1 billion KRW and operating profit of 89.6 billion KRW. This represents an operating profit margin of 49.8%, which is rare in any other industry. JCY Medical, acquired by Archimed, had an operating profit margin of 25.3% last year (sales of 143 billion KRW and operating profit of 36.3 billion KRW). Considering Classys, the potential for improving profit margins is seen as a key factor in the successful M&A.

K-Beauty's Soaring Success Captivates the United States

Domestic beauty medical device companies are increasingly popular overseas, especially in the United States. According to the Korea Customs Service, exports of 'home beauty devices (electric skin massagers, LED masks, scalp care devices, etc.)' from January to April this year increased by 145% compared to the same period last year, reaching 67 million USD. This is the highest export record for the same period ever. Notably, exports to the United States grew by 650% compared to the previous year. Since last year, the United States has surpassed Japan to become the largest export destination. The Korea Customs Service analyzed, "Due to the increased interest in K-Beauty driven by the Korean Wave, beauty care products are gaining attention and expanding their global market with excellent functionality and quality."

Kyungsoo Jung, head of the M&A Center at Samil PwC, said, "One reason overseas PEF management firms are interested is that the technology level of domestic companies is excellent even by global standards," adding, "Interest and trends in beauty medical devices are expected to continue for the time being." According to Samil PwC, the home beauty device market, which is the fastest commercializing segment among beauty devices, is expected to grow from 14 billion USD in 2022 to 89.8 billion USD by 2030. In the industry, Pharmaresearch, Wontech, and ViOL are mentioned as potential M&A candidates. Si-on Kang, a researcher at Korea Investment & Securities, said, "The acquisition of JCY Medical by Archimed will once again highlight the investment attractiveness of beauty medical device companies."