[Why&Next]"Most Popular Since COVID-19" K-Beauty M&A to Heat Up Even More in the Second Half

H1: Number of M&A Deals in First Half Already Nears Last Year's Total
Global Private Equity Firms Eye Pharmaceutical and Bio Companies
IMM PE, VIG Partners Anticipate 'Exit Expectations'

K-beauty was one of the standout sectors in the M&A market during the first half of the year. The popularity of beauty is expected to continue in the second half as well. Recently, as Korean companies have expanded their main markets to the US and Europe, they are experiencing a 'second golden age,' generating unprecedented interest in beauty companies.

M&A experts collectively stated on the 28th, "Currently, there are various buyers for domestic beauty companies, so competition to secure the remaining 'prime assets' will intensify in the second half." Jung Kyung-soo, head of the Samil PwC M&A Center, said, "The beauty sector, which had been quiet for a while, is now the hottest since COVID-19," adding, "Inquiries about beauty companies have been nonstop, and several deals are expected to be concluded soon." Another investment banking (IB) industry insider also reported, "Inquiries from foreign investment firms continue to come in." Although exact data has not yet been compiled, there are talks that the number of M&A deals in the beauty sector is already approaching last year's total of 17 deals.

'Prime assets' will trigger fierce competition... Restructured companies also acceptable

Looking back at the first half of the year, both domestic and international players jumped into beauty company M&A. These include domestic cosmetics companies aiming to diversify sales through lineup expansion, pharmaceutical and bio companies seeking 'new growth engines,' and global private equity funds (PEFs) pursuing short-term high returns. Such a diverse range of buyers competing is rare in M&A across other industries these days. For example, the US-based PEF Morgan Stanley Private Equity acquired 'Skin Idea,' known for skincare brands like 'Medipil' and 'Derma Maison,' while the French investment firm Archimed Group acquired 'J.Cys Medical,' one of the top three beauty medical device companies in Korea. The transaction involving French capital in a K-beauty company was the first in six years since L'Or?al's acquisition of Stylenanda in 2018. Among domestic cosmetics companies, Gudai Global, famous for 'Joseon Beauty,' expanded its size by consecutively acquiring 'TIRTIR' and 'Lacacosmetics.'

Pharmaceutical and bio companies seeking new growth engines were also actively entering the market. T&R Biofab, a regenerative medicine specialist, acquired the cosmetics OEM company 'Bliss Pack,' and Yuhan Corporation increased its stake in OEM company 'Coson' from 7.1% to 32.5%. Both OEM companies share the commonality of having previously filed for corporate rehabilitation due to financial difficulties. Last year, Daewon Pharmaceutical also acquired 'SD Life Science,' a cosmetics manufacturing company undergoing rehabilitation procedures. Restructured companies have the advantage of no risk of 'contingent liabilities,' but the disadvantage of cumbersome and numerous procedures under court supervision. The decision to 'bet' was made weighing the advantages more heavily than the disadvantages.

Once struggling... now expectations for exit

K-beauty, which enjoyed its first golden age centered on China in the past, is now experiencing a 'second golden age' by advancing in developed markets such as the US and Europe, achieving record-high export performance. According to the Korea Customs Service, the export value of cosmetics from January to May this year was $4.04 billion, a 20.8% increase compared to the same period last year. On an annual basis, it is on track to surpass the record high of $9.22 billion in 2021. Korea ranks first as a cosmetics importer in the US (based on January to April data, with a 20.1% market share), surpassing France's long-standing top position (19.3%). This was a remarkable achievement for Korean cosmetics. Some small and medium brands have even caused shortages by sweeping Amazon's beauty category.

Another reason for the popularity of beauty companies in M&A is that they tend to reach the break-even point (BEP) relatively quickly. Even without their own production facilities, products can be made by outsourcing to ODM companies like Kolmar Korea and Cosmax. The sector is well-divided in terms of specialization.

Domestic PEF operators who invested early in beauty are now seeing growing expectations for investment recovery (exit). IMM PE, which acquired Able C&C, famous for 'Missha,' in 2017, is a representative example. Two years ago, it faced a crisis of loss of benefit of term (EOD) when it failed to extend the maturity of acquisition financing, risking forced loan repayment by creditors. However, as the market improved, it has now entered a stabilization phase. Mask pack company P&CLabs, held by VIG Partners, is also classified as a potential M&A target. Venture capitalists (VCs) who invested in beauty companies preparing for IPOs are also optimistic about exits. The cosmetics sector has recorded one of the highest growth rates in the domestic stock market this year.