[THE INVESTOR] South Korean cosmetic brands’ dependence on exports to China could pose a risk to investors, said the head of Have & Be, the company behind skincare giants Dr Jart+.

“As China accounts for a huge part of Korean beauty brands’ exports, the firms are vulnerable to China’s economic and political situations and change in regulations,” said Lee Chin-wook, founder and president of Have & Be, at Private Equity & Venture Forum, hosted by Asian Venture Capital Journal, in Seoul on Aug. 31. 

Buoyed by the so-called “K-beauty boom”, Korean cosmetic brands have attracted major investments from big foreign investors, including Goldman Sachs and Louis Vuitton, in recent years.

Dr Jart+ is one of them. Estée Lauder bought a stake in Have & Be in October 2015 which helped the brand to rapidly expand its foothold globally, according to Lee.

But Lee warned that investing in Korean makeup brands can be highly risky if investors only look at the burgeoning number of players in the sector.

“Recently, China announced that it will apply tougher quality requirements on foreign cosmetics from December this year. It is crucial to manage and counter such changes,” he said.

According to Ministry of Food and Drug Safety, South Korea’s exports of cosmetics to China doubled on-year to reach US$1.06 billion in 2015, accounting for nearly half the total overseas export of US$2.58 billion.

Assessing the intangible value of targeted companies is key to healthy return and exit for private equity firms, he said.

“Prior to capital commitment, investors should check on the targeted cosmetic company’s distribution channel, brand identity and management team,” Lee noted.

In July, Goldman Sachs Group and Bain Capital Private Equity announced a deal to acquire a controlling stake in Carver Korea, a privately held maker of specialty cosmetics.

An investment arm of LVMH Moët Hennessy Louis Vuitton SE also purchased a stake in Clio Cosmetics, another fast-growing South Korean makeup maker.

By Park Han-na (hnpark@heraldcorp.com">hnpark@heraldcorp.com)