Kolmar/OSG combined sales total $210 mil.; more treatment contracts sought.

KOLMAR/OSG COMBINATION WILL GENERATE $210 MIL. IN ANNUAL SALES following the acquisition of the cosmetics and skin care contract manufacturer from CCL Industries by Outsourcing Services Group, OSG said. A holding company formed by Newport Beach, Calif.-based Gordon+Morris Group and HarbourVest Partners (Boston), OSG roughly doubles its sales with the Kolmar Labs purchase, which closed Jan. 8. The holding company also owns two contract aerosol manufacturers, City of Industry, Calif.-based Aerosol Services Company and Piedmont Labs (Gainesville, Ga.). OSG hopes to double sales over the next few years.

Kolmar manufactures a variety of cosmetics and skin care preparations for the beauty industry, including lip gels, sticks, glosses and pencils; eyeshadows, mascaras, liners and creams; as well as facial powders, fragrances, nail polishes, shampoos, liquid soaps, shaving creams and deodorants. The company was put up for sale by Toronto-based CCL Industries in June 1997. CCL purchased Kolmar in 1991 for $43 mil.

OSG acquired Port Jervis, N.Y.-based Kolmar for about $70 mil. ($100 mil. Canadian). According to the holding company, Kolmar is the largest contract formulator of color cosmetics and the top producer of skin care products, with clients such as Estee Lauder, Elizabeth Arden, Sebastian, Gillette and Avon. The deal includes Kolmar manufacturing facilities in New York, California, Pennsylvania, Canada, Mexico and Australia, as well as licensing and distribution facilities in Poland, Indonesia, Japan, Korea and Thailand. The combined companies have 2,000 employees worldwide.

OSG will continue to investigate potential acquisitions in the contract manufacturing field over the next several years, with an emphasis on health and beauty care and OTC drug companies to "gain critical mass," the holding company said. OSG believes the fragmentation in the H&BA custom production industry makes for significant opportunities to combine and consolidate individual businesses.

In terms of company consolidation, OSG plans to investigate cross-selling opportunities, capitalizing on the synergies in product innovation and manufacturing opportunities of Kolmar, Aerosol Services and Piedmont. For example, OSG hopes to offer its aerosol salon customers Kolmar's skin care and cosmetics products. In addition, the firm said its direct sales clients may be interested in high-end aerosol technologies, such as the "bag-in-a-can" mechanism, or products that are environmentally friendly.

To sustain future growth, OSG is looking at a number of new product initiatives, most notably in the skin care market. The company hopes to expand its product portfolio into the treatment arena and capture a bigger piece of the contract formulation pie. With more cosmetics companies looking to market niche skin care products, OSG predicts a big future in treatment, which the company said is growing at twice the rate of color cosmetics.

Kolmar management will continue to be involved in the operations of the company. Former President Chris Denney has assumed the role of OSG CEO, while former CCL Industries Chief Operating Officer Dennis Nolan has taken on an identical role in the holding company. Former Aerosol Services Chief Operating Officer John Hewson has been named senior VP-sales and marketing, and Joe Sorais remains OSG senior VP-finance. OSG will be run by 10 upper management execs to start.

Since OSG's management personnel are spread across North America, the company plans to move its corporate headquarters within a 50-mile radius of New York City during the second quarter. A site will be chosen in the upcoming weeks. The head office will also include a new Innovation Group, a team of creativity development chemists and conceptual product and packaging experts. The group will be headed by VP-Marketing and Innovation Bill Hogan and R&D Director Chris Baker.