Coty, Inc. (COTY) continuously reviews its acquisition and investment opportunities. On July 9, 2015, Coty and Procter & Gamble (PG) announced a definitive agreement to merge 43 P&G beauty brands with Coty in a Reverse Morris Trust deal.
Benefits to Coty
This deal was an important one for Coty, as it will more than double the company’s annual sales to $10.5 billion from $4.4 billion in fiscal 2015.[1. Year ending June 30, 2015] P&G’s beauty brands deal with Coty is expected to improve the pro forma profitability for the new entity. Coty estimates an immediate 2% increase in the pro forma operating profit margin to 14% once the deal has closed.
To learn more about the deal, please read Coty Buys 43 Procter & Gamble Brands: What Investors Should Know.
Recent acquisition spree
The beauty and personal care sector has seen a high level of merger and acquisition (or M&A) activity in the last two years. Other players in the sector are also on an M&A spree. In January, Estée Lauder (EL) completed its acquisition of skin care brand Glamglow. To learn more about Estée Lauder’s acquisitions, please read Estée Lauder Expands Business through Brand Acquisitions.
Also, global luxury goods conglomerate LVMH Moet Hennessey Louis Vuitton (LVMUY) (MC.PA), parent of beauty products giant Sephora, acquired e-commerce startup Luxola.
Financially accretive acquisitions
As discussed earlier, Coty continues to seek financially accretive acquisitions that strengthen its competitive position in key segments or accelerate the company’s ability to grow in emerging markets. For example, the transaction with P&G could help Coty enter a new category of the hair color business with brands like Wella and Clairol.
In addition, Coty’s geographical footprint should significantly expand, providing scale in large beauty markets like Brazil and Japan.