This week, I examine the big strategic players in beauty with a focus on those who could be interested in buying the bevy of indie brands currently available on the market. Plus, lots of executive shuffles and some exciting spring beauty news.
Who are the biggest M&A players in beauty?
Since the beginning of the year, there have been several news stories and coordinated leaks about the beauty brands that are looking for buyers. First, in January, was the news that cosmetics brand Kosas had hired bankers. Then came reports that Merit, Glossier, Summer Fridays, Rare Beauty and PE-owned Jane Iredale, among a few others, were also considering selling. There were also rumors of an impending Westman Atelier sale, but David Neville, Westman Atelier CEO and founder Gucci Westman’s husband, refuted those rumors in a story published by Fast Company. In October 2023, Glow Recipe also squashed rumors that it was selling, though it previously tapped Goldman Sachs in 2022 to explore options.
“[The market] is seeing a lot of color [cosmetics brands] in the news,” said Sasha Radic, managing director of beauty and wellness investment banking at Jefferies. “These brands have spent the last few years building an incredible position coming out of Covid-19 when customers are energized by color and seeing it as an exciting way to return to normal [life].”
Though several brands are purportedly on the market, the companies that may be interested in buying them remain a question. Deal multiples have recently ranged from 2.9 to 5.9, meaning that a brand earning $100 million in revenue could expect to sell for between $290 million and $590 million. There are only a few possible buyers for some brands, like Rare Beauty, which reportedly earned $360 million in 2023 net sales and seeks a valuation of $2 billion.
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Spanish conglomerate Puig has been a recent M&A player, with its splashy majority-stake acquisition of Charlotte Tilbury in 2020, followed by Byredo in 2022. It most recently purchased Dr. Barbara Sturm, in December 2023. Having mostly filled major holes in its brand portfolio, the company now seems focused on its impending IPO in May. The company intends to use proceeds from its IPO to refinance the acquisitions of additional stakes in Byredo and Charlotte Tilbury and to fund future strategic investments, according to company documents.
Meanwhile, The Estée Lauder Companies, which has seen net sales decline for the last six fiscal quarters, may sit out on the next round of M&A as it focuses on reviving its travel retail and Asian sector businesses and positioning Clinique as a dermatological brand. And Coty Inc. is busy paying down its debt, which sits at $3.3 billion as of the end of fiscal year 2023, according to the company’s second quarter of fiscal year 2024 earnings in February. The company’s ratio of net debt to adjusted EBITDA is 3:1 as of the end of 2023 — Coty plans to bring that down to 2:1 by 2025.
For its part, E.l.f. Beauty leveled up its M&A status in Aug. 2023 with its $355 million purchase of Naturium. Although the net sale multiple for Naturium was a healthy 4x, E.l.f Beauty’s market cap is only about $9 billion, making it less likely that it can swallow a brand larger than Naturium at this time. The Naturium transaction was funded via available cash on hand, borrowings under E.l.f. Beauty’s existing credit facility and approximately $70 million in E.l.f. Beauty stock issued directly to founders and key management of Naturium. As of the third quarter 2024 earnings from February, E.l.f. Beauty had $72 million in cash on hand, compared to $87 million the year prior. Tarang Amin, CEO of E.l.f Beauty, said on the earnings call that cash priorities for the year are “investing behind our growth initiatives and supporting strategic extensions.” That will include hiring, supporting infrastructure, transitioning enterprise resource planning to SAP and supporting consumer demand.
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Shiseido, on the other hand, is a viable player at the moment. The Japanese conglomerate acquired Dr. Dennis Gross in Dec. 2023, filling the company’s dermatological skin-care hole and expanding its prestige skin-care portfolio in the U.S. region. Aside from prestige brands Shiseido and Nars, the company lacks premium cosmetics brands with distribution outside of Asia. Shiseido previously owned Laura Mercier, Buxom and Bare Minerals but sold those brands to PE firm Advent International in 2021.
L’Oréal is also a viable player based on its steady and recent history of acquiring new brands and technology companies. Over the last four years, the company acquired Japanese skin-care brand Takami, as well as Mugler brands, Azzaro fragrances, Youth to the People skin care, derm brand Skinbetter Science, Denmark probiotic research company Lactobio, Aesop skin care (for $2.5 billion) and, most recently, water tech startup Gjosa. Sales traction among these brands has been impressive, with Takami doubling its sales in 2023 and Skinbetter Science becoming the No. 3 medical aesthetic skin-care brand in the U.S., according to L’Oréal’s fourth-quarter and year-end 2023 earnings from February. L’Oréal’s year-over-year sales for 2023 grew 7.6% on a reported basis and 11% on a like-for-like basis to approximately $44 billion. Notably, with the acquisition of Youth to the People in early 2022, L’Oréal showed it was comfortable buying smaller and younger brands, as Youth to the People earned only $50 million in 2021 sales, according to a press release.
The big outlier that has to be mentioned is that some brands may entirely eschew acquisition in favor of going public. This is especially true for Glossier. Some evidence supports this: Glossier has always maintained a sense of independence, rooted in its initial DTC-only model and democratized approach to consumer-centric products. There is also the very real issue of its sky-high valuation of $1.8 billion, which it may only actualize on the public market. That valuation came after it raised $266 million from VC heavyweights including Forerunner, Index and Sequoia. The company’s 2023 earnings were $175 million, according to Puck. Even with a high 5.9x multiple, the brand would only land at just over $1 billion. And with Oddity and E.l.f. Beauty proving the success of being an independent brand that IPO’d (sorry Olaplex), Glossier has beauty compatriots it can reference to show its plan can work.
Executive moves:
- Design and fragrance brand L’Object appointed Stanislas Le Bert as the brand’s first CEO. Le Bert most recently served as CEO of Swedish beauty brand L:a Bruket and, prior, held regional and global roles at Diptyque and Byredo.
- Sephora appointed Xia Ding as the managing director of Greater China, where she will report directly to Asia President, Alia Gogi. As managing director of Greater China, Ding will lead Sephora’s business in Hong Kong SAR and Mainland China, overseeing around 350 stores, two e-commerce websites, and digital platforms and apps.
- Kering announced the appointment of Stefano Cantino as deputy CEO of its Gucci brand, effective May 2. Cantino joins from LVMH where he oversaw communication and image at Louis Vuitton.
- L’Oréal USA named Silvia Galfo, formerly the division’s chief growth officer, as its new president of the luxe division. She will succeed Megan Grant in the top slot. The luxe division encompasses Prada Beauty, Giorgio Armani Beauty, Lancôme, Kiehl’s and Yves Saint Laurent, among other brands.
- U.K. luxury department store Harvey Nichols announced Julia Goddard as its new CEO on April 17. Goddard will join in June from Alexander McQueen, where she has spent five years as EMEA president. She replaces Manju Malhotra, who in August 2023 resigned from her post after 25 years with the company following an alleged dispute over growth strategy with the group’s Hong Kong-based owner Sir Dickson Poon.
- Frederic Malle plans to leave his eponymous luxury fragrance brand at the end of June, after starting the brand 25 years ago and successfully selling the brand to The Estée Lauder Companies in 2015.
- Jessica Alba, co-founder of personal and home care company The Honest Company is stepping down from her role as chief creative officer. According to the company, she will continue to offer support and leadership as a member of the Honest board of directors.
News to know:
- On May 6, Kopari plans to launch a Vitamin C collection with three products: a serum, a moisturizer and an SPF 50.
- On April 19, YSL Beauty announced the regional expansion of its ESG program, Rewild Out Earth, which pledges to protect and restore 100,000 hectares of wilderness by 2030. The new areas include a single region in the Bahamas and two regions in Colombia.
- Anastasia Beverly Hills hosts its first pop-up shop in SoHo, New York City to spotlight its Beauty Balm launch.
- Fitness ring Ōura expanded to Target on April 22.
In the headlines:
PE firm acquires Mented Cosmetics, following recent business challenges. Gregg Renfrew buys back Beautycounter. Singer-actress Rita Ora launches hair-care brand Typebea. Puig targets $15 billion IPO. Can Congress actually ban TikTok?
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