AmorePacific to take bigger bet with M&A deals

AmorePacific Chairman Suh Kyung-bae poses in the photo when he participated in the “Flower Bucket Challenge” campaign on April 24. / Courtesy of AmorePacific

By Kim Jae-heun

AmorePacific, Korea's signature cosmetics company, has finally decided to bet big on its future after a long-practiced safety-first strategy failed to produce the expected results.

For a decade, the firm has avoided large-scale acquisition deals that could have possibly entailed big risks. Instead, it sponsored start-up programs both in and outside the company that did not require too much in the way of investment

AmorePacific chose to spend more money on its main business of cosmetics by expanding its fixed assets ― subsidiaries.

Most of the startup programs it invested in ended up in failure, but this didn't cause as much damage as expected. A few of its successful investments also did not bring much in the way of monetary success as it took too long for them to develop into full-fledged stand-alone enterprises. AmorePacific got what it paid for.

These past failures led it to adopt a conservative strategy.

In the early 90s, AmorePacific entered diverse business fields including insurance, securities, finance and construction ― all of which crashed.

Only the cosmetic business survived and group Chairman Suh Kyung-bae decided not to take on any more reckless challenges.

The last big deal he signed was in 2011, when AmorePacific acquired French perfume brand Annick Goutal.

Meanwhile, rival LG Household & Health Care (LG H&H) achieved expanded commercial success by reorganizing its main businesses through mergers and acquisitions in the 2000s, engineered by newly appointed CEO Cha Suk-yong.

Cha balanced out the size of company's major revenue sources so that if one sector was hit unexpectedly, the others could help.

This was crucial for LG H&H's growth toward becoming bigger than AmorePacific while the country was facing a trade war with China and Japan.

However, beginning last year AmorePacific started to make big investments. The firm injected 24.3 billion won into New York-city based cosmetic and skin care company Milk Makeup in November that year.

A month earlier, the company also invested a respective 10.1 billion won and 4.3 billion won in Thought Become Things Fund and Fernbrook.

In March, AmorePacific took a big step by acquiring a 49 percent share in Australian firm Rationale Group Pty for 50 billion won.

The cosmetics giant said its investment was aimed at gaining insight into the local premium cosmetics market from the Australian firm, and seek a new growth engine.

“Rationale Group Pty can create synergy with us in the customized make-up field while Milk Makeup is well known for its clean beauty products. Our investments are not aimed at using these firms as stepping stones to enter the Australian or American cosmetics markets, but rather strengthening cooperation with them,” an AmorePacific official said.

CEO Ahn Se-hong forecast that the company will be more aggressive in the M&A market.

“We will continue to seek more partnerships and M&A deals with promising firms for the future of our company,” Ahn said.

AmorePacific has been hoarding money over the last few years. A publicly disclosed financial statement shows the cosmetic firm has 1.25 trillion won in cash. Subtracting debts of 200 billion won, it still has over 1 trillion won in cashable assets.

“It is true that we have been making small injections into startup programs so far. This was because we could not find the right partner until last year. Recently, we have been reviewing more aggressive investments including acquisitions,” an AmorePacific official said.