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The future of M&A in beauty: why newness is no longer enough



The beauty sector may have reached peak saturation. Over the past few years, it has seemed like everyone – from online influencers to top-tier financiers – has staked their claim in the market, launching brands, incubating startups or making high-profile investments. It’s not hard to see why: now predicted to be worth $580bn by 2027, beauty presents a highly attractive economic proposition, and is growing far more quickly and has proven to be far more resilient than many of its adjacent consumer goods categories.   

As part of this, the sector has been home to multiple waves of M&A activity. We’ve seen a string of ‘mega deals’, as beauty groups spend billions on key brands to strengthen their portfolio. We’ve seen major conglomerates spin out non-core brands. We’ve seen beauty groups buy-in innovation, new technologies or different customers buy acquiring young brands, and, most recently, we’ve seen the tide turn towards mid-sized deals, as businesses target acquisitions in the $100m to $500m range.  

Now, as we move into the new financial year, it feels like the right time to ask what’s next for M&A in beauty. What can we expect in the months ahead? How can beauty companies and PE firms capitalise on rapidly-evolving market? And what does a winning investment strategy look like in 2024/2025?  

First, we can expect to see the continued conflation of the beauty and luxury spheres. In late 2022, Estée Lauder’s $2.8bn acquisition of the Tom Ford brand was an indicator of its confidence in luxury as a major revenue driver, and since then we’ve seen a string of deals which prove the luxury sector’s interest in winning beauty customers.  

Estée Lauder’s $2.8bn acquisition of the Tom Ford brand was an indicator of its confidence in luxury. Image credit: Adobe/JHVEPhoto.

Kering’s $3.8bn purchase of Creed is a prime example. In June, the Gucci owner made the luxury fragrance house Creed a cornerstone of its new in-house beauty division, and committed to beauty as a core strategic pillar. In September, Richemont indicated a similar strategy, announcing the formation of its Laboratoire de Haute Parfumerie et Beauté. For luxury businesses, beauty presents an obvious avenue for demographic and geographic growth, offering consumers entry-level access to its products at more affordable price points. It will be interesting to see how this trend plays out in the months and years ahead, and if we start to see luxury groups take back control of their beauty and fragrance brands, which are typically licensed out. Gucci’s beauty license – currently held by Coty until 2028 – is reportedly worth as much as $500m in sales… will Kering bring it in-house?   

Second, we’ll see continued investment into developing markets, specifically India. The Indian beauty sector is ballooning, as young local brands take on established labels, and international groups target the region for expansion. We’ve seen a string of deals in the market: in June, private equity group Carlyle took a $300m majority stake in VLCC, a provider of beauty and wellness solutions; in November, LVMH struck a deal with Reliance Industries to expand Sephora India, and in the same month, Unilever Ventures announced the backing of haircare brand Wishcare. I’m looking forward to seeing how international appetite for investment into the Indian beauty sector grows. There’s certainly an exciting opportunity, with Hindustan Unilever predicting “many, many decades” of “massive growth” in the segment.  

“The Indian beauty sector is ballooning, as young local brands take on established labels, and international groups target the region for expansion.

Thirdly, and perhaps most interestingly, I predict that the M&A strategies will fundamentally shift in this next period. Up to now, small and mid-sized acquisition activity has been geared towards innovative and creative brands that offer the buyer a point of difference. We’ve seen companies acquiring young labels with cult followings, that can generate buzz and provide access to new customers.  

The Indian beauty sector is ballooning as brands including Sephora target the region for expansion. Image credit: Adobe/Elena

We’ve also seen businesses acquiring technology companies to boost their capabilities. Since the beginning of 2023, for example, L’Oréal has built up a raft of sustainability-focused acquisitions, buying in microbiome research know-how with the acquisition of Lactobio; taking a minority stake in Chinese biotech company Shinehigh Innovation; investing in the Geno-led initiative for sustainable ingredients, and acquiring the environmental water tech startup Gjosa.

In this financial year, however, innovation and excitement won’t be enough. Conversations with investors and beauty group leaders have made clear that organisations today are looking for safer bets, and to invest in companies with proven success, and a strong trajectory for future growth.

Conversations with investors and beauty group leaders have made clear that organisations today are looking for safer bets, and to invest in companies with proven success, and a strong trajectory for future growth.” 

Indeed, this year’s deals speak to this change: in the past few months, Shiseido acquired Dr Dennis Gross, Unilever Prestige took control of K18, and Puig bought Dr Barbara Sturm. These are businesses that not only address a distinct consumer need and complement existing portfolios, but have proven scalability, global relevance, and a pre-existing multichannel presence. The buzz of new is no longer enough. Biotech firm Amyris, which filed for bankruptcy after snapping up a string of celebrity-founded brands, is clear proof of this.

In the past few months, Shiseido acquired Dr Dennis Gross, Unilever Prestige took control of K18, and Puig bought Dr Barbara Sturm. Image credit: Adobe/JHVEPhoto.

The pool of potential acquisitions has also shrunk considerably in the last year. Groups and investors will have to act fast, and carve out their strategic niche. Private equity firm Yellow Wood has focused efforts on scooping up brands that have fallen out of corporate divestment, for example, whereas L Catterton is looking to leverage not just its ability to invest, but also its understanding of early stage businesses via the launch of a new platform; Elevate Beauty, a fund dedicated to beauty businesses looking to grow beyond their current $10m to $20m size, with a more incubator-style approach.  

While we may not see as many major blockbuster deals this year, the sector will certainly continue to evolve at pace. I’d be interested to hear any predictions from you – please do get in touch!  

Francesca Sevilla-Rebelderia | @TheMBSGroup.

London Data Summit 2024



26th March | London | Online.

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