Summary
Local media reports and Reuters are saying that Da Bao has placed their assets on a “equity exchange” sales board in Beijing and is looking for bids from others as well.
Dabao: Yes, it is a good idea for them.
Avon: Avon is already making a big mess in China, and I don’t think this will turn around anytime soon.
Unilever: A long story worthy of a separate post. Suffice it to say, Unilever is also underperforming in China due to their own mistakes.
J&J: Ahhhhh, just right!
As for the asking price: Not sure about what others think, but Dabao’s asking price of RMB 2.3 billion works out to 55 times annual profits, which in my book is very, very, very expensive.
Analysis
You may have heard some recent reports about local skincare company, Da Bao, being in discussions with Johnson & Johnson (J&J) to sell all or part of their shares to J&J. A few months ago a local reporter called me to confirm, whereupon I made a few calls to contacts in Beijing, and they confirmed that J&J was in fact in talks with Da Bao. Which was interesting since those same contacts had previously told me that Avon was also talking to Da Bao. The latest news reports now claim that Unilever is considering joining in the fun as well.
Local media reports and Retuers are saying that Da Bao has placed their assets on a “equity exchange” sales board in Beijing and is looking for bids from others as well. Their asking price is 2.3 billion RMB. Dabao in 2006 posted 41.7 million yuan in net profit on sales of 676.2 million, according to a statement posted on the Beijing Equity Exchange. Dabao had net assets of 459.6 million yuan.
Before I talk about the price, let me make some brief comments on whether this is a good idea for any of these companies:
Dabao: Yes, it is a good idea for them. They are the classic example of the strengths and weaknesses of local Chinese personal care companies: strong execution in the sales and promo channels, but VERY weak branding skills. Daiopai detergent is a very similar example. Both Diaopai and Dabao got lucky a few years back and stumbled upon a nice marketing position:
Dabao successfully developed and pushed a light lotion product that claimed to have anti-oxidant ingredient SOD in it. Nevermind that consumers had no idea what SOD was, it was a nice light lotion, with a suitable fragrance, and sold for a cheap price of RMB 6.8 per 100ml bottle. Sales went through the roof, bringing Dabao to RMB800+ million annual sales at one point.
Diaopai had a similar experience, but in their case, the lucky break was a on-target emotional TV commercial that featured a laid-off mother pinching pennies by buying Diaopai detergent. The slogan was “Don’t buy the expensive detergent, buy the right detergent” (“expensive” and “right” rhyme in Chinese). The commercial grabbed the hearts of low to middle income consumers at a time of great job uncertainty for workers in the state-owned enterprises. Result, Diaopai sales boomed as well.
Now for the problem: Neither company could follow up this success with further extensions or new products or even new communications that could equal their original lucky success. So Diaopai gradually lost share over the last few years, and Dabao has also gradually lost share, despite launching many new products to try to pick up the slack.
So what does Dabao (and Diaopai) need? Marketing skills! What does J&J have? Marketing skills! A match made in heaven very similar to my previous post about Nivea and C-Bons.
Avon: Avon is already making a big mess in China, and I don’t think this will turn around anytime soon. The last thing they need now is a declining retail brand like Dabao. Avon was roundly unsuccessful in their own forays into retail over the last few years in China (I am talking about their products launched in the hypermarkets, not those 5000 useless own-brand retail stores they opened all over China). There is no reason to believe that they can fix Dabao. Their branding skills are too weak, and it is doubtful that a low-end product like Dabao would really fit into their direct sales channel well (mainly middle income consumers, not the low income consumers that Dabao is targeted at). So despite what some stock analysts think, I say that the Avon deal would be a bad move for both sides.
Unilever: A long story worthy of a separate post. Suffice it to say, Unilever is also underperforming in China due to their own mistakes. Or rather I should say their own long string of mistakes. The time is not right for Unilever to take on another local brand.
J&J: Ahhhhh, just right! They have the branding skills. They are experienced at the retail channels. They are weak in the wholesale channels where Dabao is strong. As stated above, a match made in heaven. At very least, this acquisition could be a nice wake up call to the sleepy J&J China personal care business unit and give them something to get excited about.
As for the asking price: Not sure about what others think, but Dabao’s asking price of RMB 2.3 billion works out to 55 times annual profits, which in my book is very, very, very expensive. Can they seriously be dreaming about getting such a price? Or is this just some “show” that they need to go through in order to get their equity sale to J&J or Avon approved by the government?
I’ll keep a close watch on this story for further developments.
