Determinants Of Foreign Acquisitions In The Chinese Cosmetic Industry

The Chinese cosmetic industry offers tremendous growth possibilities that foreign multinational companies are willing to take advantage of.But several challenges arise when a foreign company wishes to acquire a Chinese counterpart.This paper aims at analyzing the characteristics of Magic Holdings’ acquisition by the French firm L’Oreal and provide reference for future similar deals.The analysis is divided into five parts:For the deal rationale,this paper studies the motivations behind a crossborder acquisition.Operating synergies are the key drivers of Magic Holdings’ takeover by L’Oreal,with market fragmentation and fast-changing environment forming the main external factors.For the acquisition process,the paper finds that the ownership structure of Magic Holdings and the relatively friendly governmental regulations for this industry are important elements for the success of the deal.For the deal premium,this paper advances that it was influenced by high market expectation and intense competition between multinationals,which acted as catalysts for Magic Holdings’ stock price run-up before the deal announcement.This deal gives insights as an actual case for future takeover of public cosmetic companies.For the valuation of the target company,the paper concludes that Magic Holdings was overvalued,using market multiples and discounted cash flow model,giving a fair share price of 4.15 HKD compared to 6.30 HKD offer from L’Oreal.It establishes a reference for valuations in the cosmetic segment.For the post-deal performance,the paper finds that the difficulty to achieve operational synergy along with the rapid change in market result in a failed takeover for L’Oreal,giving insights for future similar cases.This paper focuses on the determinants of foreign acquisitions in the Chinese cosmetic industry and reveals the key practical features of crossborder acquisitions in this young and fast-growing industry,adding significance to the current literature.