Godrej Consumer Products Ltd’s (GCPL) acquisition of Issue Group Co. gives it a foothold in the Latin American personal care market, filling a key gap in its geographical spread.
The acquired company makes haircare products, with hair colour being the main contributor to its $33 million (Rs154.11 crore) revenue.
It also has other products such as shampoos and hair-styling gels, according to its website.
Unfortunately, even as GCPL has expanded its reach, the information it gives out on acquisitions has dwindled. Citing confidentiality, it has not disclosed the deal’s worth, except mentioning that it has been done at eight times its Ebidta (earnings before interest, depreciation, tax and amortization).
Graphic: Yogesh Kumar/Mint
If we assume its Ebidta margin to be in the range of 25-35%, then the acquisition price will fall in the range of Rs300-430 crore. That will translate to a consideration of around three times sales at the upper end of the range.
This transaction is not as much about size as it is about what GCPL intends to do further with the company. Revenue is around 30% of its previous acquisition, Indonesia’s PT Megasari Makmur Group.
Latin America is a key market for most cosmetics companies. Brazil is among the top five cosmetics markets in the world.
Issue Group has a 20% volume share in Argentina’s hair colour market and is a market leader in a few other countries. Apart from Rapidol pty Ltd in South Africa, it will be the second international hair colour brand in Godrej’s portfolio, fulfilling its desire to build a global hair colour range.
GCPL’s aim will be to invest further in this business, growing in large markets such as Brazil. It will also bring its household insecticides portfolio to this region. An existing distribution network gives it an advantage.
Lastly, it will try and find ways of utilizing its global network costs at the back end and improve profitability.
It has done well with its acquisitions so far, managing to grow sales and profitability in individual companies.
While it now has a presence in several countries through multiple acquisitions, the next stage is one of consolidation. Cross-selling products across locations and utilizing scale benefits in diverse areas such as procurement, media buying, research, product development and manufacturing will determine whether it can become a strong multinational consumer company.
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