Fancl Asia owner launches sale that could fetch $1 billion - sources

The owner of skincare brand Fancl in Asia (excluding Japan) has hired Morgan Stanley to initiate a sale, targeting strategic and private equity investors for a deal that could fetch $1 billion, said people with knowledge of the matter.

Hong Kong-based Chris Chan is sole distributor of Fancl Corp's brand in Asia outside its home market of Japan, operating over 200 stores in Greater China and Southeast Asia via his company CMC Holdings.

The sale, which has not been reported before, comes as the retail sector globally grapples with shifts in consumer spending brought about by the Covid-19 pandemic.

China, which accounts for around 80% of Fancl Asia revenue, has seen locked-down stores reopen since the second quarter of the year. However, retail sales are recovering slower than market expectations. Still, Asia accounts for 53% of global skincare sales, showed Euromonitor data, with researchers generally expecting annual growth of over 5% in the next five years.

Fancl Asia will run a two-round auction with first-round bids expected by September-end, said one of the people, who declined to be identified due to confidentiality constraints. ChanCMC Holdings and Morgan Stanley declined to comment.

Fancl Corp is not involved in the sale, and distribution contracts will be unaffected by ownership change, the people said. The firm is known for its preservative-free cosmetics and supplements and declined to comment on the sale. A spokesman said the company could not confirm details of its agreement with CMC, citing confidentiality requirements.

LONG-TIME DISTRIBUTOR

Fancl Asia reported $60 million to $70 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2018 and 2019, and projects likewise for 2020, said one of the people. With annual revenue of $250 million to $300 million and profit margin as much as over 20%, a sale is likely to fetch a multiple of more than 10 times EBITDA, the person said.

Fancl Corp itself was valued at over 20 times its EBITDA when it sold 30% of itself to brewer Kirin Holdings Co Ltd for $1.2 billion last year, said one of the people. The Tokyo-listed company in its April-June earnings call said Hong Kong sales through the distributor were less than half of the previous period, though there was a slight increase in China. It also said it was negotiating with the distributor to launch e-commerce platforms as soon as possible.

Chan has been Fancl's sole distributor outside Japan for 25 years. His contract for China expires in six years while that for the rest of Asia expires in 10, said the people.