What does Dr Squatch acquisition say about Unilever’s big turnaround?

Fernando Fernandez has wasted little time in pushing Unilever’s strategic expansion in the higher-margin beauty and personal care space as he followed up the takeover of deodorant brand Wild in April with the acquisition of natural soap maker Dr Squatch last week.

The new CEO also continues to reduce exposure in food at the Dove to Persil owner, appointing bankers to run the rule over Graze. It follows the sale of The Vegetarian Butcher earlier in the year and exit from Dutch food brands Conimex and Unox, with the impending spin-off of the ice cream unit into The Magnum Ice Cream Company to be completed before the end of 2025.

Post ice cream separation, Barclays analyst Warren Ackerman notes the food portfolio will centre around the three scale platforms of Knorr, Hellmanns and foodservice, which Fernandez calls ‘edible personal care’ as the margin profile is similar to those of personal care.

That doesn’t leave much room for the likes of Marmite, Pot Noodle, Bovril and Colman’s, which are widely expected to be next in line for auction.

So, what does the Dr Squatch deal tell us about the new strategy?

Premiumisation at Unilever

Fernandez, who took the reins following a surprise departure of Hein Schumacher in March, is charged with accelerating the implementation of Unilever’s action plan, with a focus on 30 power brands, emerging markets and personal care, beauty & wellbeing and home care.

Premiumisation is a nother cornerstone of the growth strategy as Unilever eyes a shift of the weight of premium brands in the portfolio from the current 35% to 50%. The move shows early signs of paying off as Vaseline and Dove both scored double-digit growth in the first quarter of 2025 supported by premium launches in the Americas.

“Unilever is seen by many as a mass market food and HPC [home and personal care] conglomerate, but it is morphing into something different – more premium, more focused,” says Ackerman.

“Unilever has done a lot of work on premiumisation, and they are now getting the benefit in terms of organic growth that is tracking above peers in developed markets. There is more work to do to premiumise Europe, and they have made a good start with launches such as Wonder Wash [an eco laundry detergent line of Persil], but acquisitions can also help, including the recent deals for Wild and Dr Squatch, which will continue to help it expand it into more premium and higher growth spaces.”

Unilever is betting US-headquartered Dr Squatch can become a monster of a brand, paying a bumper $1.5bn (according to The Financial Times) in the hope of supercharging the fast-growing male grooming business in the US and scaling it overseas. A loyal following, viral social-first marketing strategies, partnerships with influencers, and collaborations with celebrities such as Sydney Sweeney and Mike Tyson for limited-edition soaps all grabbed Unilever’s attention.

But the risk is the playful edge and outsider authenticity that Dr Squatch’s modern male audience has bought into is scrubbed clean by the Unilever corporate juggernaut.

And Unilever does have a track record of taking its eye off the ball once a trendy, successful brand disappears into the global consumer goods giant’s massive portfolio.

Dollar Shave Club is the most obvious case study for what can go wrong. Picked up for $1bn in 2016 as a way of breaking Unilever into the fast-moving world of DTC, the US razor brand proved a disappointment and was sold off in 2023.

Read more: What can playful male grooming brand Dr Squatch do for Unilever?

REN Clean Skincare, a London-based beauty pioneer making products using natural ingredients, provides another cautionary tale. Unilever unveiled a formal plan in May to shutter the business after buying it a decade earlier.

Food brands are also not immune, with underperforming Graze the latest to fall foul of a lack of love from its parent having been snapped up for £150m in 2019. Bankers are currently attempting to find a buyer for the lossmaking snacking brand.

“Unilever has a decent track record of buying brands that seem to have captured the zeitgeist but turn out to be billion Dollar Shave disasters,” says one banking source.

“Eyebrows are often raised at the valuations for its deals, with the group known for paying a very full price,” the source adds.

Another source in the City reckons that as a super tanker, Unilever is better suited, to buying another super tanker, taking out the synergies from the combination and reaping big rewards.

“Taking on smaller fast-moving brands and trying to make them sing is not an easy thing to do,” he says. “It’s an oil tanker trying to make a speedboat go faster.”

“If you pay a big multiple for a small brand then there isn’t much left to squeeze, and it doesn’t move the dial. On the other hand, mistakes on a smaller deal won’t be disastrous, which they could be for a mega deal. But if they get it right then the rewards are pretty small, too.”

Running big risks

Mega mergers are not without considerable risk, however. As former Unilever boss Alan Jope found out with an ill-fated £50bn tilt for GSK’s consumer health arm (now London listed as Haleon), with the failed takeover ultimately paving the way for his exit as CEO in 2023.

Bernstein analyst Callum Elliott is more positive on Unilever’s recent acquisitions, saying the strategy of smaller, bolt-on transactions of fast-growing assets has been “working well” over the past few years. He thinks the Wild and Dr Squatch deals feel similar to the acquisitions of wellness and beauty brands Nutrafol, K18 and Liquid IV, which are all doing “very well”.

“Yes, the headline multiples look high on the face of it, but Unilever has the opportunity to leverage its immense distribution muscle and accelerate growth of these brands,” Elliott adds.

“The goal is to replicate what you’ve seen from P&G with Native Deodorant [acquired in 2017] and L’Oreal with CeraVe [also bought in 2017], where sales have more than 10x’d following the acquisitions and contributed significantly to group growth. With these smaller bolt-on deals, they’re never going to have a 100% hit-rate, but if even one or two of them can replicate this success, then the strategy as a whole should be successful.

“By contrast, the track-record of big, ‘transformational’ M&A in CPG is chequered at best, and with a complicated turnaround in progress at Unilever, this wouldn’t be the right time to be exploring major acquisitions.”

Fernandez’s in-tray remains very fat, with the public listing of The Magnum Ice Cream Co in Amsterdam later in the year needing to be flawless executed and the divestment of £1bn worth of non-core food brands ongoing.

Integrating Wild and Dr Squatch successfully won’t make or break the turnaround, but the results will be instructive as to how well Unilever has learned from past mistakes.

Ackerman adds: “We don’t see any companies that don’t have challenges right now, but with Unilever we see a clear vision of where it wants to go in the future and how it wants to get there.”