Yatsen to Acquire Eve Lom: China Cosmetics Startup Expands

The Rise of Chinese Cosmetics Startups

Historically, the Chinese cosmetics market favored international brands. However, a shift is occurring, with domestic startups increasingly attracting the attention of Gen Z consumers through more affordable and locally tailored products.

Perfect Diary, a direct-to-consumer brand, exemplifies this trend. It is owned by Yatsen, a relatively new company established just five years ago.

Yatsen’s Market Impact and Acquisition Plans

In November, Yatsen made a significant impact on the financial markets with a successful initial public offering on the NYSE, raising $617 million. Perfect Diary consistently achieves high rankings in online makeup sales, competing with established industry leaders such as L’Oréal and Shiseido.

The company is now pursuing a substantial expansion strategy, aiming to acquire Eve Lom, a 35-year-old skincare brand currently held by British private equity firm Manzanita Capital.

The Eve Lom Acquisition

Yatsen, named in honor of Sun Yat-sen, the founder of modern China, announced a definitive agreement on Wednesday to purchase Eve Lom, renowned for its signature cleanser. The acquisition is anticipated to be finalized within the coming weeks.

Manzanita Capital will maintain a minority ownership stake in the business and continue to function as a strategic partner following the transaction.

While the financial details of the deal remain undisclosed, reports from Bloomberg in February indicated that Manzanita was seeking a sale price of up to $200 million for Eve Lom.

Perfect Diary’s Success Strategy

Perfect Diary’s ascent in China has been fueled by strategic partnerships with influencers. These collaborations involve reviews of the brand’s diverse product range – including lipsticks, eyeshadows, foundations, and more – on popular Chinese social commerce platforms like Xiaohongshu.

The company also benefits from its proximity to China’s extensive network of cosmetics and packaging suppliers, many of whom also serve prominent international brands.

These strategies have enabled Perfect Diary to offer competitive pricing without sacrificing product quality, earning it the nickname “Xiaomi for cosmetics.”

Yatsen’s Growth and Financial Performance

Since its inception, Yatsen has experienced remarkable growth. Gross sales increased more than fourfold, reaching 3.5 billion yuan ($540 million) in 2019, compared to 2018. This growth is attributable to a highly effective e-commerce approach.

However, this expansion has also been accompanied by increased losses. The company reported a net loss of 1.16 billion yuan ($170 million) for the nine months ending September 2020, a significant change from the net income of 29.1 million yuan recorded in the previous year.

Diversification and International Expansion

As outlined in its prospectus, Yatsen has been actively seeking acquisition opportunities to broaden its product portfolio. The acquisition of Eve Lom is expected to “enrich our global brand-building capabilities and product offerings,” according to Jinfeng Huang, founder and CEO of Yatsen.

Yatsen has already begun to expand internationally, initially focusing on Southeast Asia through sales on e-commerce platforms such as Shopee.

The company intends to “selectively cooperate with local partners to accelerate our international expansion and localize our product offerings,” as stated in its prospectus. Yatsen’s venture into the highly competitive global makeup market is a development worth observing.

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