Henkel to buy Indola professional hair care company from Alberto-Culver

Henkel is to acquire hair care company Indola from Alberto-Culver. They are expected to complete the deal by 1 June 2004, subject to final agreement and competition law clearances. The transaction is the latest in a series of mergers and acquisitions in the salon hair care product sector in recent years, a major reason for which being disappointing sales growth in the market, writes Louise Sheridan.

A study of the US market published recently by business consultants and market analysts Kline & Company entitled "Salon Hair Care 2003" indicated that US sales growth in this sector, which was only 3.2 per cent in 2001, slipped as much as a one per cent further in 2003. The report concluded that the trend toward supplier consolidation is likely to continue.

"With all the M&A activity in the salon segment over the last five years or so, there aren't that many companies still up for grabs," said Lenka Contreras, vice president of Kline's consumer products practice. "Still, we can expect the larger companies to continue to acquire smaller niche marketers and brands to keep their product lines fresh and trendy."

Kline's industry manager for consumer products Carrie Bonner explained that Alberto-Culver has been doing fairly well in the US, focussing on Sally Beauty and also its value brands, which have been selling well due to the economic downturn. Sales of such products have accounted for 15 per cent of the company's sales but only 6.2 per cent of its operating profit, so there are obviously more profitable areas for the company to concentrate on, she commented.

"There are several factors that explain the soft market," Bonner told cosmeticsdesign.com. "The US economy certainly plays a role as people are not visiting the salon so often. Brands mass-marketed as professional-type for home use are also playing a role, as is the growth in sales of salon brands through mass-market outlets. But the main reason is that there has not been much product development over recent years and this general lack of innovation has hampered the market.

Henkel, meanwhile, is already strong where the Europe market is concerned and has made a number of acquisitions recently in order to expand its position in the US. Bonner said this reflects the general trend for an increasingly globalised market.

Other companies active in the sector include L'Oréal, which has made a number of acquisitions over the past ten years, swallowing up salon hair care companies and brands to bolster revenues in the face of flagging sales. L'Oréal bought Redken in 1993, Soft Sheen in 1998, Matrix and Carson in 2000 and, most recently, Artec in 2002. These purchases give the French beauty products giant an even stronger and more diversified position in the US salon products market.

Procter & Gamble has also expanded its hair care portfolio with two substantial acquisitions. It bought Clairol from Bristol-Myers Squibb in 2001 and then acquired Wella in a multibillion-dollar deal in September last year.

With the addition of German-based Wella, Procter & Gamble not only gains a foothold in the European salon hair care market, it also adds the product lines from Graham Webb and Sebastian, both of which Wella previously acquired.

Other international competitors have also sought to consolidate their positions in the market. A subsidiary of Japan's Shiseido company Zotos acquired US-based Joico in 2001 and Goldwell, the German company owned by Kao, bought US niche marketer KMS Labs in 2002.

Speaking about this latest transaction, Alberto-Culver president and chief executive officer Howard Bernick said: "Indola, which has been operated as a unit of our worldwide consumer products group is a professional-only brand sold primarily through its own sales forces calling on salons and wholesalers. The business is unique with its multitude of items and language packs, and is not considered a core strength within Alberto's worldwide consumer products business. On the other hand, Henkel with its internationally known Schwarzkopf line of professional hair care products should be an ideal home for Indola and its management with its long heritage of salon orientation."

Alberto-Culver acquired Indola for US$6 million (€4.97 m) in November 1983. Indola's annual sales have grown from US$20 million (€16.7 m) 21 years ago to US$53.5 million (€44 m) today, but while it has failed to turn a profit for the past few years Bernick said it is expected to be in the black this financial year. Alberto-Culver has said the sale will allow it to focus its efforts on its wholly owned Sally Beauty stores.

Henkel, which boosted its net income 10 per cent in the first quarter with help from acquisitions, is targeting cosmetics companies. Last December the company announced the purchase of California hair and styling company Advanced Research Laboratories, giving it products such as "Smooth 'n Shine." Analysts predicted last year that Henkel would make a large buy after Procter & Gamble took control of German hair-care company Wella and a group led by Tchibo Holding bought a controlling stake in Beiersdorf, the maker of Nivea skin cream, last year.

"With Indola Cosmetics, we will be able to significantly strengthen our number-three position in the worldwide hair salon business. Indola is an ideal complement of our professional hair cosmetics portfolio," explained executive vice president cosmetics/toiletries of the Henkel Group Uwe Specht.

The terms of this latest transaction have not been disclosed. Henkel has indicated it plans to integrate the Indola business in its existing hair salon business. Operating with a workforce of around 200 employees, Indola currently markets professional hair cosmetic products in major European markets such as Italy, UK, France, Spain and Benelux.

Indola representatives declined to comment as to what impact their acquisition by Henkel would have on its product lines, workforce or general business strategy.