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A Case Study on Acquisition of Personal Care Brands of Paras from Reckitt Benckiser

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Marico became a worthy adversary to large competitors such as HLL (now HUL) and ITC. By 1996. a CAGR of 22% accompanied by growths in margins. Marico’s Sales turnover grew from INR 159 Crores in 1992 to INR 348 Crores by 1996. All six of these brands were No. 1 or 2 in their respective market segments. Marico never looked back. He strived for over two decades after joining the family business in 1971 to finally create a distinct identity of a successful brand based company known as Marico (a name lovingly given by the then employees of the FMCG division of the diversified family business known as The Bombay Oil Industries Limited (BOIL)). . This was the result of the vision of the audacious entrepreneur. (not so long ago!). Hair & Care. Marico was born and newspaper advertisements dramatically announced “200 Employees Walk out of Bombay Oil”. From that point on. Revive and Sil) brands. Harsh C Mariwala.Marico’s History Genesis In 1990. It extended its brand portfolio from two (Parachute and Saffola) to six (Sweekar. and post tax profits and ROCE that were the highest amongst its FMCG peers.

1 or 2 in their categories. The Company was able to successfully integrate it to the business and reap synergistic benefits. The time was ripe. Marico touched the INR 1000 Crore mark in revenue. the issue was oversubscribed twice notwithstanding the premium and depressed stock market conditions of the year 95-96. By 2005. Marico went to war at the marketplace and won it. Several public recognitions. increased its profits by almost twelve times. HLL attacked Marico’s resource engine Parachute with 2. reached 17 Lac retailers through 3600 distributors and had twelve brands. extensive strategic plans were drawn out for market to market combat. HLL had launched an offensive and public strategy of becoming the category leader in all conceivable consumer goods categories.5X to 3X times discounts to trade and pumping in 2X times advertising spends. Marico acquired the HLL perfumed coconut oil brand called Nihar. awards and commemorations followed. Now it was Marico’s turn to go on the offensive. Marico went public in March 1996. by far the highest in the history of FMCG brands. Coming of Age Around the turn of the century. . MNCs like Colgate were ambushed and had to lose market share. Marico launched “Parachute ki kasam”.Going Public Registering impressive business growths. for an annual turnover of INR 120 Crore. all no. It was a whopping INR 216 Crore deal. brand successes and enviable financials in a short span of time did not go unnoticed. Marico was said to be one of the primary acquisition targets of HLL.

the team which worked on evaluating Paras as a potential acquisition. Apart from the personal care portfolio however. There were also the advantages of “demographic dividend” which the portfolio was to offer. This was the first big acquisition and early success tasted sweet. not to mention the tail-wind high growth categories in which the brands operated. a PE firm. Set Wet. Nihar’s tremendous distribution strength bolstered Marico’s retail reach in the East and North where Marico’s distribution was weaker as compared to markets in West and South. The organization became experienced in the art of evaluating a strategic fit when it saw one. The team understood the immense value that the personal care brands of Paras could bring in. The growth rates of the categories were far higher than the categories in which Marico operated. held majority stake. The fact that this acquisition made Marico a market leader in at least two out of the four major categories. A few months later. 1 position in the branded coconut oil space and provided market leadership in the perfumed coconut oil category. a company in which Actis. Marico’s M&A team thought there was an opportunity in the Personal Care portfolio of Paras Pharmaceuticals. Actis decided to exit Paras Pharmaceuticals. Personal care brands of Paras were understood as a “strategic fit” among the small team which worked on “Project Baseball”. Livon. Reckitt Benckiser acquired both OTC and the personal care products of Paras pharmaceuticals for over INR 3000 crore. Later that year. on 9th December of the same year.Nihar strengthened Marico’s no. The Big Move In the year 2010. were strong brands which could bring a whole new “youth portfolio” launch pad that the organization had been looking for so long now. These brands also provided an opportunity to enter the male grooming category which was Marico International’s area of expertise in the Vietnamese and Malaysian markets under the brands X-Men and Code 10. the asset put up for sale included a list of OTC brands. all quite successful which made the organization an Indian Company with significant international operations. This was followed by many international acquisitions in emerging wash hair conditioner (Livon together with Hair & Care Silk n Shine) and hair gels (Set Wet . Zatak. That made the potential size of the acquisition too large and at the same time included parts with a lower strategic fit for Marico. making the deal and successfully integrating it.

The team called the RB headquarters in London to check on the possibility of their divesting the Personal Care brands of the Paras portfolio. Rationale Behind the Move This section has a short write-up on the evaluation the organization did for the acquisition in 2010-11: Category Analysis Deodorant The Deodorant market experienced a CAGR of 52% between FY 2007 and 2011 with the total value of the market reaching INR 11. RB indeed had put the personal care business on the block due to inconsistency with their overall organizational strategy. The team’s optimism turned out to be well founded. Management refers to RB’s management . a rare opportunity to acquire a personal care business of such scale. This category is characterized by very strong growth and significant competition.was another point in it’s favour.4 Billion. Another advantage was the benefit in A&P costs the acquired brands would enjoy when clubbed along with Marico’s spends . This was the big move Marico had been waiting for.providing economies of scale in categories that required higher A&P.Gels and Parachute Advansed Gels).

For example. . per capita consumption of deodorant in Brazil has surged over the past decade. Historical experience of the growth curve in developed markets suggests that once critical mass is achieved. usage grows very quickly. the stage of development as measured by penetration levels or per capita usage varies significantly by country.2 in FY 2001 to US $ 19. The current consumption level in Brazil even surpasses markets like the USA or the UK. Developed markets in Western Europe and North America are characterized by higher male attention to personal care. developing markets particularly India have significant growth potential in the medium and long term from currently relatively low usage levels. where penetration levels are around 90% since Brazil has very high penetration levels of almost 100% and an average deodorant usage of twice a day due to hot weather and high cultural importance of fragrances. In comparison.Per Capita annual deodorant consumption by retail sales in 2011.1 in FY 2011. growing almost five fold from US $ 4. exemplified by higher consumption per capita. in US $ per capita As can be seen from the graph.

penetration remains as low as 16%. In addition.In India by comparison. In a recent survey by IPSOS Indica. With retail sales of INR 9. With a relatively untapped market coupled with the fact that it is rare for someone to start using deodorant regularly and suddenly stop. As such. Paras PC’s consumer research found that in warm and humid climates such as India. causing roll-on deodorants of some competitors to fail in India.2 Billion. Even in the business’ target market of men aged 15 to 35 in SECs A and B. further strengthening its popularity over its roll-on counterpart. further increasing its accessibility and appeal. Advertisements have also focused on the deodorant spray market. research found evidence that deodorants are fast becoming viewed as daily essentials in the aforementioned market. the spray/aerosol market has grown far faster and this trend is expected to continue in the foreseeable future. The . Spray deodorants are very popular in India as they are considered more practical – they can be bought and shared easily and hygienically with siblings or other family members. with males aged 15 to 35 years open to trying deodorant products. This also makes sprays a more economical option compared to roll-on versions. roll-on deodorants can trigger an itching sensation. spray deodorant market in India represents 80% of the category value. the Indian deodorant market offers significant upside potential and growth prospects. deodorant penetration is currently still low.

A number of markets including USA and UK are characterized by consumers who are driven by the efficacy of their personal care products and are seen to value performance over fragrance. hair care products have become an increasingly . semi-urban and even some rural citizens. with total retail sales amounting to INR 67 Billion in FY 2011. 1. At the other end of the spectrum are markets. Hair Care Market The daily hair care market in India is a large and dynamic market including conditioners.6% during the twelve month period between July 2010 and June 2011. accounting for approximately 20% of overall consumer spending on personal care products. daily hair care is the second largest personal care category in India behind bath and shower. Styling agents include hair gels. mousse. gloss sprays and others 2. Deodorant markets can be divided according to prevailing inherent preferences by consumers. creams. gel sprays. The business’ current deodorant product offering would appear particularly suited to these fragrance-driven markets given its brand image and general perception of Indians regarding deodorants as “perfumes” while talcum is used primarily for absorption of perspiration. deep conditioners and hair oil With more products being available to urban. Conditioners include rinse off conditioners. In fact. waxes. shampoos and styling agents for daily use. where consumers’ buying decisions are driven much more strongly by fragrance and “image” characteristics. heat protection sprays. traditionally a function of cultural norms.retail sales share of roll-on deodorants declined from 2. for instance South East Asia and the Middle East.0% to 1. leave on conditioners.

Accordingly. A large number of products target major types of hair care application.5 in FY 2011.regular part of an average Indian’s daily grooming regimen. The strong dynamic is derived from high consumer engagement with new users entering continuously. and 3) Hair Gain. waxes. leave on conditioners.5 in FY 2006 to INR 1. gloss sprays and others Styling products are used to help consumers achieve and maintain their ultimate desired look and can thus generate high customer loyalty. styling agents are still a niche segment within the daily hair care market. styling agents have significantly outperformed the markets for shampoos and conditioners with retail sales growing by approximately 28% per annum. a specific product group within the styling agent segment 2) Hair Serum. Increasing penetration is expected to continue delivering superior growth rates for the segment in the foreseeable future. gel sprays. gel sprays and others. ranging from ensuring clean and healthy hair to styling and detangling hair. creams. heat protection sprays. per capita consumption of styling agents increased exponentially from INR 0. a nascent hair care segment in India Including products such as hair gels. mousse. a niche product within the conditioner segment. waxes. . mousse. deep conditioners and hair oil (2) Styling agents include hair gels. Growth profile by daily hair care segments in India (1) Conditioners include rinse off conditioners. however. credibility and often a desire to purchase multiple products. Paras brands have established a presence in three key niche markets: 1) Hair Gel. Since FY 2006.

As hair serum is often applied post wash. In order to increase the usage frequency. As the styling agent market remains nascent in India. Hair Fall and Re-Growth Market Hair fall and lack of hair growth are two major problems facing many Indian men nowadays. Indian consumers have used hair oil due to its perceived benefits of nourishment and supposed ability to reduce hair fall and promote hair gain. hair serum is a specific product group within conditioners. Hair Serum Market Geared mainly towards women. This is evident from the 32% growth in hair gel in FY 2011.Hair Gel Market Hair Gel and Hair Cream are two major types of styling agents in India. this has limited its overall usage in the Indian market. The market remains under penetrated as the frequency of usage of hair serum has been limited by the hair washing habits of Indian women and the growth in the conditioner market. its growing popularity amongst young urban males is expected to continue to drive growth. Many hair loss treatments . many consumers do not feel the need to use hair serum if they have already used conditioner. Hair Serum is a solution or gel traditionally applied to hair post wash to detangle it and make it shiny. However. wax or sprays. Some serums include vitamins. hair gel sales have been outpacing those of hair cream due to the gel’s emphasis on styling. In addition. Traditionally. management believes that the market of hair serums is deemed to return to strong growth over the coming years. whereas the hair cream focuses on hair nourishment. While the hair gel market itself remains under-penetrated in India. which appeals to the younger demographics. As a result of this expected change in user habits. Most Indian women view washing their hair as a time consuming process and endeavor to wash once or twice each week. Livon has been advertised as a product that can be used also on the non-wash days to help give a silky and shiny look everyday rather than just on wash days. there is limited competition for hair gel and other potential substitutes such as mousse. proteins or other chemical compounds that nourish the hair.

Paras developed products that addressed these unmet needs and then advertised the products extensively to build brand awareness. From these insights. The brand name has been derived from the hair gel’s function of setting the hair by wetting it. Before Paras entered into the hair gel category.produced by global brands have been restricted to distribution via chemists only due to their formulations. driving growth and profitability through product innovation. Deodorants. Common attributes of Paras’ product portfolio include:     Well established Brand Recognition with category leadership Strong track record of innovation and new product development Strong consumer awareness and loyalty Umbrella brand with strong product extension potential Paras pursued a consumer oriented strategy focused on developing umbrella brands. Paras identified a changing trend in the urban Indian male who had become increasingly conscious of his image due to high disposable income and the advent of satellite TV. The brands were then evaluated by the internal team and following was understood about the two major brands. The brand was launched in 2005 as a contemporary hair gel brand targeting young urban men. Perfumed Spray Talcs etc. insightful market research and consistent advertising. Set Wet and Livon. Shaving Foam &Cream. it was historically a low growth category due to lack of product innovation or enhancement. Seeking an opportunity. Brand Analysis Paras brands had established themselves as successful personal care players. The development cycle began with significant investment in market research to identify unmet needs of consumers. consumer demands for readily available and accessible products remain largely unmet. Brylcreem had been the clear market leader for decades with limited advertising spends. Set Wet Set Wet is the flagship brand of Paras and the pre-eminent men’s grooming brand in India with a range of offerings including Hair Gels. .

modern. Moreover Paras’ focus and investment into the brand reinvigorated the hair gel category as a whole. For instance. brand awareness of hair gel increased to 77% in 2008. As a result. Amongst hair gel users as well as amongst young men at age 15-24. Paras’ strong marketing efforts resulted in very high brand awareness. including deodorants. In addition.Set Wet’s target consumer was a fashion forward and trendy man in his twenties who was concerned about his looks. stylish and trendy. the trial rate was approximately three times higher amongst young men 15-24 years of age than for men at 25-35. This image reflected the sharpness in Set Wet’s positioning. deodorants had become the largest contributor to the brand. Combined with an early mover advantage among young urban men. the awareness level elevated to 86%. In particular. illustrating Set Wet’s success in catering to its targeted consumer base. Initially launched as a hair gel. To successfully address this consumer base. studies had shown that once consumers tried Set Wet hair gels. Paras made significant investments in building Set Wet’s brand image. perfumed spray talc and hair cream. spurring growth beyond Set Wet for the overall category. Set Wet was successfully extended to other categories. As a result the hair gel market in India was expected to grow in excess of 40% between FY 2011 and FY 2014. shaving products. Targeted advertising and packaging design fostered consumers’ perception of Set Wet hair gel as a status symbol with appealing brand attributes like cool. Set Wet uccessfully established itself as the leading male hair gel brand in India with 29% market share during the first six months of 2011. the retention rate proved to be very high at 75%. . Set Wet’s carefully crafted consumer perception as an international brand enabled it to generate profitable growth through a premium priced offering and capture substantial market share from Brylcreem over the past few years. In particular. Approximately 36% of all Indian hair gel users had tried Set Wet hair gel at least once – a solid share owing to the brand’s aspirational image. This strong consumer loyalty indicated the strength of Set Wet’s product performance and its ability to deliver on marketing promises.

. it had over 64% market share. is a leave-on hair conditioner for women. Livon Silky Potion Hair Serum An iconic hair serum. it was successful in maintaining its leadership position in terms of market share.Livon Silky Potion Hair Serum. it created the category of detangling hair serum in India. Livon was the second largest brand in Paras’ Personal Care portfolio. where it was positioned as a serum to be used on both wash and nonwash days. A major turning point in the history of the brand was when it gained share and returned to a strong growth trajectory. It increased the frequency of hair serum use and hence consumption. the leading brand in specialty hair care in India owing its name to the initial product line launched under this brand. With the launch of Livon in 2002. Livon Rinse. This had three product groups. Despite the competition. At the time of the Conditioner and Livon Hair Gain Tonic. Livon Silky Potion owed its market dominance to several favorable factors. This was due to repositioning of the brand through the “Damp-Dab-Dazzle” campaign.Livon Livon. the most important being the first mover advantage and hence a very strong brand awareness.

dull hair. . it was clinically tested to accelerate hair growth by improving the anagen and telogen phase ratio of hair by 25% within 90 days of use. It was perhaps the only product which offered the benefits of both hair fall control and hair growth.Livon Rinse-off Conditioner In 2009. The business also developed four different product formulations to address specific consumer needs (frizzy hair. Paras Personal Care launched the second product line under the Livon brand. Livon Hair Gain A highly efficacious product operating in the hair fall and re-growth category. Livon conditioners targeted the consumer group of urban women between 18 and 40 years old. Enriched with ceramide and natural extracts to revitalize hair. It had been positioned in the premium price segment charging Rs 600 for 150 ml bottle. a rinse-off conditioner to capitalize on the fast growing acceptance of conditioners as part of a regular hair care regimen. dry hair and fine hair with low density).

Annexure Marico’s Nihar Acquisition Context: Marico had issued an Information Update on January 24. Nihar operated in two categoriescoconut oil and perfumed hair oils. Marico targeted growth of about 25% in topline during FY 07. market share. In the coconut oil category. with two variants (Jasmine and Rose) was the market leader with 40% market share. When the process of the brand transition had significantly moved ahead. Marico shared greater details about the acquisition. Executive Summary: Marico announced the acquisition of the brand Nihar from Hindustan Lever Limited in the last week of January 2006. where Marico’s brands were relatively not as strong as in the rest of the country. With this. primarily its financial results for the quarter ended December 31. How did the Acquisition help the Brand grow: Nihar did not fit into HLL’s portfolio and therefore received a relatively low focus leading to its divestment as a part of HLL’s brand . Market Shares and Turnover: During the time of the acquisition. The acquisition of Nihar thus enabled Marico to become a clear leader in this category too. Marico’s Parachute was already the major player in coconut oil with over 50% market share in this Rs 800 crore category. Nihar added about 10% to Marico’s turnover. It had a strong franchise in the Eastern the acquisition may be financed and how it will contribute to Marico’s growth and creates value through increased turnover. Nihar. along with documentation and other formalities. In perfumed coconut oil. synergies across value chain and tax benefits. 2005. 2006 covering the developments until that date. Parachute Jasmine had a 35 % share. Nihar’s all-India market share was ~9%.

While there . These included trademarks. Synergies: Apart from the incremental turnover and profits that the acquisition brought directly. The incremental throughput increased the turnover of Marico’s distributors and their earning potential through Marico. During the first full year of operation in FY 07. business rights and a 5-year non-compete in the filtered coconut oil category. particularly in Bihar and Jharkhand would give other Marico brands a larger base to ride on. given Marico’s scale of operations and its high focus on coconut oil and hair oils. At the PBDIT level. Taken together.rationalization exercise. Over the next few months. copyrights. know-how. 3. internet domain name. Marico would have benefitted. Nihar’s distribution reach. the brand was thus expected to deliver about Rs 120 crore of turnover. leading to increased trade equity for Marico. design rights. as Operating margins in Nihar were higher than the average margins of Marico. The focus that Marico was to provide to the brand would have led to harvesting its potential for growth. Marico followed a twin brand strategy. Also strategically.invest in and promote both Parachute and Nihar in the coconut oil category and Parachute Jasmine and Nihar Perfumed Oil in the perfumed coconut oil category. Placement vis-à-vis Competition: HLL had signed a 5-year non-compete in the pure coconut oil category (Marico’s largest segment). the consideration was Rs 216 crore. Marico was expected to derive significant synergies: 1. Backroom cost advantages. excluding transaction costs of about Rs 11 crore. it was important to Marico acquiring Nihar rather than letting it fall into the hands of any current or prospective significant player in the FMCG industry. 2. it planned to conduct prototypes and experiments in the market place before firming up its long-term strategy in these two product categories. Financials: The acquisition comprised the transfer of several assignable rights relating to the brand “Nihar”. about 10% of Marico’s revenue.

although in the short run there was likely to be a net hit at the PAT level. and synergies across value chain and tax benefits. Parachute Advansed. Livon.000 crore to Rs 2. The Nihar acquisition was a significant event in Marico’s growth journey. Hair & Care. Caivil. the depreciation on the intangibles provided a tax shield. market share. Marico had targeted a growth of about 25% in topline during FY 07. Hercules.was a hit on account of depreciation charged in the books of account. Mediker and Revive. During helped the turnover to increase from Rs 1. Nihar. . a CAGR of 19% in Turnover and Profits over the past 5 years. Code 10. Fiancée. Ingwe. Saffola. Marico recorded a turnover of about Rs. Black Chic.000 crore. 46 billion (USD 836 Million) through its products and services sold in India and about 25 other countries in Asia and Africa. Marico touches the lives of 1 out of every 3 Indians. Setwet. with brands like Parachute. Outlook: Nihar was expected to add about 10% to Marico’s turnover. Thus. FY13 financials include Kaya which has been demerged from Marico Ltd effective April 1. in the medium to long run. this acquisition would create value for the Marico shareholders through increased turnover. The international consumer products portfolio contributes to about 22% of the Group’s revenue. With this. Marico’s focus on sustainable profitable growth is manifest through its consistent financial performance. 2013. Zatak. About Marico Marico (BSE: 531642. through its portfolio of brands such as Parachute. HairCode. X-Men. This had been a large acquisition relative to the Company’s size. L’Ovite and Thuan Phat. in the global beauty and wellness space. NSE: “MARICO”) is one of India’s leading Consumer Products Group.