The toothpaste aisle can be a daunting place, given its dizzying array of brands and features. If there's one brand that has managed to differentiate itself from the rest of the tartar-fighting white noise, it's arguably Tom's of Maine, makers of all-natural toothpaste. In what looks like a savvy move, Colgate-Palmolive
Colgate said that it will buy 84% of Tom's of Maine for $100 million. Although Colgate expects the acquisition, which should close in the second quarter, to be neutral to earnings this year, it expects the purchase to be increasingly positive after that.
Colgate pointed out that Tom's of Maine's gross profit margins are 10 percentage points higher than its own, and noted the growing popularity of natural products, which should make Tom's a strong addition to its stable of brands. Colgate acknowledged the burgeoning market for natural products in its press release; its data suggests that the industry currently stands at $3 billion, with an expected annual growth rate of 15%.
Founded way back in 1970, Tom's of Maine provides toothpaste, soap, deodorant, shaving cream, and oral-care products like mouthwash and dental floss. It's distinguished itself with products that don't contain artificial sweeteners, preservatives, colors, flavors, or animal ingredients. Tom's of Maine also doesn't test its products on animals. I can't name another product with Tom's name recognition in natural personal care.
Although value investors who were attracted to Colgate by its recommendation from Motley Fool Inside Value's Philip Durell might choke on this acquisition's $100 million price tag, I think Colgate has the future in mind in tapping into the strong trend for natural products. What once looked like a fad now seems anything but.
For example, Whole Foods Market
Colgate's got hefty competition in the oral care segment from Procter & Gamble
Colgate and Procter & Gamble both want their products to be in your medicine cabinet or next to your bathroom sink. When it comes to Colgate's suite of personal-care products, it seems to me that Tom's of Maine is a natural.
Brush up on recent related Foolishness:
- P&G got nicked.
- Dig into Colgate's numbers last quarter.
- What did the Foolish Forecast call for from Colgate?
Colgate is a Motley Fool Inside Value selection. Whole Foods Market is a Motley Fool Stock Advisor recommendation. Whatever your investing style, from swashbuckling Rule Breaker to dividend-hungry income investor, the Fool has a newsletter for you.
Alyce Lomax does not own shares of any of the companies mentioned.