L'Oréal's Professional Segment Might Be Further Strengthened By Its Acquisition Of Raylon Corporation

| About: L'Oreal Co. (LRLCY)

Summary

On January 4th, L'Oréal USA, the biggest subsidiary of L'Oréal Group, signed an agreement for acquiring key assets from Raylon Corporation, a full-service family owned wholesale distributor of salon professional products.

The current acquisition will result in the expanding SalonCentric's (a distributor of salon professional products operating in 48 states) coverage in Pennsylvania, New Jersey, Delaware, Maryland, West Virginia, and New York.

The acquisition will result in the alignment of Raylon's stores and field stores with those of SalonCentric.

A total of 13 stores and field positions servicing around 3,500 salons will be included in the transaction.

L'Oreal is currently the leader in the professional segment, however, competition is not far away.

On January 4th, L'Oréal USA, the biggest subsidiary of L'Oréal Group (OTCPK:LRLCY), signed an agreement for acquiring key assets from Raylon Corporation, a full-service family owned wholesale distributor of salon professional products. (Press Release) This is L'Oréal's first acquisition for the year 2016 and this is the company's initiative to further strengthen its professional products segment and distribution coverage against rising competition. L'Oréal made numerous acquisitions in 2014 and though the trend slowed down in 2015, L'Oréal continued aggressively expanding in emerging nations to fulfill its vision of adding 1 billion new customers to its user base by 2020.

The current acquisition will result in the expanding SalonCentric's (a distributor of salon professional products operating in 48 states) coverage in Pennsylvania, New Jersey, Delaware, Maryland, West Virginia, and New York. The acquisition will result in the alignment of Raylon's stores and field stores with those of SalonCentric. A total of 13 stores and field positions servicing around 3,500 salons will be included in the transaction. Some of the brands under SalonCentric are L'Oreal Professionnel, Matrix, Mizani, Moroccanoil, Olaplex, Pravana, Pureology, Redken 5th Avenue, Sam Villa, Sexy Hair, Surface Hair, L'ANZA, etc.

Our $33 price estimate for L'Oreal is slightly above the current market price.

How Has L'Oréal Fared So Far?

In 2014, L'Oréal made a host of strategic acquisitions. In 2015, L'Oréal leveraged upon these and also went into further alliances to expand its reach in some of the regions crucial for its business. However, L'Oreal has tough competition in both ends of the beauty spectrum. In the mass segment, there are companies like Procter & Gamble (NYSE:PG), Unilever (NYSE:UL), and Revlon (NYSE:REV). Revlon has now also entered the professional segment to offer further competition. In L'Oreal's luxury segment, Estee Lauder (NYSE:EL) is its most formidable competitor.

In an annual study published in April 2015, Brand Finance, a strategy consulting firm, named L'Oreal Paris - a brand from the L'Oreal house - as the most influential and valuable cosmetics brand. The study called 'Brands Cosmetics 50′ rated L'Oreal in the top position with a brand value worth $11.2 billion, reflecting a 15% growth over 2014. The total brand value of the world's top 50 cosmetics brands grew by 13% year on year to $123 billion in the same time period.

loreal

L'Oréal Is Gearing Up To Face Tough Competitors

L'Oreal is currently the leader in the professional segment, however, competition is not far away. Though a much smaller company than L'Oréal, Revlon entered the professional segment in a big way with its 2013 acquisition of The Colomer Group (TCG). Revlon's Professional segment witnessed impressive growth in 2014, primarily due to the TCG acquisition. In case of increased market share by powerful competitors such as Estee Lauder and Revlon, or a market entry by Unilever, L'Oreal's global market share might be hampered in its three main segments. In 2014, L'Oreal's global market share in hair care, skin care, and makeup was estimated to be around 22%, 14%, and 18%, respectively.

L'Oréal Strengthened Its Presence In The Professional Segment Earlier, Too

In 2014, L'Oreal completed the acquisition of Decléor and Carita from the Japanese group Shiseido. Decléor and Carita hold the second position in the global Professional Spa and Beauty Institute market. The turnover for Decléor/Carita was around 100 million euros in 2012. The brands have been integrated into L'Oreal's Professional Products Division. L'Oreal has been a prominent player in the professional segment for over 100 years. The acquisition facilitated L'Oreal's entry into new distribution channels in the professional segment, such as day spas, resorts, and destination spas, which specialize in skin care.

Disclosure: No positions.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

About this article:

Expand
Tagged: , Drug Related Products
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here