What To Make of Unilever’s Purchase Of A Japanese-Inspired Skin Care Brand?

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Unilever (NYSE:UL) has signed an agreement to acquire a Japanese-inspired skincare company, Tatcha, for an undisclosed sum. This move furthers Unilever’s bid to strengthen its presence in the premium personal care segment, as it moves away from its stagnating foods business. Tatcha has a growing presence in North America in the natural personal care segment. This acquisition is a small but positive step toward the consolidation of Unilever’s position in the global personal care market.

Trefis maintains a long-term price estimate for Unilever at $57, which is around 10% below the current market price. Below we discuss the personal care segment and its expected 2019 performance on our interactive dashboard How Unilever Could Benefit From Acquiring Tatcha? which details our forecasts for the company in the near term. You can modify our assumptions to see the impact any changes would have on the company’s revenue and EBITDA and see more Trefis Consumer Staples data here.

Personal Care Segment Is A Key Growth Driver For Unilever

  • Personal Care is Unilever’s largest division, having overtaken the Foods division in 2011 to take the top spot. The company’s shifting priority is evident from the fact that the revenue share of its Foods unit had fallen from 30% in 2011 to 23% in 2017, while the share of its Personal Care segment grew from 33% to 39% over the same period. It should be noted that Unilever has now combined its Foods and Refreshment division into one segment, after the divestiture of the company’s spreads business in 2018.
  • Unilever’s Personal Care division includes Skin and Hair Care, Deodorants, and Oral Care divisions. With nearly 70% of the segment’s revenues coming from the Skin and Hair Care segment, and the company’s increased focus on this division through recent acquisitions, we believe the Personal Care segment will be a key growth driver for Unilever going forward.
  • In its 2013 annual report, Unilever stated that it is utilizing cash flows from its Foods business to fund acquisitions in the Personal Care and Home Care categories. This marked the beginning of Unilever’s enhanced focus on the Personal Care category, which was refined further in the subsequent years. More recently, Unilever named the expansion of the segment through acquisitions as one of its top priorities. Some of the recent acquisitions in the space include Quala, Carver Korea, Sundial, and Schmidt’s Naturals. 
  • In 2018, Unilever’s Personal Care segment’s revenues grew to $24.4 billion while its EBITDA margin stood at around 24.3%. Since the company’s acquisition strategy is focused on the high-margin premium segment, it should result in some margin expansion over the long term. Consequently, we estimate that the EBITDA margin of Unilever’s Personal Care Segment will improve to 24.7% by the end of 2022. We have assumed that inorganic growth will proceed gradually, in line with Unilever’s acquisition strategy.
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