If one thing’s for certain about beauty M&A, it’s that the race is on.
Amidst the deal flurry that included talks between the Estée Lauder Cos. and Puig, Advent International’s acquisition of Salt & Stone or Henkel’s snapping up of Olaplex, leading dealmakers sat with senior beauty editor Kathryn Hopkins to discuss what’s happening in M&A and why.
“We’re hearing of the restructuring and clean-up that needed to happen at the top that people have been talking about needing to happen for a couple of years now,” said Katherine Power, founder of Versed and Merit and partner at Greycroft. “We had a couple years of slower M&A market, but it all starts with the top. Once that is cleaned up and a little bit more organized, we will start to see a lot more activity.”
Case in point, in the past week alone, the Estée Lauder Cos. and Puig revealed they were discussing a merger, just days before Henkel acquired Olaplex. “We’re in a time where we’re navigating a very dynamic market, and uncertainty has become the baseline,” said Fei-Fei Zhang, J.P. Morgan Investment Banking’s head of beauty for North America. Despite a riskier backdrop, “we’ve seen a notable surge in megadeals and cross-border activity to date. Overall volumes through February are up 36 percent to $800 billion, which is second to only 2021 in this decade.”
Michael Toure, founder of Toure Capital, said that given beauty’s resistance to recessionary pressures, “we might actually see a new range of investors coming into the space, people that were traditionally more generalist.”
Toure advises a few different brands that perform well on TikTok like Sacheu, and he sees a new growth path within the channel. “Thanks to TikTok and TikTok Shop, depending on how you perceive this, it’s the first time you can make a true omnichannel strategy. Up until now, everyone was thinking ‘I’m spending money on Meta and Shopify, and it’ll dribble down to my retailer and Amazon.’ That never happened. And for the first time, you have a social platform that allows you to drive traffic to every channel, offline and online.”
Power said she looks for brands that show high gross margins and stellar product development, in addition to the long-term durability of a business — as opposed to flash-in-the-pan buzz.
On the founder-driven brand front, there’s been less activity. Toure attributes this to a few key factors. “Founders are realizing ‘I’m working alone. I have my team, I’m doing $15 million, I have 20 to 25 percent EBIT margin. Why do I need to rush?’”
Additionally, there’s appetite for early-stage or very mature businesses. “This ecosystem of $30 million to $75 million, or even to $200 million, it’s very difficult to find a lot of private equity that wants to buy a majority of the business and be that majority owner,” Toure said. “I think that part of the industry right now is missing.”
Although deals have rationalized, “We have seen a normalization of multiples on average, but each situation is unique,” Zhang said. “For exceptional brands, an exceptional outcome is still very much achievable.”
