According to investment banking industry sources on Thursday, LG Chem failed to attract major financial and strategic investors to a preliminary bid for the Aesthetic Business under its Life Science unit.
Macquarie Asset Management, Affirma Capital and Glenwood Private Equity were floated as strong potential buyers of the dermal filler business, but they did not bid.
Korean retail giant Shinsegae Group, considered another top contender, also did not join the bid.
With no offer from any viable candidate, speculation is growing that LG Chem would sell the cosmetics filler business to Chinese capital, considering that the filler business generates substantial revenue in the world’s No. 2 economy.
OFFER WITHOUT MANUFACTURING FACILITIES
Shinsegae is said to have considered buying LG Chem’s medical skincare business until the very last minute, according to sources.
In 2015, its fashion and beauty unit, Shinsegae International Co., and Italy’s cosmetics contract manufacturer Intercos Group set up a cosmetics original development manufacturing (ODM) joint venture, called Shinsegae Intercos Korea.
LG Chem building (Courtesy of LG Chem) But after years of losing money, the Korean retail giant sold off its entire stake in the JV to Intercos and withdrew from the cosmetics ODM business in 2020.
Since then, it has focused mainly on the distribution of imported cosmetics products while seeking to return to the cosmetics manufacturing business.
However, the unique deal offering of LG Chem’s derma filler business is said to have discouraged Shinsegae and other potential buyers from joining the bid, said sources.
The deal does not include medical skin-care product-manufacturing facilities. Without manufacturing lines, the dermal filler business holds little appeal for financial investors or Shinsegae.
And LG Chem’s asking price of about 500 billion won for the business is also considered too expensive when taking its earnings potential into account.
TOO EXPENSIVE
The medical skincare business reports about 100 billion won and 25 billion won in annual sales and earnings before interest, taxes, depreciation, and amortization (EBITDA), respectively.
“Paying the price at 20x EBITDA for the business without manufacturing facilities is risky,” said an official in the IB industry. “A strategic investor with its own manufacturing facilities and a PE firm with a cosmetics portfolio considered bidding for it, but the price gap between the seller and buyer was too big.”
LG Chem's skin filler products under the Yvoire brand (Courtesy of LG Chem) The seller’s secretive offer has also made the potential buyers turn their backs on the deal, said sources.
They complained that the seller’s information memorandum (IM) contained too little information to understand the business. LG Chem has maintained its stance that it will provide more detailed information to bidders only.
As the highly anticipated candidates have walked away from the deal, speculation is growing that Chinese investment would take over the business.
China is a key market for LG Chem’s dermal fillers in terms of sales.
Considering that HSBC has no permanent local staff in its M&A team in the Seoul office, LG Chem also might have mulled Chinese investors as potential buyers of its medical skincare business when it picked HSBC as the lead sale advisor in February, said sources.
LG Chem’s medical skincare business mainly produces hyaluronic acid filler under the Yvoire brand and has been actively expanding its presence in the global medical skin-care market, especially across Asia.
