After six months of negotiations, cosmetic products manufacturer Ahava Dead Sea Laboratories signed an agreement at the beginning of this week for the sale of the company to China's Fosun Group for NIS 290 million. Completion of the deal is expected within several months, subject to several conditions.
Fosun Capital director Joe Yizhou He, who represents the group in Israel, explained in a "Globes" interview what is behind the acquisition and Fosun's plans for the Israeli company.
"Globes": What potential do you see in Ahava?
Joe Yizhou He: "Ahava is the best known brand in the world in its field, and most of its customers today are tourists visiting Israel from China and buying the products. Chinese an indication of the great inherent sales potential in the company's business in China."
"Synergy with other holdings"
Ahava is a private company. Its shareholders include B. Gaon Holdings Ltd. (TASE: GAON) (which reported that it will post an NIS 18 million capital gain on the sales of its 16% holding in Ahava), US investment fund Shamrock Israel Growth Fund, the Livnat family, and Kibbutz Mitzpe Shalem. The company manufactures and markets skin cosmetics for women and men containing Dead Sea mud.
The company has 225 workers. Its revenue totaled NIS 184 million in 2015, unchanged from 2014.
Yizhou He explains, "The acquisition of Ahava isn't a financial investment; it's a long-term strategic holding that will serve as a platform for our cosmetics business."
How do you plan to develop this business?
"Even before completing the investment, we had a plan for launching Ahava's business in China, and only after we became confident in the brand's possible success did we decide to make an investment. Keep in mind that the Chinese market is very large and complicated, with dynamic tastes, so there can be quite a few challenges to achieving penetration of a brand name. That's the reason why we formed a group of Chinese managers and marketers who know the market and how to work in it, and will be able to deal with these challenges."
"Furthermore," he adds, "Many of our past investments can contribute to the synergy with Ahava and to the company's business development, such as our holding in one of the Chinese tourist agencies and our holding in Thomas Cook, which also deals in tourism. We're also a shareholder in the Club Med chain, the Atlantic hotel chain, and so forth. We can use all of these to promote Ahava's products and business, open stores, and generate synergy between activities."
"China is a friend of every country"
What are your plans for Ahava's current management?
"Fosun is usually very friendly to the management of the companies it acquires, because it believes that if the company's current management isn't good, there's usually no reason to invest in it anyway, because in such a case, there's no assurance that changing management will bring about the desired change in direction.
"Fosun invests in companies with good management, and provides a lot of support and knowledge to the management of the acquired companies. This is also the case with Ahava, and we hope that the current management will be able to cope with the planned expansion in its business after we get involved, and can get accustomed to the new situation and challenges."
As a brand name, Ahava is identified with Israel, and therefore faces grave difficulties in its global activity, such as the closing down of its London branch following pro-Palestinian demonstrations. Part of this is related to the location of its plant in Kibbutz Mitzpe Shalem outside the Green Line. How will you deal with these difficulties?
"I don't think that there's hatred for Israel everywhere in the world, and we don't plan to promote the product everywhere in the world. China is a friend of every country, so there won't be any problem in promoting Ahava sales there. The Dead Sea appears in Chinese elementary school textbooks, and the stories in them leave a good and mysterious impression, so it will be easy to make Chinese love this brand name.
"Furthermore, keep in mind that as of now, half of Ahava's sales are in Israel, mostly to tourists, and a large proportion of those tourists are Chinese, so there's big potential here, too, thanks to the warming relations between the two countries and the development of tourism from China."
"The flow of tourists from China to Israel will increase in the future," Yizhou He predicts. "In the next 5-10 years, middle class people in China will become the main source of purchasing power, and they have the ability to travel around the world and buy personal care products like those of Ahava."
Nevertheless, what about the responses in Europe and the plant's location over the Green Line?
"I know that there are organizations there operating against Israel, and we'll take it into account in expanding our business. Where the plant is concerned, we have been aware of it since the negotiations began. We're in the process of signing a contract with Kibbutz Ein Gedi, and we plan to move the plant there. All these measures are critical for getting the company on the right road, so that no problems like this will arise concerning the company's business."
Published by Globes [online], Israel business news - www.globes-online.com - on April 12, 2016
© Copyright of Globes Publisher Itonut (1983) Ltd. 2016