SEOUL—Big overseas investors are snapping up stakes in South Korea’s cosmetics companies as demand for the country’s makeupand complex skin-care regimen increasingly attracts a global audience.
On Monday, Goldman Sachs Group Inc. and Bain Capital Private Equity plan to announce a deal to acquire a controlling stake in Carver Korea Co., a privately-held maker of specialty cosmetics, in a deal that will value the company at about $675 million, according to a person familiar with the matter.
The deal for control of Carver, which sells under the brand name A. H. C, will be Bain’s first investment in South Korea.
Later this week, an investment arm of LVMH Moët Hennessy Louis Vuitton SE will announce the purchase of a stake in Clio Cosmetics Co., another fast-growing South Korean makeup maker, according to a person familiar with the matter.
Taken together, the two investments are a vote of confidence that South Korea’s momentum as a trendsetter for Asia’s rising consumer class still has room to run after several years of rapid growth.
Already, two of the country’s biggest cosmetic makers, AmorepacificCorp., owner of the Innisfree brand, and LG Household & Health Care Ltd., an affiliate of the LG conglomerate, have enjoyed several years of explosive share price gains.
South Korea’s duty-free store operators have also benefited from the popularity of Korean cosmetics, particularly with mainland Chinese consumers.
Since the beginning of 2014, Amorepacific’s market capitalization has ballooned more than fourfold to about $22 billion, while LG H&H has more than doubled to $15 billion, catapulting them into the ranks of South Korea’s biggest companies, ahead of the country’s once-mighty shipbuilders and petrochemical giants.
In the past year, however, investors have begun to worry about the sustainability of growth, particularly after an outbreak of Middle East respiratory syndrome last summer led to a sharp drop in South Korea’s tourism arrivals.
Since then, however, Amorepacific and LG H&H have resumed their growth trajectories and hit fresh stock market highs.
Privately-held South Korean cosmetics maker, Oozoo Skin Science Co., is considering an initial public offering as soon as next year that would aim to value the company at $1 billion, according to a person familiar with the matter.
Not all cosmetic companies are faring as well. Tonymoly Co., has struggled since its debut on South Korea’s main bourse last year. Meanwhile, the share prices of Korea Kolmar Co. and Cosmax Inc.,which manufacture cosmetics on behalf of other brands, have struggled to reclaim last year’s pre-MERS highs.
The investments from LVMH and Goldman Sachs and Bain Capital will test the resilience of South Korea’s cosmetic makers, who face competition from traditional industry leaders like Estée Lauder Companies Inc., which has been racing to respond to the rise of South Korean cosmetics. Late last year, Estée Lauder acquired South Korea’s Have & Be Co., which sells skin-care products under the Dr. Jart+ brand name, for an undisclosed sum.
Chinese players are also looking to take more of a direct stake in South Korean cosmetics, which have proven to be wildly popular among Chinese consumers.
In recent months, It’s Skin Co., which operates a popular chain of retail outlets in South Korea and made its trading debut on Seoul’s stock market late last year, has inked deals with Hong Kong property company New World Development Co. and sold a minority stake to Beijing-based cosmetics retailer Jumei International Holding Ltd.
Erwan Rambourg, HSBC’s co-head of consumer and retail research, wrote in a recent note to clients that “Chinese consumers’ appetite for all things Korean” is “stronger than ever.”
“We have long thought that Korean pop culture held the same fascination for Chinese consumers as American pop culture, but was more approachable due to the shared or similar cultural values of the Chinese and Koreans,” Mr. Rambourg wrote, sounding a bullish signal on Korean cosmetic companies. “The Chinese are learning Korean, listening to K-Pop, and watching Korean TV dramas.”
Driving Monday’s deal for Carver Korea was a desire to tap more into mainland Chinese demand for high-end Korean cosmetics. Goldman and Bain Capital will take over control of the company by buying out outside investors, while founder and chairman Lee Sang-rok will continue to hold a minority stake and participate in day-to-day management of the company.
Carver, founded in 1999, built up a niche in supplying specialty eye creams, essences and toners to beauty salons, though it is now using celebrity endorsements to build up a consumer brand in its home market and in China and the U.S., relying mainly on home shopping sales pitches, duty-free stores and the internet.
Carver is growing quickly, racking up more than $130 million in sales in the first five months of 2016—more than its revenue haul for all of 2015.
For LVMH, the bet on Clio by its L Capital Asia investment arm is its second major deal in South Korea, following its purchase of a stake inYG Entertainment Inc., a purveyor of Korean pop music, in 2014.
Local media have speculated about an initial public offering this year for Clio, which racked up 17.7 billion won in net profit on 107 billion won in sales in 2015, with net profit jumping about 30 times as in the year before, according to regulatory filings.
