COSSMA: How M&A tactics and contemporary trends are influencing the personal care sector

Long regarded as a fragmented market, the value chain for personal care ingredients was expected to be worth over $30 billion in 2021. Several commentators have suggested that the industry is ready for consolidation. The products of the personal care market, which are typically divided into categories such as skincare, haircare, and colour cosmetics, among others, involve complex formulations with a variety of ingredients chosen for their functions and efficacies.

A sizable portion of the active ingredients market, expected to be worth over $5 billion in 2021, belongs to the personal care sector and is also one of the most innovative, with high margins and growth prospects.

Customers’ increasing demand for products with clean labels, high efficacy, and observable results is pushing ingredient suppliers to develop a robust environment of technological competence and research, which is strongly backed by increased investments and M&A activities in the value chain.

These investments have a variety of objectives, some of which are important drivers

– Portfolio transformation to Natural Ingredients1,2,3 (away from crude oil-based chemicals)

– Capabilities enhancement in novel technological areas such as- Biotechnology4,5,6 (Blue, White & Green i.e.- Marine, Microbials & Plant origin), Delivery System Technologies, among others

– A “One-Stop” formulation shop with strong application expertise and customisation capabilities using a wide variety of ingredients, such as actives, surfactants, emulsifiers, preservatives, etc.

– Securing channels to the key and emerging markets of Brazil, India, China, Europe, the US and other Southeast Asian countries.

Key M&A Strategies

Recently, the ingredients supplier landscape, a sector that is quite significant within the global chemicals industry and one of the most innovation-driven markets for specialty chemicals, has seen increased M&A activity.

Many manufacturers have reoriented themselves as suppliers of novel and distinctive ingredients, particularly actives that foster alluring on-pack efficacy claims like “anti-ageing,” “moisturising,” and “anti-pollution,” among others. This is due to the constantly growing consumer demand for natural products with high efficacy. Selective M&As have greatly aided in the development of a dynamic spiral of technological proficiency and research.

The players’ ongoing pursuit of sustainability is just one of the many objectives they are pursuing, and it has led to a strong focus on biotechnology and natural ingredients. These M&A activities are also fueled by a number of other key strategies, such as geographic expansion into Asia’s expanding markets, the ability to develop complex and customized formulations, and to conduct advanced research on active ingredients from the plant, marine, algal, and microbial worlds.

Over the past ten years, the market has been fairly consolidated, with the top ten suppliers accounting for about 40% of the market’s overall value and primarily being led by European and American manufacturers.

The German Chemical Giant, the current market leader7, began its involvement in the personal care value chain in the 1900s, but it wasn’t until 2010 that it completed one of the largest M&A transactions in its history by purchasing the then industry’s top manufacturer of personal care ingredients8 . Through this transaction, the company gained a diversified ingredient portfolio and expanded its renewable or natural product development technologies. It almost doubled its revenue and was able to establish long-lasting partnerships and strong ties with top multinational consumer goods companies. Since then, the company has expanded its R&D capabilities in novel marine/algae and microbial technology by naturally leveraging its extensive formulation and application know-how development capabilities.

Other dominant players9 adopted a slightly different strategy by making strategic acquisitions of and/or alliances with a number of midsized businesses (Revenues between 10 and 1,000 Mn. US$). The majority of these acquisitions were focused on specialised technologies or portfolio expansions, which helped these businesses build deep scientific expertise and product development know-how in hot technologies and provide customers with distinctive, cutting-edge, and novel ingredients that serve as the cornerstone of their growth outlook.

Trends Shaping the Personal Care Industry

Botanicals and biotechnology are currently the fastest growing categories as consumers’ preferences for more natural and sustainable products have increased over the past few years, particularly in the wake of the COVID-19 pandemic. One of the categories that is changing the fastest is ingredients derived from marine or algae. It has been noted that manufacturers, particularly those from Europe and South Korea, are aiming to market new patented blue-, green-, and white-biotechnology ingredients due to the high demand for these novel products. In order to produce high-tech active ingredients from the plant, marine, and microbial worlds, these businesses are consistently improving their fermentation-based ingredient production capabilities.

Another area that is observing strong development are system solutions offerings10 (Active Ingredients + Function Ingredients + Preservatives + Delivery Systems = Ready to Use Formulations). It is so because they have a very high margin, which offers great opportunities to innovate new cosmetic ingredients with scientifically proven claims and allows the manufacturers to stand out in the existing competitive space. The existence of a sizable number of SMEs at the end of the value chain has also increased demand for such system solutions. These brand owners have to constantly reformulate their products as per evolving consumer trends in as little time as possible, which is an extremely complex process. Thus, there is a rapidly increasing need for such ready-to-use innovative products. The R&D cycle for developing such solutions by many suppliers has been shortened to less than 6 months, which serves as a key point of differentiation among them.

The demand for multifunctional products enhanced with active ingredients that promise anti-aging, skin-brightening, repair, anti-inflammatory, moisturising, and other benefits is another trend that is significantly influencing the industry’s future. Because of this, there have been significant R&D efforts made11 to create such multifunctional ingredients.12,13

Additionally, there is a noticeable trend toward incorporating local / regional ingredients, such as Jejuvolcanic ash / Ginseng from Korea, Apple cider vinegar from the US, Aloe vera / Turmeric Acid / Ayurvedic from India, and Algae / Seaweed from Japan, among others. This has a significant impact on innovations on a global level, such as the rising demand for marine-based ingredients in Europe and Ayurvedic ingredients in the US.

The Future Outlook

Globally, the market for personal care active ingredients will remain fascinating and innovation-focused. This will present ongoing chances for mergers and alliances, leading to strategic growth through the entry into new / adjacent markets or segments, expanded product offerings, and developing technologies.

References:

1. Seppic acquires naturals active ingredients division from Bayer – Cosmetics Design Europe 05/01/17

2. Evonik acquires sustainable botanicals pioneer Botanica as the next step towards leading the active cosmetic ingredients market – Evonik Investor Relations 28/10/2

3. Croda expands Iberchems fragrances offering with the acquisition of Parfex- Croda Investor Relations 02/06/21

4. Croda acquires marine biotechnology specialists Nautilus- Croda Investor Relations 11/01/18

5. DSM acquires Flavor & Fragrance bio-based intermediates business from Amyris – DSM Press Release 31/03/21

6. BiotechMarine, Serdex and EPI France merge within Seppic SA – Seppic Press Release 06/01/22

7. BASF Care Chemicals Division

8. BASF acquisition of Cognis – BASF Investor Relations 10/12/10

9. Evonik, Croda, Ashland, Clariant

10. Evonik creates new Service Solutions unit to support brands in the personal care industry- Evonik Care Solutions Press Release 12/10/22

11. BASF launches new skin care active ingredients and showcases its actives portfolio for makeup applications at Cosmet’Agora 2020 – BASF Press Release 14/01/20

12. Jacks of all trades: How multifunctional ingredients are saving time and money- CosmeticsBusiness 25/02/21

13. Current consumer trends drive multifunctional ingredients in skincare- BASF Corporation 29/05/20

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This article was originally published in August edition of COSSMA, material provided by ChemBizR team.

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