In Exclusives, Finance, Insight

This article is the first of a three-part series on the M&A beauty landscape. Part 1 is a look back at the 2016 Beauty M&A landscape. Parts 2 and 3 will provide insight on what 2017 has in store.

This year proved to be another blockbuster when it came to M&A. There were multiple billion-dollar deals, historic firsts, and continued consolidation. We asked a few M&A insiders to provide their insight into what fueled the activity in 2016.  Here’s what they had to say.

Vennette Ho, Managing Director, Financo

Both strategics and private equity recognize that the beauty market is shifting quickly, and that growth today is being driven largely by independent brands. We believe M&A in 2016 was driven by a need by strategics to realign for growth—either through diversification into new channels and consumers or “mega-deals” which reshaped the landscape of the industry.

Andrew Shore, Managing Director, Moelis & Co

There was truly a supply/demand imbalance. Private equity looked to monetize assets they owned for many years. Over this time, PE did what PE usually does well—it made these companies much better. Unlike prior years, it seemed really good assets came to market this year or, I should say, this vintage was one of the best in years. This crop is the equivalent of the 1961 red wines from France. Epic in nature. So, great assets (supply) and overwhelming demand from strategics highly motivated because of slow growth (China, Western Europe, Brazil, etc.) and channel (US department stores) issues.

  • J&J’s outsized multiple for Vogue was driven because of category expansion (more scale in hair care) and internationally motivated (recapturing the premium paid via international growth).
  • Henkel paid 12.5x EBITDA for sun products to build scale in household products in the US.
  • L’Oréal paid up for expertise in DRTY and the opportunity to expand IT cosmetics into broader retail channels.
  • Estée Lauder paid $1bn more than it offered for Too Faced 18 months ago because it needed access to a young, pink, girly brand. And they were willing to pay up because they are concerned that Mac-US is weak. Mac’s growth in recent years has covered a lot of deeper issues within the portfolio.

Strategics were also nervous that if they lose a deal to another strategic they lose the property forever. Low rates and higher stock prices really didn’t matter since there weren’t any stock deals, and basically every strategic deal was funded with cash.

Rich Gersten, Partner, Tengram 

Indie brands continue to take share from larger brands. Larger companies need to acquire growth to make up for the lower growth of their established brands. There are many indie brands owned by PE firms, which makes them more “available for sale”. Also, larger companies will acquire brands to learn from them (e.g social/digital media). If you look at the fastest growing color brands based on Earned Media Value, many have recently traded to larger corporate buyers. The explosive growth in color is related to this competency and many of those brands (e.g. too Faced, Becca) have recently traded

Deva Finger, Co-Founder Luxury Brand Partners

The major driver for the robust M&A activity in the consumer space in 2016 was driven by the public Strategics (the Conglomerates). These Strategics are constantly under pressure from their shareholders to provide growth in their stock price, and that is tough to do in a market as saturated as the consumer beauty space. A great option for providing growth and newness amid the sea of brands is to acquire up-and-coming brands that don’t represent the “sameness” that they are continually pumping into the system. Younger brands can innovate, push the envelope, and break the rules, which make them stand out against the more bureaucratic conglomerates in the market. With Strategics on the hunt for new brands and willing to pay up, this creates a shortage in the supply of quality up-and-coming brands which in turn creates a domino effect for financial buyers. That is, your typical Private Equity firms are then forced to compete on price and terms with the Strategics, driving up valuations and fueling the hunt for good acquisitions.

Ilya Seglin, Managing Director, Threadstone

One of the main drivers for M&A was beauty / personal care multinationals buying growth. From OGX to It Cosmetics to Too Faced, it was all about strategics whose core businesses are experiencing slower growth (or declines, in some cases) yet continue to trade at premium valuations and need to sustain growth trends to justify those valuations. So when the core business is slowing, they are looking at M&A for solutions. The added element, of course, is many of the acquired businesses also have well-developed expertise in consumer engagement / new era marketing, which (at least in theory) the larger players could benefit from across the rest of the portfolio. Time will tell whether internal processes actually allow for that to happen.

Matt Jung, President, TrendSeeder 

2016 saw strategics looking to capture the millennial consumer and the understanding of how to operate and activate influencer marketing, which has essentially become its own channel.

Alyssa Gallot-Auberger, Global Chair, Consumer Goods & Retail Industry Group, Baker & McKenzie SCP

I’m of the view that the 2016 drivers were the “traditional” drivers in the luxury sector – filling out a brand portfolio with a missing piece either in the supply chain (securing all aspects of product to market – either raw materials or dispatch) or product positioning “holes” in the mix – adding a luxury element to a more high street brand or rounding out a high end established portfolio by a younger/edgier brand.

Recent Posts
pingbacks / trackbacks
  • […] This article is the second of a three-part series on the M&A beauty landscape. Part one was a look back at the 2016 Beauty M&A landscape. Part two and three provide insight on what 2017 has in store. Read part one.  […]

Contact Us

We're not around right now. But you can send us an email and we'll get back to you, asap.

Start typing and press Enter to search