As a provider of natural-based oral care products, the acquisition of Tom's of Maine will also serve as a means of capitalizing on the fast-growing naturals market, a category that is currently experiencing some of the fastest growth rates in the industry.
Currently the US market for natural oral and personal care products, which is the most developed in the world, is valued at $3 billion and is growing at 15 per cent per year.
Tom's of Maine is one of the pioneering producers of natural toothpaste, mouthwash, and deodorant, and is currently claimed to be the number 1 Oral Care Brand in the Natural category.
Colgate says that the opportunity to buy the business gives it an opportunity to enter the fast growing health and specialty trade channel where Tom's toothpaste is the clear market leader commanding 60 per cent share of that channel.
Reuben Mark, Colgate's Chairman and CEO describes the acquisition as, "an exciting partnership with growth opportunities for both companies", adding that company founder Tom Chappell will on at the helm of the business.
"This acquisition allows Colgate to strongly enter a completely new channel of distribution and establishes us as the only global oral care company in that channel," Ian Cook, Colgate's President and COO, said.
"This bodes well for additional opportunities in other high margin categories such as personal care. Further, our global reach will help speed the growth of the naturals health and specialty business outside the US," he added.
In recent years growth opportunities in the largely stagnant oral care segment have been hard to come by, forcing key players to segmentalize their category offering with products such as breath-freshening strips, teeth whitening products and oral care chewing gums.
However, with the increasing consumer interest in natural products, this trend is now spilling over to the oral care segment, where natural-based products are driving growth figures well ahead of that for the rest of the industry.
"With gross profit margins a full ten percentage points higher than Colgate's margin, Tom's of Maine is a logical acquisition as we continue to prioritize our global oral and personal care categories," said Cook.
Tom's of Maine was founded in 1970 by Tom and Kate Chappell and the buy-out means that the family will retain a 16 per cent share in the business. The Chappells believe that by combining their company's resources with that of Colgate-Palmolive they will now be able to take the business to 'the next level'.
Obviously the fact that it can now tap into the company's huge research and development facilities as well as its vast marketing machinery will mean that products can now be launched quicker to market and on a far larger scale.
Colgate-Palmolive said that the transaction, which is subject to regulatory approval, will be structured as an all cash acquisition of 84 per cent of the outstanding shares of Tom's of Maine.
The Chappell family will retain a 16 percent ownership interest, with additional share purchase opportunities for Colgate over the coming years.
The company added that the effect on its profits is expected to be neutral in 2006 and increasingly positive each year thereafter.