In December 2023 Unilever announced its intention to acquire K18 and run it as part of Unilever Prestige- their ultra premium personal care portfolio. While details of the deal weren’t disclosed, I calculate that the price approached $1B based on their expected revenue and for multiples paid on similar deals by Unilever. There is no shortage of brands for strategic acquirers like Unilever to look at so what made a 3 year old startup with only a few sku’s worth pursuing?
First, what they did:
Built Strong Margins and Pricing Power
While basically table stakes in this environment, K18 built a profitable margin accretive business which meant that Unilever wouldn’t have to put significant effort into “fixing” the business but could instead focus on accelerating it. The brand’s direct-to-consumer (DTC) products sell for $75-$80 per 50 mL bottle, positioning it as a premium product in the market. If you were to estimate a 50% margin for salon operators, K18 likely still had margins surpassing 70% or more.
Earned a Strong Reputation in the Professional Stylist Community
From the outset, K18 positioned itself as a professional-first brand, exclusively available through licensed hair stylists in salons. Despite having a DTC site, they still try to push you to a distributor partner as their preferred channel. The brand forged strategic distribution partnerships, enabling it to swiftly enter approximately 25,000 salons upon its launch. However, the distinction between being listed and successfully selling through in the salon industry is well known. K18 managed to bridge this gap by creating a devoted following within the professional stylist community.
Proved out international appeal
While initially launching in the US and Europe, K18 made the unique decision early on to go global as quickly as possible through their professional salon channel. Today their products are available in over 100 countries proving that their brand resonates beyond a single market and also lays the groundwork for further expansion and localization which hasn’t yet been realized.
Second, what they didn’t do:
They avoided SKU proliferation
Despite its meteoric rise, K18 maintains a focused product portfolio, with essentially just five SKUs comprising two hair treatments and three shampoos/conditioners. The simplicity that this brings to their manufacturing partners, inventory planning, sales teams, and salon partners can’t be understated. This small SKU count also did just enough to prove that they can expand into adjacent product categories from their core mask product and prove out that their consumers would buy the product suggesting that further line expansions are possible for Unilever to recoup their investment.
Lack of Channel Expansion
As mentioned previously, K18 was a pro-first brand and salon partners remain their most important channels. However they did expand into Sephora in December 202, but have yet to expand into mass retailers like Target and Walmart. Unilever’s strong relationships with these mass retailers presented an opportunity to leverage its expertise and propel K18 into these lucrative channels.
Third, a new core capability for Unilever
Versatile Patents
The amount of research and genome mapping that K18 underwent during their development process resulted in widely applicable patents. These patents include the composition of peptides that penetrate the hair’s inner structure allowing the hair to actually be repaired. Unilever’s personal care business (which includes hair) is well over $20B annually. Introducing this peptide technology into existing high-end solutions such as Nexus or Tresemme could generate billions of incremental revenue even if they decided to shut down the K18 brand.
With the combination of what K18 did and didn’t do, Unilever has 2 or 3 viable options to more than make back whatever the acquisition price was of K18.
