Hyundai Department Store Group has decided to acquire SK Bioland and market insiders are paying attention to whether the latest deal will trigger further transactions in the cosmetics ingredients space.

Hyundai Department Store Group is in talks to acquire a 27.9 percent stake in SK Bioland owned by SKC, according to  sources on June 2. The buyer is Hyundai Department Store Group’s cable and telecom business arm Hyundai HCN. The transaction value is expected to be in the mid-100 billion won ($82 million) range.

SK Bioland, a developer of cosmetic actives using natural resources, has the largest share in the domestic market. Market insiders said Hyundai Department Store Group’s bet on the cosmetics business was raising expectations on the company’s planned launch of a premium skincare brand.

The latest deal has proved to some degree strategic investors’ interest in ingredient makers. Market insiders are watching whether the latest deal will pave the way for major cosmetics manufacturers to actively seek to acquire ingredient makers. South Korean beauty giant Amorepacific has produced raw materials by using its technical capabilities. LG Household & Health Care has been supplied with some ingredients from OBM Lab, which was acquired by LG Household & Health care in 2016.

There has been a constant demand for companies that supply raw materials for cosmetics in the domestic mergers and acquisitions market. Major advisory firms’ beauty industry teams have set up a list of potential target companies and have continued their marketing efforts to put them up for sale. Other ingredient manufacturers such as Seil International, Intercare, Caregen and Daebong LS may emerge as the next targets.

Domestic ingredient makers have garnered strong attention from the industry as they enable cosmetics companies to complete their value chain. By taking over ingredient manufacturers, Amorepacific and LG Household & Health care, which have multiple brands under their umbrellas, can secure exclusive rights to functional ingredients for cosmetics. Mid-sized cosmetics companies are also able to hedge against fluctuations in sales by acquiring cosmetic raw material suppliers.

The South Korean Government’s decision to legalize personalized cosmetics is also raising ingredient makers’ valuation. The law defines personalized cosmetics as products made on the spot by mixing ingredients required for individual customers based on skin analysis and counseling and then dividing the mix into small quantities. Amorepacific has started to provide bespoke cosmetics services such as My Delicious Therapy while LG Household & Health care launched CNP Rx.

Consumers’ growing interest in natural cosmetic ingredients is expected to be an opportunity for domestic ingredient makers including SK Bioland to boost their sales. This may attract private equity firms and strategic investors who see high-growth potential for the companies. (Reporting by Ik-hwan Choi)