Shanghai Yuemu Cosmetics Co., the maker of one of China’s top-selling facial beauty mask brands, is exploring options including a potential sale after a previous deal failed, according to people with knowledge of the matter.
The maker of Mofashijia beauty products is working with an adviser to weigh alternatives, which could also include bringing in external investors, the people said. The company is engaging in talks with both private equity firms and other cosmetics companies, the people said, asked not to be identified as the deliberations are private.
Following the collapse of a 2018 agreement with Shanghai-listed Zhonglu Co., the success of a new deal rests on whether investors are willing to bet on China’s fast-growing consumer market recovering in the aftermath of the novel coronavirus outbreak.
Shanghai-based Zhonglu, one of the earliest bicycle makers in China, announced in early 2018 its intention to acquire the cosmetics company in a cash-and-stock deal of 5.6 billion yuan ($791 million). Later that year, Zhonglu revised its original valuation of Yuemu to 4 billion yuan and said the mask-maker had failed to deliver the financial performance it promised in the initial agreement. The deal was terminated in 2019.
Yuemu, founded in 2007, is based in the southern Chinese city of Guangzhou, according to its website. The skincare product maker, which is 75% controlled by its founder Huang Xiaodong and his wife, was one of the early beneficiaries of China’s internet shopping boom. In addition to its online sales, the firm runs more than 50 direct stores and works with 150 agencies across the country.
Net income of Yuemu jumped to nearly 300 million yuan in 2017, from less than 30 million yuan in 2015, according to the original acquisition plan announced by Zhonglu in 2018.
The beauty mask market in China has expanded rapidly. Between 2012 and 2017, it grew at an average compounded annual rate of 15.8%, according to data compiled by ASKCI Consulting Co. The market size is expected to exceed 45 billion yuan by 2023. For domestic brands like Mofashijia, however, competition has become more intense as more foreign players enter China. The rivalry is driving up marketing expenses and compressing profit margins.
Deliberations are at an early stage and may not necessarily lead to a transaction, the people said. A representative for Shanghai Yuemu Cosmetics didn’t immediately respond to requests for comment.