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L'Occitane picks odd time to bet on British beauty


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By Lisa Jucca

(The author is a Reuters Breakingviews columnist.)

LONDON, Jan 14 (Reuters Breakingviews) - L'Occitane has chosen an odd time to bet on British beauty. The soaps and hand-cream brand on Monday snapped up skincare group ELEMIS for $900 million in cash. The price looks at tad rich compared with valuations for some better-known rivals. Boosting exposure to the United Kingdom at a time of great economic uncertainty is an added risk.

Sure, L'Occitane is paying a premium for control. And ELEMIS is expanding faster than some of its rivals. Net sales were up 27 percent and EBITDA grew by 31 percent last year; the $46 billionEstee Lauder's top line was up just 5 percent in its last fiscal year. If ELEMIS can keep up the same growth rate in 2019, its valuation would fall to a more reasonable 17 times EBITDA.

Strategically, the acquisition could offer some cosmetic potential. Hong Kong-listed L'Occitane is probably hoping to use its Asian network to boost its target's scant presence in the region. ELEMIS has an impressive record in flogging products like its 145 pound wrinkle-smoothing night cream to online shoppers; those digital skills could help to revitalise L'Occitane's own e-commerce channel.

What is certain, however, is that the acquisition will give L'Occitane greater exposure to Britain, which currently accounts for nearly 60 percent of ELEMIS's sales. The country's ageing population is a plus for cosmetics makers as mature ladies tend to devote more of their budget to age-repairing creams and lotions. Yet, the British market for personal care and cosmetics products already looks a tad saturated. And a chaotic Brexit will hurt customers' spending power. In that case, L'Occitane's purchase will need more than just a superficial touch-up.

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CONTEXT NEWS

- Beauty products maker and retailer L'Occitane International said on Jan. 14 it was buying British skincare brand ELEMIS for up to $900 million in cash.

- The deal is expected to close in the first quarter of 2019.

- Shares in L'Occitane, which is listed in Hong Kong, were down 4.7 percent at 0905 GMT.

Acquisition statement





This article appears in: World Markets , Stocks , Economy



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