What Coty Bought and Why

Coty was growing rapidly — its revenue jumped from $US1.9 billion in 2004 to $US2.1 billion in 2005 — thanks in large part to a strategy that emphasized celebrity-branded perfumes. Coty's roster is headed by big names like Jennifer Lopez and Celine Dion, soccer star David Beckham, country singer Shania Twain and tween icons Mary-Kate and Ashley Olsen. UCI, meanwhile, owned one of the fashion industry's biggest names, Calvin Klein, as well as other top brands.

But cosmetics is a noncore business for Unilever. And so, in July 2005, Coty finalized the deal, paying Unilever $US800 million for the $US600 million subsidiary, and agreeing to future payments (contingent on profit goals) that could be worth an additional $US100 million.

For Coty, the deal represented an opportunity to become a larger player in the prestige fragrance market of high-end perfumes like Calvin Klein and other top UCI brands Vera Wang and Chloe. Coty also believed it could reap economies of scale from having just one sales force, marketing group and so forth selling and managing two sets of products. And it hoped to retain the best people from both organizations. But if the integration wasn't done quickly enough, not only would Coty not gain those economies of scale, it could scare away its best people.

"People like to have a clear vision of the future," says Michele Scannavini, president of Coty Prestige, who works out of Coty's Paris office. "When [a merger] takes too long, anxiety grows and you risk losing the key talent in the organization."

Coty faced the same risk with its customers too. "The retail trade wants to know how you're going to go to market," says Coty CFO Fishoff. "Now, all of a sudden, we're one big company. But we're not doing business as one company. We still have two salespeople, and you have to get two different shipments." Until it consolidated its two lines, Coty risked losing the raison d'etre for the acquisition and risked alienating its customer base.

And that's not what it shelled out almost a billion dollars for.

"Good Enough" Integration

Upon returning to Haarlem, Berry and his team began developing their strategy for making sure Coty didn't fritter away the advantages it sought in the UCI acquisition. The June 30 deadline made speed paramount. Berry would focus on the processes that had to be completed to merge the two workforces. Everything else, from daily sales tracking to real-time order monitoring, could wait.

Traditional systems integration is an all-or-nothing proposition: You teach one system to speak another's language. If it can't learn, it flunks. That's why these projects can drag on for years. But Berry needed a different philosophy and a new methodology. And he knew what it would be. In September 2005, Coty had signed a deal with iWay, a middleware vendor, to facilitate developing a service-oriented architecture (SOA). The SOA was intended to help Coty manage a $US500 million procurement outsourcing deal it had just signed with IBM. But in November Berry had gone to a Gartner conference in Cannes, France, that focused on using SOA to integrate disparate systems faster than traditional integration projects were able to do.

Rather than teaching each system all the other systems' languages, the SOA could act as a universal translator. (An order in SAP would be rendered as a service, which could be recognized by, say, JD Edwards, without having to reconcile the two languages.) The only thing the Coty team would have to teach the software would be the business processes. For example, what that order looked like and where it should be routed and under what circumstances. If they could do that right, Berry and his team might make the June 30 deadline.

"You don't want to be one of those guys whose merger didn't work because it took too long," says Berry. "So I bet the farm that this was going to get the job done."