Health and beauty maker KDC seeks expansion following $165M investment

MONTREAL – The owners of a former Clairol hair colouring plant in Quebec plan to use an infusion of cash from a private equity firm and several institutional investors to double its size and solidify its role as an industry leader in health and beauty products.

KDC (Knowlton Development Corp.), which makes products like deodorant, soaps and shampoos for blue chip clients such as Procter & Gamble, says the more than $165 million investment will support efforts to boost annual revenues to $1 billion by 2018.

“We’re looking to do acquisitions in a global way,” said Michel Cote, KDC chairman and senior partner of private equity firm Novacap Industries.

The first target will be other niche players in North America, followed by expansions possibly in Latin America, Europe or Asia.

“Our customers are worldwide customers and they like to see us expanding our footprint to other regions,” he said in an interview.

Novacap, a private equity firm with $1.5 billion under management, and several unidentified partners acquired KDC in 2002 from managers of the Clairol plant in Knowlton. The workers had bought the facility from Bristol-Myers after it shut the doors in 1991.

Under KDC’s leadership, annual sales grew to $500 million from $60 million as more than $140 million was invested in new equipment, the size of the Knowlton plant was doubled and a $58-million production facility was added in Columbus, Ohio.

Employment at the Eastern Townships headquarters increased to 900 from less than 300 as total KDC employment grew to about 2,200. KDC also operates a smaller facility with about 100 workers in Mississauga, Ont., and a large plant in Lynchburg, Va.

Cote said sales initially dipped in 2002 to about $45 million as the new owners stopped making private label products and focused on becoming a top supplier to Fortune 500 companies that were looking to outsource production of their top brands.

Initial efforts to attract the interest of large multinationals was a struggle. But he said the strategy eventually paid off with KDC becoming a large North American supplier to the health and beauty industry. He said it has strong double-digit market share in antiperspirants, skin care lotions, hair care products, shower gels, body washes and anti-bacterial soaps.

About half of its revenues come from new formulations developed in-house.

“We’re clearly the powerhouse in our segment and we’re the go-to place for our customer base,” Cote said. “So if somebody thinks of doing antiperspirant products they come to us.”

Novacap says the new investment made with the support of the Caisse de depot, Quebec Solidarity Fund, Investissement Quebec, Export Development Canada and the CSN Fund will fuel KDC’s expansion efforts. About two-thirds of the growth is expected to come from acquisitions.

Cote said it is eyeing several targets that could materialize over the next 12 months. It is also looking at adding new product segments, which he refused to identify. Among the largest holes in its portfolio are aerosols, an area that is led by Kik Custom Products (TSX:KCP.UN), an Ontario firm that went public in 2002 and has expanded to 11 manufacturing facilities.

The investment in KCP was made through Novacap Industries IV fund, which currently has $300 million in commitments, including $80 million from the Caisse, the manager of Quebec’s public sector pension funds. Novacap expects the Industries IV fund to reach $425 million in a few months.

Private equity firms typically invest in companies for only a few years. But Jacques Foisy, president and managing partner of Novacap Industries, said it has no plans to end its 12-year relationship with KDC.

“We believe that KDC has enough potential to grow to the billion-dollar mark and still we will be able to sell it somebody who will bring it to the other level,” he said in an interview. “We’re in no rush to sell this jewel.”

Christian Dube, executive vice-president for the Caisse de depot, said its investment reflects its efforts to “support Quebec companies in their development and their national and international expansion.”

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