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Unilever's Acquisition Spree In 2015 And 2016 Could Help Boost Its Revenues and Profits

Unilever ( UL ) has been on a acquisition spree since 2015, which is still continuing with the latest addition of 'Living Proof' in December, 2016. Unilever is transforming its brand portfolio, in contrast to its competitor Procter & Gamble, which has shed over 100 brands to simplify its operations. Unilever now owns over 400 brands as compared to P&G's 65.

Since 2015, Unilever has acquired around 10 brands, including: Camay & Zest, REN, Kate Sommerville, Dermalogica, Murad, Seventh Generation, Dollar Shave Club, Blueair and GROM. With the exception of Blueair and GROM, which respectively participate in the home care and food markets, all these brands are in the personal care category. The most recent addition, 'Living Proof', is also a premium skin & hair products manufacturer. The three trends which are common in Unilever's acquisitions in the past two years are:

  1. Majority of the brands operate in the fast growing skin and hair care category
  2. Comparatively Small brands with revenues Under $1 Billion
  3. Most Brands fall into premium category

The new acquisitions will not only add to Unilever's revenues, but could also help expand its bottom line, as most of the acquired brand are premium brands (with comparitevely higher margins).

See our complete analysis for Unilever here

Tapping the Growth Potential Of The Skin & Hair Care Industry

  • Combined global skin & hair care market generates annual sales of over $150 billion and is estimated to grow at around a 5% CAGR over the the next few years. This makes it one of the biggest and fastest growing markets in which Unilever and its competitors operate.
  • As of 2015, Unilever pulled in around 27% of its revenues from skin & hair care, making it the biggest division of the company. According to Trefis estimates, Unilever holds around 9-10% share in the skin & hair care market.
  • The increased presence in fast growing skin & hair care market might improve the growth in Unilever's top line, which has experienced a 2% compounded annual decline since 2011 (on conversion into dollars) because of currency headwinds and competition from local players.

Is Unilever Planning A Strategy Of Acquiring Small And Making It Big?

  • Most of the brands acquired by Unilever have revenues under $1 billion and the company didn't have to shed out billions to acquire these brands. The company did not disclose the deal amounts for most of these companies. The largest deal disclosed by the company has been Dollar Shave Club, which was acquired for $1 billion.
  • Combined revenues of Murad, Dermalogica, Kate Somerville, REN, Seventh Generation and Dollar Shave Club before their acquisition were around $780 million. This amounts to just over 1.3% of the company's total revenues.
  • With its reach in around 190 countries, Unilever has the capability to expand the presence of these brands worldwide which is likely to help it secure more share in the skin & hair care market.
  • Unilever might be using the strategy of acquiring small and making it big by taking advantage of its size. For instance, Dollar Shave Club had revenues of only $152 million and had a presence in 3 countries before its acquisition. Whereas Gillette, owned by Unilever's primary competitor P&G sweeps in around $8 billion of revenues and has a presence in over 125 countries. However, if Unilever leverages its reach in 190 countries and manages to provide DSC with a similar platform as of Gillette's, then it can possibly compete with the latter in the future.

Higher Growth In Global Premium Categories Sends In A Good News For Bottomline

  • The global premium products market is expected to grow faster in the future as compared to mass market due to the emergence of middle class with higher disposable incomes in developing countries.
  • According to Euromonitor , premium beauty care category will hold about 25% share in the total beauty market's value from 2014-19 as compared to around 20% in 2009-14.
  • Also premium products have higher margins associated with them, therefore, benefits of higher market share and exposure to premium product category is likely to seep down to the bottom line.
  • Unilever's EBITDA margin of around 18% in 2015 was lower than that of its competitors P&G ( PG ) and Colgate-Palmolive ( CL ), who managed to clinch the margins of 27% and 24%, respectively. However, it is likely to improve in the future after the acquisitions of these premium brands.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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