Kirin announced its intent in acquiring skin care specialist FANCL Corporation on June 14.
The takeover bid, worth 220 billion yen (US$1.39bn), will end on July 29.
This is the second high profile acquisition that Kirin has been pursuing since Blackmores last year, as the brewery giant sought to diversify its business amid a declining domestic beer market.
In fact, Kirin had acquired approximately 33 per cent of FANCL's shares and entered into a capital and business alliance agreement five years ago.
About 90 per cent of FANCL’s business is in cosmetics, although it also runs a health and beauty supplements arm.
Some of these products are sold as Food with Function Claims (FFC) in Japan and are also available elsewhere in places such as Singapore.
Channels wise, about 70 per cent of its sales come from direct-to-consumer (D2C) channels both online and offline.
“FANCL's strengths lie in its ability to connect with and understand consumers through its D2C channels (online and directly-managed storesales), which account for 70 per cent of sales, and in its technology for commercialising products by utilising consumer feedback in research and development,” Kirin said in its announcement.
It believes that acquiring FANCL could bring synergies across both health supplements and skin care portfolios. Aside from brewery, Kirin’s other businesses include food and beverage, health sciences, and pharmaceuticals.
This year, Kirin is expecting its health science segment to contribute about six per cent to its overall business.
This is expected to grow to eight per cent with the acquisition of FANCL, which recorded a revenue of 110.9 billion yen (US$702.89m) and an operating profit of 12.6 billion yen (US$79.86m) in its last financial year.
“FANCL is on another step in achieving the long-term goal of revenue of 500 billion yen in the health science business and become one of the leaders in health science business in APAC,” Russell Roll, manager, corporate communications, Kirin Holdings, said in response to queries from NutraIngredients-Asia.
Examples of FANCL’s FFC products are those under Calolimit.
Kirin, on the other hand, has rapidly expanded its FFC range using its proprietary ingredient LC-plasma, which is also commercially marketed as IMMUSE.
The ingredient has been shown to activate the plasmacytoid dendritic cells (pDC), which in turn benefits the immune system. It has been used with other ingredients such as chlorogenic acids to benefit health areas such as visceral fat reduction among others.
NPD interest
FANCL's current interest in health supplements include products for pre-seniors and women.
For instance, it plans to strengthen its existing products, Rakuhiza, which helps support knee and joint using collagen, and Enkin, which is for vision health.
It also plans to develop anti-aging, beauty-from-within, and hormonal balance products for women.
In addition, if the acquisition goes through, Kirin also sees the possibility of using LC-plasma in external products.
“Kirin Holdings has been focusing on ‘internal’ care with LC-plasma and other health foods; but with FANCL, assuming the TOB goes through, Kirin will be able to focus on ‘external’ health.
“FANCL’s cosmetic business is 90 per cent skin care. There can be a synergy there utilising current health products, including LC-plasma in external skin care products, although this is as yet undecided,” said Roll.
Japan’s domestic skin care market is worth approximately 1.3 trillion yen (US$8.24bn), which slightly larger than the supplement market with an estimated size of one trillion yen (US$6.34bn).
“The combination of skin care and ‘immune care’ can be expected to further grow sales and increase awareness of the benefits of ‘immune care’ by promoting the value of internal and external care.
“In the future, the company will not only invest in technology, but also in marketing and other assets to further grow its highly profitable skin care business, while promoting proposals for internal and external care in combination with supplements,” he added.
Possible synergy with Blackmores
There is also the possibility of growing FANCL’s overseas business by tapping on Blackmores’s distribution channels.
The Australian-origin Blackmores has come under Kirin about a year ago. It was reported back then that Kirin had hoped to piggyback on Blackmores’ Asia-Pacific’s presence through the acquisition.
In the same vein, Kirin is looking to improve operating profit margin by streamlining the businesses. This could be done through “the common use of assets and optimising advertising and sales promotion expenses etc.”
“There is also a synergy possible with Blackmores by selling FANCL health products through Blackmores’ APAC channels which would bring more FANCL products to more overseas markets. But this is not yet decided,” said Roll.
China is currently a key overseas market for FANCL.
In its announcement, Kirin also said that FANCL aimed to further solidify its domestic operating base and aggressively invest the cash generated in Japan in FANCL’s overseas operations.
Kirin believes it could help FANCL achieve a mid-single digit CAGR, as per its medium-term management plan.
For its cosmetics business, both inbound and external e-commerce sales are expected to grow as seen from the recent growth rate and efforts to expand the number of malls selling the products.