As South Korean cosmetics gain popularity in the US, the world’s biggest market for beauty products, personal care startups in the east Asian country are seeing a surge in dealmaking demand.

Seoul, long a destination for beauty services, last year became the top exporter of cosmetics to the US, overtaking France, according to the US International Trade Commission.

In the same period, South Korea’s total cosmetics shipments hit a record US$10.2bil (approximately RM45.4bil), from US$7.5bil (RM33.4bil) in 2020, according to the Korean Food Ministry. 

That kind of growth has spawned interest from L’Oreal SA to Archimed SAS in Korea’s personal care assets, with the industry bagging a record 18 deals worth 2.3 trillion won (RM6bil) in 2024.

Although it lags past years by value, the pace of activity alone has one advisory firm convinced that the deals momentum will continue.

“Private equity funds are paying more attention to Korean cosmetics,” said Manhwi Han, a deal partner at advisory MMP.

“Given the strong growth of exports in the US, we expect the M&A (mergers and acquisitions) boom will definitely continue this year.” 

The deals boom is widely attributed to the K-culture wave, making the cosmetics industry a collateral beneficiary alongside the South Korean food and culinary sector.

With K-pop and K-drama gaining global attention, companies have used product placements to sell everything from US$22.99 (RM102) stick balms to US$2,350 (RM10,500) LED face masks, with the US market being the main target.

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Archimed, a French investment firm, last year acquired aesthetic skincare technology firm, Jeisys Medical Inc, promoted by South Korean actress Lee Young Ae.

Reports suggest local private equity firm KL & Partners is eyeing control of Manyo Factory, the maker of a serum featured in popular Korean TV drama Crash Landing On You.

South Korean brands have cornered about 22% of foreign cosmetics products in the US and about 40% in Japan, according to Eun-jung Park, an analyst at Seoul-based Hana Securities Co.

COSRX Inc, acquired by South Korean cosmetics firm Amorepacific Corp in October 2023, is estimated to have earned nearly 60% of its revenue in the US and Europe, with popularity of its snail essence ranked as Amazon.com’s number one facial serum. 

That’s buoying interest in South Korean startups, with MMP seeing some big deals in the pipeline this year.

One of them could be Bain Capital’s potential sale of Classys Inc, a beauty-device and cosmetics maker, which the Boston-based PE firm bought for about 670 billion won (RM2mil) in 2022. Bain declined to comment.

Bain already has a good track record of cashing out its South Korean beauty investments, having sold stakes in botulinum toxin maker Hugel Inc for US$1.5bil (RM6.7bil) in 2021 and in cosmetics firm Carver Korea Co for US$2.7bil (RM12bil).

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A social media review of Tirtir Co’s foundation product for African Americans that attracted 61 million views speaks to the interest in Korean products in the US.

The pivot of South Korean brands to the US came amid a slump in consumption in China.

Cosmetics startups have relied on savvy online marketing through TikTok and Reddit, to amplify presence in the US and through partnerships with Costco Wholesale Corp and Amazon.com Inc.

A TikTok and Kantar research last year forecast global spending on South Korean cultural products to nearly double to US$143bil (RM637bil) by 2030.

The upbeat outlook for South Korea’s cosmetics companies is in contrast to the challenges faced by global brands such as Estee Lauder Co, which forecast a drop in net sales for the current quarter in March.

Japanese maker Shiseido Co is also grappling with lackluster Chinese demand.

South Korean personal care products manufacturer Kolmar Korea Co is preparing to open its second plant in the US, in order to meet rising demand in North America.

CJ Olive Young, known as South Korea’s Sephora with about 1,400 stores in the country, is offering marketing advice to local startups to help sell their products in its retail stores.

CJ is also planning to open its first outlet in the US after seeing 140% growth in sales to foreign travelers in 2024.

“America is the land of opportunity for Korean cosmetics companies,” Jiyoon Jung, a Seoul-based analyst at NH Investment & Securities Co, wrote in a March 17 note.

“Global retailers are trying to launch more Korean cosmetics brands at their stores.” – Bloomberg