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Coty Boosts Supply Chain in Brazil to Ease P&G Brands Integration

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Top line benefits Coty

Some of Hypermarcas’s (HYPMY) brands that are proposed to be acquired by Coty (COTY) are decades old. They clocked sales of ~977.5 million Brazilian real, or ~$253.5 million, in 2014. Hypermarcas’s established presence and sales and distribution platform will likely prove vital in expanding Coty’s reach of its own significantly smaller presence in one of the world’s most vibrant beauty markets.

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P&G brands acquisition

Coty’s purchase of 43 of Procter & Gamble’s (PG) beauty brands, announced in July 2015, is expected to be highly accretive to Coty’s business in Brazil. Sales are expected to rise by over 500%.[1. Based on pro forma figures for the fiscal year ending June 30, 2014] Hypermarcas has a sales force numbering in the hundreds, which may be key to driving sales for the brands to be acquired from P&G.

Manufacturing and supply chain

Besides providing Coty with critical scale in Brazil’s beauty market, the Hypermarcas deal has several advantages. As part of the Hypermarcas brands acquisition, Coty gets Hypermarcas’s manufacturing and distribution facilities in Brazil’s Goiás state. The production facility is state of the art, and acquiring it via the inorganic route will likely prove a vital, time-saving move for Coty in terms of access to Brazil’s market.

The distribution and supply chain benefits are advantages that can’t be emphasized enough, considering the vastness and complexity of Brazil’s geography.

The Hypermarcas acquisition has also been timed to give Coty ample time to integrate its ownership of P&G’s brands in Brazil. The Hypermarcas transaction is slated to close by March 2016, while the P&G deal is expected to complete by the second half of 2016, subject to regulatory approvals and closing conditions.

Other companies in the industry are also scaling up on supply chain capabilities. On October 26, CEVA Logistics and beauty products retailer Sephora announced a new supply chain partnership to centralize the latter’s distribution in Brazil and make it more efficient to fulfill the retailer’s growing business in the country. Sephora is owned by French luxury goods giant LVMH Moët Hennessy Louis Vuitton (LVMUY).

COTY makes up 0.12% of the portfolio holdings in the PowerShares FTSE RAFI US 1500 Small-Mid ETF (PRFZ).

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