Unilever_expands_hair_care_offer_with_alberto-culver_acquisition.pdf

Unilever expands hair care offer with Alberto-Culver acquisition Opinion | 27 Sep 2010

Unilever Group has agreed to acquire Alberto-Culver, the world's sixth largest hair care manufacturer, for US$3.7 billion. The deal will increase Unilever's global share of the beauty and personal care industry from 6.8% to 7.2%, cementing its third place ranking behind the industry leaders Procter & Gamble and L'Oréal.

Set for further expansion following consolidation of operations Over the last decade Unilever increasingly lost ground to Procter & Gamble and L'Oréal, which were involved in a number of significant acquisitions. In contrast, Unilever saw its share decline, unable to react to market dynamics with a decentralised sprawling global business which lacked proper coordination, resulting in a drain on resources due to duplication of operations. It subsequently embarked on a restructuring programme to consolidate its business and is beginning to reap the benefits. It has divested noncore assets, including its oils and fats business, and has been able to utilise the funds generated firstly for the 2009 acquisition of Sara Lee's personal goods business and now Alberto-Culver. The appointment of Paul Polman as CEO is certainly key to this strategy and he has intimated that further activity is likely, with the company looking to spend between Euro 1-2 billion a year on acquisitions. Gaining additional strength in the US In total, 75% of Alberto-Culver's personal care sales are generated in hair care, and of this over 60% derives from the US. The overall US hair care market declined by almost 4% in 2009 and is forecast to remain stagnant over the next five years. AlbertoCulver, however, has managed to buck this trend, increasing its share from 6% in 2008 to 6.3% in 2009. It achieved this principally through its TRESemmé line of hair care products, emphasising its salon quality at a more affordable price. A "more for less" strategy has resonated with consumers against a backdrop of economic uncertainty. Even without TRESemmé's success, the US still remains attractive to Unilever despite its low growth prospects. The economic slowdown has emphasised the need for geographical diversity in order to counterbalance downturns in one particular region. Having divested its laundry business in the US, the acquisition re-establishes Unilever's overall presence in the high value region. After incorporating Alberto-Culver, Unilever's share of the US hair care market will increase from 7% to over 13%. The company will remain a distant third, with L'Oréal and Procter & Gamble commanding shares of 25.5% and 23.7%, respectively. Further opportunities The acquisition is not without wider geographical benefits. Alberto-Culver has established itself in a number of emerging markets, including Mexico, China and

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Argentina. Its relative presence, however, remains small and Unilever's extensive geographical reach should enable further expansion. Alberto-Culver's more premium range will complement Unilever's more standard portfolio and this diversity will help protect it from macro-economic trends and give it a strong footing on which to negotiate distribution with retailers. Alberto-Culver fits the bill for Unilever in terms of giving it portfolio diversity whilst still allowing it to focus on core categories. On its own, Alberto-Culver had been looking to diversify outside its core hair care remit, with the 2010 acquisition of the UK-based skin care company Simple Health & Beauty. Independently, it may have struggled to challenge the industry leaders in new categories and geographies. Unilever, however, will be able to facilitate this expansion, whilst gaining strong performing brands in core high revenue markets. For further insight, please contact Andy Tiverton-Brown, Company Analysis Manager at Euromonitor International on [email protected]

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