PZ Cussons is back on the acquisition trail as it seeks to inject some excitement into its portfolio amid an ongoing turnaround attempt.

The takeover of eco-friendly babycare brand Childs Farm – announced this morning – signals a change in pace for the Imperial Leather and Carex owner after the slow and painstaking work of fixing years of poor management, underinvestment and declining sales.

New chief Jonathan Myers, a Procter & Gamble veteran appointed in 2020, has made big strides with his multi-year turnaround strategy already by jettisoning a host of non-core businesses around the globe in a bid to focus on the core categories of baby, hygiene and beauty.

He has identified eight ‘must win’ brands in the portfolio across its four core markets of the UK, Australia, Indonesia and Nigeria: Carex, St Tropez, Sanctuary Spa, Premi, Joy, Cussons Baby, Morning Fresh and Original Source.

Childs Farm will now join that list. With it, it brings a host of sustainability credentials that should help PZ Cussons on its own journey to becoming a B Corp.

Former investment banker Joanna Jensen founded Childs Farm in 2011 after searching for a body wash for her children, who suffered from sensitive skin. The vegan and cruelty-free range of naturally derived bubble bath, moisturiser, hair wash, suncare and other products have since become a favourite of parents willing to pay a premium to soothe their children’s sensitive and eczema-prone skin.

Growth has been rapid, even as the major players in the category have struggled, as Childs Farm used the power of social media to connect with customers and build a loyal following. Distribution in all the major mults followed, as well as Co-op, Amazon and Ocado, Boots and Superdrug, Holland & Barrett, Wilko, The Range and even Next.

Not content with becoming a category leader in the UK, Jensen has also created an impressive export market for the brand in Ireland, Australia, China, Hong Kong, Iceland, Malta, Greece, South Africa and Thailand.

While revenues of £17.4m in 2020 won’t do much to swell PZ Cussons’ top line of more than £600m, the personal care group can use its might and supply chain heft to turn the challenger into an established global player. It should also see some significant cost synergies across distribution and warehousing.

PZ Cussons said it would leverage its brand-building capabilities to improve the UK leadership position and capture its significant international potential. There are plenty of opportunities, especially considering it already owns Rafferty’s Garden, the largest babyfood brand in Australia.

Childs Farm also generates about 20% of its sales from e-commerce – an area PZ Cussons is keen to develop in its own business.

What’s more, PZ Cussons pointed to the “highly attractive” gross margins at Childs Farm, which analysts at Shore Capital estimated to be about 50% – although it’s worth noting the brand is currently lossmaking, which will dilute PZ Cussons earnings in the short term.

Shore Capital says the acquisition is a “clear step forward” for PZ Cussons, moving out of “fixing mode into something more progressive”.

Alantra dealmaker Matthew Wiseman, who advised Childs Farm following his own success with the brand in treating his son’s eczema, points out that many consumers now only want to use skincare formulations considered safe and clinically proven. “Businesses like Childs Farm, which are born from their founders’ determination to solve personal problems, have a high level of affinity and trust with their customers,” he says.

“Financial investors are keen to use their skills to strengthen such businesses and expand their markets, while personal care operators, which struggle to replicate the product innovation and associated brand loyalty, see an opportunity to accelerate global growth,” Wiseman adds.

There is still a long way to go before Myers can consider his turnaround of PZ Cussons a success. Problems remain in its biggest market of Nigeria, demand for Carex has softened as the UK emerges from the pandemic and inflationary pressures are squeezing the business on all sides.

But this exciting deal is a step in the right direction.

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