by In recent years, skincare has dominated the beauty M&A scene, but this year could be different.
After struggling amid the global coronavirus pandemic, the color cosmetics category is finally back as consumers return to offices and start fresh. Innovation in the category combined with clean formulas helped a lot, driving sales to pre-pandemic levels.
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Now, that booming activity looks set to translate into M&A moves, particularly in the specialty color cosmetics category.
“Last year was the first year we saw new color growth, and investment decisions are not made in a vacuum. They are driven by actual trends,” said investment banker Ariel Ohana of Ohana & Co.
“This new class of brands has all been funded in the last two to four years. Investors usually like to hold between three and five years and want to exit when the market trend is favorable for their business.”
Check out Kosas Cosmetics, the Los Angeles-based makeup brand founded by Sheena Zadeh-Daly in 2015 that was an early entrant in the clean cosmetics category. WWD reported in January it hired investment bank North Point to explore sale options, according to industry sources.
Other brands that could be more mature in 2024 include Merit, Makeup by Mario, Saie, Milani and Tower 28. Rare Beauty juggernaut Westman Atelier and Selena Gomez are also in the mix, but sources believe it’s more likely these are the 2025 goals.
At the same time, TSG Consumer Partners is rumored to be mulling an exit from Huda Beauty, in which it acquired a minority stake in 2017.
However successful many of these players are, insiders are asking if there are enough potential homes for all these brands and who are the likely bidders?
The answer seems to be “yes,” but some buyers will not be traditional players.
Private equity is becoming more active in the beauty space. In the past year alone, Yellow Wood Partners acquired Suave North America and the Elida portfolio from Unilever, as well as ChapStick from Haleon. And he hasn’t been shy about the fact that he’s looking for more brands to add to his roster.
In 2021, Advent-backed Orveon acquired Laura Mercier, Buxom and Bare Minerals from Shiseido. It has been eyeing skin care targets, but with a new CEO at the helm, its strategy for this year is unclear.
International players are also more interested. “There are two new categories of strategy that you may also be active in 2024,” Ohana said. “The Asian strategies, because in recent years they are more savvy M&A, and the luxury goods strategies, which now consider beauty as a high priority investment area.”
Gucci owner Kering, for one, is actively expanding its beauty division, adding luxury fragrance house Creed last year and revising its licensing deals. In Asia, while beauty giant Shiseido has said it is currently focused on skincare, other strategists in Japan, Korea and China are actively looking for assets and could be open to color cosmetics , sources said.
Elsewhere, Elf has said it is open to more acquisitions after buying masstige skincare brand Naturim.
All this does not mean, however, that the traditional houses for beauty brands such as The Estée Lauder Cos. and L’Oréal in the mix. “They’re always watching,” one source said.
Two of Lauder’s California brands – Too Faced and Smashbox – are struggling as is the company as a whole, and speculation remains that it may divest underperforming assets, which the company has denied. However, multiple sources told Beauty Inc that he would be a good fit for Westman Atelier.
On acquiring color cosmetics brands, Kelly McPhilliamy, managing director of Harris Williams, said: “It’s an opportunity for strategists to not only expand their portfolios, but to reach their age and capabilities, and there are some really incredible brands out there that are there. doing all those things. That should attract very good interest.”
But with all these possibilities, many of the players will be looking at what will happen to the first company to sell.
Maggie Wilmouth, director at William Blair, said: “A lot of them are saying that if Kosas is the first to go, the town that the brand finds could be an indicator of how the market could play out the part other of the year. .”
McPhilliamy said: “It will be interesting to watch the chessboard and see which one gets first and what that means for second, third and fourth and fifth. This is definitely going to be an interesting year to see who wants to go ahead and wait and see where things land, where the interest is. There will be a lot to notice.”
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