Blackstone, Carlyle to compete with Chinese bidders for Asian distributor of Fancl’s beauty products

27-Jan-2021 Intellasia | South China Morning Post | 7:22 AM Print This Post

US private equity giants Blackstone Group and Carlyle Group are competing with Citic Capital and Sequoia Capital China for the sole legal distributor of the preservative-free skincare and cosmetics Fancl in Asia excluding Japan, people familiar with the matter said.

The range of offers submitted by the four bidders has narrowed to roughly $700 million to $900 million, from about $600 million to $900 million, before the auction round ended on Friday.

Chinese internet giants Tencent Holdings and as well as Japanese financial services group Orix are waiting in the wings to team up with the winner of the auction and craft a strategy for boosting sales in mainland China, the people said.

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A deal is likely to bring to an end a long-running dispute between Tokyo-listed Fancl Corp and its Hong Kong-based distributor CMC Holdings, over the rising tide of cheap imports from Japan.

Bain Capital was also courting the Fancl distributor but did not make a final bid by Friday, even though it is still interested in the company, the people added.

The next step will be for Hong Kong-based entrepreneur Christopher Chan and his wife Michelle, the founders of CMC Holdings, to pick one or two suitors to make binding bids and conduct deeper due diligence on the company. The final step would see one of these suitors signing a purchase agreement, probably before the end of February, the people said.

The winner will probably need to broker an agreement with Fancl Corp to present a united front to wholesalers, who are selling its cosmetics range at a steep discount in Asian markets. It will also need to negotiate distribution contracts expiring for Hong Kong and China in 2026 and the rest of Asia at the end of 2029.

The auction kicked off last year and attracted over a dozen bids, according to people familiar. CMC Holdings and its financial adviser Morgan Stanley have since narrowed the field of suitors to five before the bidding closed.

Credit Suisse is advising Blackstone while Nomura is advising Carlyle in the process.

For years, CMC Holdings has been able to charge a premium for Fancl products in Asia, and the rare home-grown start-up generated close to $30 million in net income last year off revenues of about $250 million, the people added. In more normal years, the company has recorded gross income or Ebitda of around $60 million to $70 million, and net profit of $40 million to $50 million.

The founders recognised that the region’s increasingly affluent consumers were embracing natural wellness products and Fancl’s preservative-free skincare and cosmetics chimed with this change in market behaviour, helping the brand gained traction in the key mainland China market.

The Chans’ strategy was to build a loyal following who would pay a premium for the products, partly by employing skincare consultants and nutritionists who help customers establish a long-term skincare regime, using diagnostic machines to analyse customers’ muscle tone and skin elasticity.

However, CMC Holdings’ ability to command a premium has gradually eroded because of the wave of so-called parallel imports from Japan.

Fancl products are stocked on the shelves of Sa Sa International Holdings, Hong Kong’s biggest cosmetics retailer, as well as Japanese discount chain Don Don Donki. Don Don Donki said in September that it would double the number of Hong Kong outlets to six by early 2021.


Category: China

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