M&A funds

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M&A Funds - P&G, Unilever, Johnson & Johnson, and similar

In addition to P&G, Unilever and Johnson & Johnson I have researched the US M&A activity of Colgate-Palmolive and Reckitt Benckiser to complete the analysis of five large consumer goods companies that own multiple brands, as requested. Only Unilever was found to have a distinct fund for investment, and this entity was for early stage investment rather than acquisitions. None of the five companies disclosed what amount was set aside for M&A and only provided high-level information about their strategy for future acquisitions without disclosing any figures. Acquisitions of US companies made by the five multinational consumer brand company in question over the past 2 years have been included, with the transaction amount where available.

P&G

Information specifically relating to an acquisition or M&A fund not available on their corporate website, including in the investor information section, neither did any media articles report on such a fund. Accordingly, information regarding most recent acquisitions and acquisition strategy is provided instead which was found through a review of press releases over the past year, company filings from the investor information section of their corporate website and trusted media articles. The high-level company overview is focused on innovation across its brands and productivity to improve profitability, without mention of growth by acquisition of new brands

In fact, the highlights for FY2017 include the streamlining of their portfolio, which has gone from around 170 brands in 2013 to around 65 in 2017. Focusing on strengthening their existing product range, rather than adding to it via acquisition, appears to be their current strategy. P&G is still focused on introducing new products, but it appears to mainly be via internal R&D as a press release from September 2017 states that “P&G’s innovation machine has delivered new brands […] delivered blockbuster new sub-brands […] and upgraded the superiority of entire brands […] to sustain their market-leading growth”. P&G state in their FY2017 Annual Report that as a company they “must successfully manage ongoing acquisition, joint venture and divestiture activities” but do not elaborate further on their strategy. When they discuss operating cash flow, the report mentions that “excess operating cash is first used to fund shareholder dividends” but other uses for excess operating cash may also include “acquisitions to complement [their] portfolio of business, brands and geographies”. In both fiscal years 2016 and 2017, acquisition activity “was not material”.

In November 2017, P&G acquired direct-to-consumer, premium online brand of natural deodorant, Native for $100 million. This is the only acquisition since 2009. According to an article by USA Today, their current strategy to focus on strongest-selling products and brands echoes a similar strategy followed between 2000 and 2009 when the group divested of slow-growing brands however “expanded its beauty business, [making] its largest-ever acquisition” of the brand Gillette in 2005.

Unilever

Unilever has a separate entity to deal with investment, Unilever Ventures the “venture capital and private equity arm of Unilever” which is looking to invest specifically in “personal care and digital” companies. They tend to invest in “in early stage companies which could become strategically relevant to Unilever”, often providing seed funding, and rather than acquire they may also invest as a minority shareholder. Unilever Ventures invests globally, however recent US investments include Beauty Bakerie Cosmetics brand in October 2017 ($3 million), and MachineVantage in June 2017 (for an undisclosed amount). Earlier in 2017, Unilever Ventures invested in Celtra Inc ($15 million along with one other investor), Sun Basket ($9.2 million along with 2 other investors) and Nutrafol (for an undisclosed amount).

Unilever also invests and acquires brands through other entities as the main Unilever corporate website lists acquisitions not mentioned by Unilever Ventures. The corporate website lists acquisitions of Living Proof, a hair care company, completed in February 2017 for an undisclosed amount; Hourglass, a premium cosmetics company, completed in August 2017 for an undisclosed amount; and Pukka Herbs, a herbal tea company, completed in September 2017 for an undisclosed amount. Unilever announced in November 2017 that they will acquire Sundial Brands, skincare and hair care company, which will also include creation of New Voices Fund-starting at $50 million, with a target of $100 million-specifically investing in brands owned by women of color. Other acquisitions in 2017 were that of Schmidts Naturals in December and Tazo, the former Starbucks tea brand, acquired for $384 million in November.

Although there are no specific figures in terms of what Unilever intend to invest in acquisitions going forward, the New York Times reported in September 2017 that “[u]nder the direction of its chief executive, Paul Polman, Unilever has made acquisitions a central part of its strategy”. This is confirmed in the 2016 Unilever Annual Report which states that “[a]cquisitions are part of [their] relentless focus on actively managing our brand portfolio”, with the aim of adding “disruptive business models and business styles” to the group.

Johnson & Johnson

In the past 2 years, only Actelion and Abbot Medical Optics have been acquired by Johnson & Johnson, who do not have a separate fund for investment. Abbot Medical Optics was acquired in February 2017 for $4.3 billion, and the acquisition of Actelion was completed in June 2017 in an “all-cash, $30 billion deal”. According to media reports, in order to fund the acquisition Johnson & Johnson used “its own cash flow” and in terms of strategic direction, appears to be “focusing more resources on the pharmaceuticals sector”,

In general, when it comes to portfolio management Johnson & Johnson consider “companies that can create value and are complementary to Johnson & Johnson” in the belief that they “can create more value together, [rather] than if [they] remained alone.” According to Johnson & Johnson’s strategy on their corporate website, “[a]pproximately two-thirds of [their] growth over the past 10 years has come from organic growth tied to innovation” with the remaining third from “licensing, partnerships and acquisitions”. They do not indicate any change of direction from this approach.

Colgate-Palmolive

Colgate-Palmolive is a “consumer products company focused on the production, distribution and provision of household, healthcare and personal products”, similar to Unilever, P&G and Johnson & Johnson. They hold a number of well-known brands. Colgate Investment Group is not a fund to purchase acquisitions but a student-run group “created in order to help students develop skills relevant to the financial services industry and to support Colgate Financial Aid”. Colgate-Palmolive do not have a distinct M&A fund or investment entity.

In December 2017, Colgate-Palmolive announced separate acquisitions for two of the “fastest-growing brands in professional skin care,” PCA Skin and EltaMD for undisclosed amounts, with both transactions expected to complete within the first 3 months of 2018. Forbes notes that these acquisitions, along with those made by Unilever mentioned above, make the previous year “like a gold rush with beauty conglomerates making strategic acquisitions and investments in independent beauty brands”. PCA Skin and EltaMD are the only acquisitions for Colgate-Palmolive in the past 2 years.

In terms of strategy, these acquisitions are part of a "focus on its higher-margin oral care, personal care and pet nutrition businesses," with these allowing them "to enter the highly attractive professional skin care category while complementing its existing global personal care businesses". Colgate-Palmolive’s 2016 Annual Report refers to their acquisition strategy very broadly, with no mention of intentions to increase acquisition activity but a general warning that their group "may pursue acquisitions of brands, businesses or technologies" which carry some level of risk and therefore can "adversely impact [their] business [and] results", however no US-based acquisitions were reported in 2016.

Reckitt Benckiser

Reckitt Benckiser (RB) is a multinational conglomerate owning a number of consumer brands in the personal and healthcare sector, and therefore similar to Unilever, Johnson & Johnson and P&G. They do not have a distinct M&A fund. In February 2017, RB acquired Mead Johnson Nutrition Company for $17.9 billion, paying $90 cash for each share of common stock for this publicly listed company. Their most recent acquisition prior to this was KY Lubricants, which completed in 2014. According to RB’s announcement, “[t]he acquisition of Mead Johnson is aligned with RB’s well-established strategic focus on growing in consumer health and on investing in Powerbrands with attractive growth prospects.” Although no specifics on amounts set aside for acquisitions is disclosed, and RB do not have an investment fund for this purpose, it appears that acquiring established brands are part of its growth strategy. The acquisition was financed by debt funded by “Bank of America Merill Lynch, Deutsche Bank and HSBC”.

The Mead Johnson acquisition drew comparisons to P&G, with a Forbes headline reading “Reckitt Benckiser is building a 21st Century Procter & Gamble”. According to the article, P&G were “expert at inventing or acquiring household products and other conveniences, which Americans increasingly bought,” and RB appear to be following in these footsteps. Over the past 12 years RB acquisitions have included the major brands “Clearasil acne cream, Mucinex, Durex condoms, Dr. Scholl's inserts and Airborne vitamins”. Media reports that “[p]art of RB's capital allocation strategy consists of re-investment in their business which also includes acquisitions”. In their annual report 2016, RB state that their “principal focus is on organic growth”, however they recognize “an inorganic element to [their] strategy focused around both value accreting acquisitions and non-core/tail brand divestitures”. They do not set specific requirements for returns on acquisitions as these will depend on “nature, strategic importance, risk and size.”

Conclusion

All five companies have made US acquisitions in the past year, however do not disclose how much they intend on spending on acquisitions in the coming years. In general, it appears that P&G has been focused more divesting rather than acquiring new brands, aiming to grow by increasing productivity in their strongest-selling products whereas the other 4 companies have made major acquisitions to support their growth in markets they see potential in, such as premium skincare, hair care and cosmetics.
Sources
Sources