London listed cosmetics giant L’Oreal has fully acquired local beauty firm Interconsumer Products, makers of Nice & Lovely brands, in a multi-billion shilling transaction.
L’Oreal, which is the world’s largest cosmetic group and provider of SoftSheen-Carson, Dark and Lovely, and Blue Ice Deodorant, bought the Kenyan firm with an eye on East Africa’s low-end cosmetic market.
The deal, which was announced in the latest edition of the Kenya Gazette by Competition Authority director-general Wang’ombe Kariuki, was sealed on Friday in Nairobi.
South Africa’s Tiger brands, which bought a 51 per cent stake in Haco Industries in 2008 from businessman Chris Kirubi, was also keen on buying Interconsumer Products in its quest to cut revenues generated from its home market to 30 per cent.
Under the deal, L’Oreal would acquire the health and beauty business from Paul Kinuthia, the owner of Interconsumer Products, who will continue to own the diapers and sanitary division that deals in All Time sanitary pads and Bouncy baby diapers.
“We closed the deal on Friday at 11am and all I can a say for now is that the transaction is worth billions of shillings,” said one of the transaction advisers who declined to be named since L’ Oreal had not cleared with regulators in France and London.
“All the details will be made public on Monday (today) and it’s a great Kenyan story for a man who started the business in Kariobangi and has now joined the billionaires’ club.”
L’Oreal, which has roots in France and opened shop in Nairobi in late 2011, has for the past 18 months been in talks with Mr Kinuthia for a buyout deal.
The major hurdle in closing the deal was liabilities in the books of the Kenyan firm. This obstacle was removed In January when Mr Kinuthia transferred the beauty division to a new company dubbed Interworld Cosmetics, which has now been sold to L’Oreal.
The sanitary division will continue to be owned by Mr Kinuthia and he will take over the debts of the beauty division.
L’Oreal eyes are cast on the low-end of the beauty market which Mr Kinuthia dominates; the regional distribution channels Interconsumer Products owns, the manufacturing plant and products that will allow the French firm tailor items for Kenyan buyers.
The French firm, whose annual revenues stood at €22.5 billion (Sh2.5 trillion) in 2011, is known to acquire local brands in new markets to gain distribution networks and brands.
An acquisition provides an easy solution compared to starting from scratch, which could involve buying land, putting up buildings, hiring local staff, seeking regulatory approval, struggling to gain distribution networks and fighting for market share against established rivals.
Mr Kinuthia told the Business Daily on January 30 that L’Oreal and Tiger brands were keen on a deal. At Sh2.5 trillion, the French firm’s sales are more than the Sh1.65 trillion combined market valuation of the 61 companies listed on the Nairobi Securities Exchange.
The cosmetics company’s East Africa operations are headed by former East Africa Breweries Limited marketing executive Patricia Ithau.
The firm has been feeding its Kenyan market through traders, but it’s now eager to establish a distributorship network that will be backed by a marketing team — signaling its intention to get a larger share of the East African cosmetic market.
Its products mainly target middle-to-high income earners. L’Oreal’s purchase of Interconsumer Products highlights the growing interest of French firms in East African market that has been captured by mega deals involving oil giant Total Kenya and caterer Servair in recent months.
Servair bought a 59 per cent stake in Nairobi Airport Services from Kenyan investors led by the family of former Central Bank of Kenya Governor Philip Ndegwa in deal was estimated at Sh2.2 billion.
The L’Oreal deal is a major coup for Mr Kinuthia who built Interconsumer Products from scratch in the backstreet of Nairobi in 1995 and low-end Kariobangi Estate to a major player in the beauty market to rival giants like Unilever Kenya Ltd, Beiersdorf East Africa Ltd, Haco Tiger Brands and PZ Cussons East Africa Ltd.
The company crossed the Sh1 billion sales mark in 2009 and Mr Kinuthia told the Business Daily in an interview then that he was looking for new investors to spread business risks associated with sole proprietorship.
In recent years, Interconsumer Products has diversified its product range to include soaps, shoe polish, hair items, perfumes and baby products.
Kenya is emerging as a battle ground of global cosmetic companies seeking a larger share of emerging markets.
This has prompted new entrants like Revlon and New York listed Estee Lauder and increased activity by established firms keen on growing and defending their market shares.
A beauty and personal care report on Kenya by Euromonitor International says the international companies Unilever Kenya Ltd, Beiersdorf East Africa Ltd and PZ Cussons East Africa Ltd are market leaders due to their wide distributorship network and product range.