Industry stakeholders and experts anticipate merger and acquisition activity in the consumer health and personal care sectors will accelerate in 2010 as the buyer's market continues to grow.

Church & Dwight is among the firms actively looking to scoop up brands at attractive prices, capitalizing on the scarcity of bidders in the current market.

During C&D's third-quarter earnings call Nov. 3, executives noted that 2010 could provide ample opportunity for acquisitions.

"I think you are going to see all types of companies, whether it's big pharma or [consumer packaged goods], look to rationalize their portfolio. We ourselves are doing the same thing and looking at some of our smaller businesses," said C&D CEO James Craigie.

The Princeton, N.J., company shed a few brands in June, as Insight Pharmaceuticals picked up seven C&D brands, including Dermarest , Boil Ease and Skin Shield (¹ 'The Tan Sheet' June 22, 2009, In Brief).

Another firm, Prestige Brands, in October sold three shampoo brands - Prell , Denorex Dandruff Shampoo and Zincon Dandruff Shampoo - to Ultimark Products. Irvington, N.Y.-based Prestige also is open to divesting the rest of its personal care business (see ² Also see "Prestige CEO Tightens Focus On OTCs, Considers Divesting Personal Care" - Pink Sheet, 9 November, 2009. ).

Firms "Bottomed Out"

Andrew Apfelberg, a corporate and securities attorney representing personal-care product firms, said he expects increased activity in the coming year as more companies capitalize on "unprecedented" opportunities for expansion.

"There are a lot of people sniffing around right now, trying to figure it out," Apfelberg, a partner at Los Angeles-based Rutter Hobbs & Davidoff, said in an Oct. 27 interview.

"In 2009, they've done their layoffs, they've done their introspection, they've had their freak-outs and now they're feeling a little bit more comfortable that we've bottomed out and maybe are climbing out."

Craigie said in addition to large corporations, smaller family-owned enterprises could sell themselves or their brands as changing tax laws are expected to impact businesses.

C&D has been bullish on making deals for most of 2009 and Craigie reiterated the firm's interest solely in No. 1 or No. 2 personal-care or household brands with $100 million to $300 million in sales (³ Also see "Chattem, C&D Stay Lean But Alert For Available Brands" - Pink Sheet, 21 September, 2009.).

Analyst Connie Maneaty, who covers C&D, acknowledged that "some interesting properties could come out in this environment, including [from] Church & Dwight."

"I think this is a very interesting period for companies to focus on what it is they think will drive them in the future, and to find ways to leave behind the things that don't add value," Maneaty, of CBO Capital Markets, said in an interview.

C&D could be in a strong position to pick up any consumer brands that shake out of the Merck/ Schering-Plough merger, which completed Nov. 3, she added.

The Coppertone sun care brand and Dr. Scholl's foot care products, both part of Schering, would be attractive additions to C&D and other acquisition-hungry firms, Maneaty speculated.

Apfelberg said with consumer spending down, companies with perfectly good brands may be available for acquisition at lower prices than usual.

He compared the situation in personal care to the housing market.

"It's the same house down the street from you that it was before, it's the same great neighborhood - it's just that there are less people knocking on the door," he said. "It has nothing to do with the foundation being shaky or the windows busted out."

Stable Could Gain From Desperate-To-Shed

Rutter Hobbs & Davidoff notes in a recent release that "timing is everything when it comes to the success of mergers and acquisitions - and now is the time to buy."

With plummeting sales, tightening budgets and increasing debt, many businesses feel mounting pressure to sell, creating opportunities for stable companies to expand their business and pick up assets that could help them ride out the economic slump and even put them ahead of the pack in the end, the firm suggests.

As to which companies are finding themselves on the "stable" side of the fence and which on the "desperate" side, Apfelberg said that in his experience, marketers of luxury products - high-end skin-care formulas, specifically - seem to hold up under the strain of the recession.

Consumers are willing to give up many things, Apfelberg noted, "but they're not so eager to give up the way their face looks. They might eat at a slightly lesser restaurant, but they want to make sure they look damned good when they're doing it."

Firms that market their beauty products to the Millennial Generation, or Generation Y, also are struggling less than others overall, the attorney said.

Compared with their parents and grandparents, the Millennial Generation "has never before been told no," Apfelberg said.

"It's the most entitled generation that we've ever seen," he observed, and added, "That's who's spending."

OPI's Nicole line of nail lacquers are geared toward younger consumers, Apfelberg noted.

Australian skin-care brand Bellaboo - touted as hip, natural and "created for teen girls by teen girls" - recently launched in the U.S. with aspirations for further, rapid growth (⁴ Also see "Bellaboo Brings U.S. Teens Natural, "Funky" Skin Care, Filling Niche" - HBW Insight, 26 October, 2009.).

Who's SWOT And Who's Not?

For companies that have the means to acquire, some self-analysis is crucial before taking action, Apfelberg suggested.

"I have clients come to me all the time and say, 'I want to go buy so and so.' Or, 'I want to go buy a company that does 'x." And my answer every single time is the same: 'Why?'"

"More often than not they say, 'Well, it's this really good opportunity; I heard they're for sale and I think we can turn them around.' Or, 'I think that by adding them to us we can conquer the world; we'll corner this or that aspect of the market.'"

Apfelberg says he typically encourages companies with growth ambitions to conduct a SWOT analysis, - identifying their strengths, weaknesses, opportunities and threats - before proceeding with an acquisition.

"When a client can go through this exercise and figure out their own stuff first, then they can see how an additional piece can be added to the puzzle," the attorney said.

"But until you truly understand your own business ... you can't really figure out how this other company fits in and whether it's a good deal for you or not."

He estimated that about one out of three companies that perform the exercise end up deciding to pass on the opportunity before them, deeming it not right for their business at that time, while those who do go forward with an acquisition often do so for different reasons than they had in mind originally.

Following a SWOT analysis, "if they can articulate, 'OK, we're weak in research and development and this company [for sale] has an amazing pipeline' - that makes a lot of sense. You're basically buying R&D instead of doing your own. You're going to be able to easily communicate that to your board, to your lenders, to the outside community," Apfelberg said.

"But if it's simply piling on in an area of strengths and leaving your flank totally open because you're ignoring an area of weakness - that gets harder to justify."

- Ryan Nelson ( ⁵ r.nelson@elsevier.com ) and Dan Schiff ( ⁶ d.schiff@elsevier.com )

Experts Predict Buyer's Market For Consumer Brands In 2010

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