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Mergers and acquisitions open new avenues in Beauty and Wellness space
August, 25th 2016

Globally, mergers and buyouts are common practices where one conglomerate has either acquired all the assets and liabilities of another company, or one has been bought over by a corporate giant purely for business growth. While in the Indian corporate scenario it has been a regular feature, in the Beauty and Wellness space, per se, it is still a relatively new concept with business houses still wanting to remain politically correct while sharing the details. Salon India reports

Mergers and Acquisitions: Consolidation for growth
The practice of mergers and acquisitions has attained considerable significance in the contemporary corporate landscape, which is broadly used for re-organising business entities
Globally, in the last two years, there has been a flurry of activity in the Mergers and Acquisitions (M&A) space. Industry experts have put it down to the fact that as multinationals have the funds, they want to expand their current businesses and hence, there has been an acceleration in M&A deals. In 2015, the Walgreens buyout of Alliance Boots set the tone and what followed was Unilever, well-known for its brands, such as Dove and Axe, acquiring Dermalogica, yet another reputed brand in the professional skin care space. Pop went the weasel when Coty bought out Proctor & Gamble for a whopping $12.5 billion for its perfume, hair care and make-up businesses, which includes brands, such as Wella and Clairol. This has laid the foundation for the perfume maker to be one of the world’s largest beauty companies.

India Retail Forum 2016
India perspective

The practice of mergers and acquisitions has attained considerable significance in the contemporary corporate landscape, which is broadly used for re-organising business entities. Post the introduction of economic reforms in 1991, Indian industries faced several challenges, both nationally and internationally. The cut-throat competition from international markets forced the Indian companies to opt for merger and acquisition strategies, making it vital for survival.

Hence, it comes as no surprise that India was one of the strongest markets for M&As in the first half of 2014, according to consulting firm KPMG’s Global M&A Predictor report. Says Vikram Hosangady, Head Transactions & Restructuring and National Leader Private Equity at KPMG India, “Confidence that the new government will strive to revive the investment cycle and focus on policy and fiscal reforms is expected to keep India very active on the global radar.”

Ajay Gehi, a business consultant with Mergers and Acquisitions, a legal fi rm dealing in M&As in Mumbai, is a formidable entity in the business consulting space, especially M&As. An MBA, Cost and Management Accountant and well-versed in Corporate Law, he explains, “There are many types of mergers and acquisitions that redefine the business world with new strategic alliances and improved corporate philosophies. From the business structure perspective, some of the most common and significant types of mergers are Horizontal, Vertical, Co-Generic and Conglomerate. For the uninitiated, a merger is considered to be a process when two or more companies come together to expand their business operations. In such a case, the deal gets finalised on friendly terms and both the companies share equal profits in the newly created entity. When one company takes over the other and rules all its business operations, it is known as an acquisition. In this process of restructuring, one company overpowers the other company and the decision is mainly taken during downturns in economy or during declining profit margins. Among the two, the one that is financially stronger and bigger in every way, establishes its power. The combined operations, then, run under the name of the powerful entity, who also takes over the existing stocks of the other company.”

M&A in the beauty space

According to a recent report released by KPMG, the beauty and wellness industry in India will be $13 billion by 2017. At the rate at which our industry players are racing ahead, it seems to be a possible target to achieve. Nicholas Micallef, a beauty and personal care analyst at Euromonitor International, shares, “Current mergers and acquisition trends are driven by fast value creation by the purchase of niche and luxury brands.” This perhaps explains the reasons behind VLCC acquiring international brands like Wyann International and GVig, from Malaysia and Singapore, respectively.

Syed Safawi, Managing Director and Group CEO, VLCC, shares, “Our M&A strategy is geared towards value acquisitions across emerging economies. In the last few years, we have made two acquisitions in South Asia, GVig and Wyann International. We will continue to look at promising companies, both in India and abroad, as we expand our portfolio and geographical footprint. Above all, our M&A strategy is designed to seamlessly fit into our existing business model, rather than VLCC diversifying into varied domains.”

On the inspiration behind these acquisitions, reveals Safawi, “The acquisition of Wyann International, a slimming and beauty services provider, was VLCC’s first move to grow through acquisition. It was a springboard for us to achieve an accelerated expansion in South East Asia. The GVig acquisition was VLCC’s second and in consonance with our strategy to expand our presence in the wellness domain in key markets overseas. It helped us to gain access to the company’s R&D laboratory and manufacturing facility in Singapore, which enabled us to come up with cutting-edge wellness products and solutions at a faster pace.”

The two buyouts have, clearly, been an advantage for VLCC, as they have allowed them to get a foot into the growing international markets. “In addition, we have gained access to international best practices and processes. We have gained from global expertise and insights, too. In turn, we have been able to add to the brand equity of a company that has been around for more than 25 years. The knowledge that exists within VLCC is of immense value to our international subsidiaries. Today, we are able to leverage global talent and learning across the spectrum,” says Safawi.

As one of the largest organised players in the beauty, wellness and skill development domains, VLCC functions, as an Indian multinational with centralised planning and strategy. Safawi opines, “We have recently embarked on the ‘One VLCC’ initiative that will consolidate, synergise and grow towards deriving optimal results across our business divisions and geographies. We, at VLCC, are keen to grow both organically and inorganically, be it in the personal care products category or expanding towards digital and on-demand services. We will continue to evaluate fast growing categories, however, wait for the time to be right for us to move in.”

Salons take the lead

Naturals, the nation’s largest salon chain has decided to invest `100 crore for a controlling stake in Vyomo, an aggregator of doorstep beauty services funded by cricketer, Yuvraj Singh. After the acquisition of Vyomo, the Chennai-based Naturals, will get an entry into app-based on-demand beauty services space. C K Kumarvel, Co-Founder, Naturals salons says, “Almost 30 per cent of the beauty business is now moving to at-home services. And it is critical for Naturals to be in this space.” With close to 550 salons in 80 cities, Naturals targets to have 3,000 salons by 2018 and more than 10,000 by 2025. After buying a stake in Vyomo, the app will be renamed to Naturals@Home.

Vyomo is looking forward to this venture, as they get access to over 7,500 stylists at no increased costs. Currently with zilch experience in the burgeoning salon and beauty space, with this new angle, Vyomo will be able to service 25,000 clients in a day.

The Rs 100 crore that comes from the deal will be used to develop technology and expand aggressively to meet the customer’s demand. While there won’t be any change in the management at Vyomo, the board will have representation from both the entities.

Commenting on M&As, shares Naunihal Singh, CEO, Strands Salons, “Mergers and acquisitions for Strands Salon Pvt Ltd mean ‘magnificent additions’. These two words sum up our ideology of M&A. Today it is imperative that we join hands with like-minded people and build a platform that facilitates business operations that is driven by farsightedness and leads to the wholesome development of the industry and the economy. It is time that the established absorb the troubled ones and lay a foundation of cohesive and cumulative growth.”

Revealing the acquisitions done by Strands, says Singh, “We have recently acquired seven outlets of a leading chain from South India and five outlets of regional chains spread across Delhi, Mumbai, Punjab, Kerala and Telangana. We have done so because we feel responsible for entrepreneurs, who are in need of help. We renew their motivation and instil in them constructive business acumen.”

On the benefi ts that have come out of these acquisitions, Singh opines that the advantages have not been singular and huge dimensions. “The biggest advantage that comes to my mind is that Strands strides has instilled an unshakable confidence in the entrepreneur that allows them to realise that Strands is a brand that focuses on their consolidation, too. The franchisee under our umbrella is provided with a platter where managing day-to-day operations becomes the orientation programme. The most vital one is that the existing salon owner is recharged to climb the Everest again!”

Commenting on the terms and conditions, shares Singh, “The terms actually vary, as Strands has various franchisee models. Each one is a unique compilation of marketing insights and entrepreneur-friendly ideas. The figure in question is a ballpark figure of about Rs 1 cr.”

After the acquisition, reveals Singh, “A multifaceted strategy with variable personas have been carefully drafted for the franchisee models. A combination of prioritising human values and the entrepreneur-friendly revenue model have been implemented successfully.”

The road ahead for Strands Salons is clear. It is their mission vision to have 500 salons by 2018 and empower 50,000 salon and spa professionals by 2020.

In an another attempt to expand laterally, BBLUNT, India’s premier salon chain headed by Adhuna Bhabani, has decided to open a salon in Bangalore in association with Westside, the retail wing of the Tata Group. On the tie-up, shares Thomas Dawes, Creative Director, Godrej Consumer Products Limited, “Bangalore is a critical market for us, as it is the third largest beauty hub in the country. All our salons in the city are performing exceptionally well, recording twice the amount of growth for the product business in the last six months and with a significant increase in our retail footprint. Hence, we thought this was the perfect market to launch our first ever in-store salon in association with StudioWest. We are extremely excited about this new model and are looking at extending this partnership pan India.”

StudioWest @ Westside is an immersive beauty concept, which provides a unique combination of product and expertise inspiring women to experiment with make-up and beauty. BBLUNT @ StudioWest offers some of the best in-class services, from haircuts and colour treatments to relaxing hair care rituals. Besides that, the beauty room available at the salon allows customers to make the most of the face and body treatments offered by the brand.

Commenting on the expansion, Adhuna Bhabani, Founder and Creative Director, BBLUNT adds, “This year is extremely exciting for the brand. We have always noticed a lot of potential in Bangalore and it gives me immense pleasure to launch the fourth salon in the market. Best of BBLUNT’s hair and beauty services will be available for the customers. Also, to beat the scorching heat and protect your hair from damage – you can avail of the relaxing and instant conditioning rituals. We have another big launch planned for the third quarter!”

Talking about the launch, Anil Chopra, Advisor for StudioWest says, “The coming together of a leading department store with a premium salon is the fi rst of its kind in the country. This partnership offers the Indian woman an ultimate beauty experience from StudioWest, reinforcing Westside, as an all-inclusive destination for head-to-toe style. BBLUNT, being one of the leading hair service providers in the country, was an obvious choice.”

Spa takeovers

Set up in 2007, Heaven on Earth (HoE) introduced the concept of wellness retail and today, has emerged to be one of the largest wellness houses in India. In early 2016, they acquired Serena Spa for an undisclosed amount. On the reasons behind the acquisition, shares Bhavna Vohra, Founder and Managing Director, Heaven on Earth, “It was a fortunate coming together of like-minded people with the same value systems and most importantly, the shared vision to create wellness experiences for people. We have acquired Serena Spa in totality and will operate Serena Spa, as one of the three brands under our offerings. We look forward to continued success and exponential growth of our ideas and wellness centres. There are many positive synergies with which we shall walk the path of meeting our wellness goals.”

Serena Spa has 18 spas in luxury resorts and boutique hotels across India, Maldives and Seychelles; HoE Wellness has 17 spas in India and three in Spain, thereby taking the total number of HoE spas to be in 40 locations. So far, HoE, has delivered wellness experiences to approximately 10,02,790 customers across the world. With the acquisition in place, Vohra reveals, “Over the next two years, we are planning to invest Rs 20-30 cr on expanding the business and opening about 30 wellness centres in India and abroad.”

Hair and hair care

GCPL, the popular homegrown FMCG, acquired 30 per cent stake in BBLUNT, a premier hair salon company. With this acquisition, GPCL entered the retail services market, where it competes with Lakmé salons, under its subsidiary Lakmé Lever Pvt Ltd. Confirming to the news, commented Abneesh Roy, Associate Director, Institutional Equities Research, Edelweiss Securities Ltd, “We believe this investment is only miniscule with no meaningful impact on the profitability. However, this will help GCPL expand its hair care portfolio to salons. We expect GCPL can potentially look at cross pollination of its South American portfolio to India, as the domestic product range does not fit in the premier salon space.”

In another move, in April, 2016, GCPL acquired 100 per cent equity stake in Strength of Nature LLC (SON), USA, through a wholly-owned arm, which was subject to the approval of Federal Trade Commission and Department of Justice, USA. SON is a leading company of hair care products for women of African descent. GCPL had stated that the acquisition would scale up its presence in Africa by being at the forefront of serving the hair care needs of women of African descent. Vivek Gambhir, Managing Director of GCPL mentioned that in the last few years Godrej has been able to consolidate the earlier purchases, and in the coming time are all set to conjoin with similar firms.

Under its 3 by 3 strategy – a presence in emerging markets in Asia, Africa and Latin America through three core categories namely, hair care, home care and personal care, GCPL has been scaling up its international presence. In the past, GCPL has also bought out international companies, such as Keyline Brands Limited (UK) in 2005, Rapidol (Pty) Limited in 2006, Godrej Global Mid East FZE in 2007 and the joint venture with SCA Hygiene Products AB, Sweden in 2007. In 2010, Godrej made several acquisitions, including the Indonesian firm Megasari and Tura. In addition, Godrej entered Latin America with the acquisition of Issue Group and Argencos in Argentina and later acquired Cosmética Nacional, a Chilean company. In 2015, Godrej announced it had fully acquired a 100 per cent equity stake in Frika Hair, the South African hair extensions fi rm.

The renewed focus on procurement has come from the expert opinion, which sees Africa and Indonesia to have a weak business environment. The currency rate is going down and the economies dependent on the oil business have been seriously affected. This slow down has coerced many unregistered companies and brands to opt for acquisition, so that they can scale up their businesses.

On a concluding note, it would be correct to state that a sound strategic decision and procedure is critical to ensure success and fulfilling of expected desires. Every company has a different culture and follows disperate strategies to define its merger. While some learn from their past associations, some pay heed to the associations of their known businesses, and a few listen to their own voice and move ahead without wise evaluation and examination.

 
 
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