The dynamics of beauty M&A remain auspicious, although with the activity of previous years and an influx of newcomers to the category, competition for deals is fierce. According to an April report from CB Insights the number of deals in the beauty sector was an all-time-high of more than 149 deals in 2017 or a 19% increase from the previous year.
Large, traditional beauty players will still be looking for growth and innovation through the acquisition of smaller indie companies. Everyone is looking at brands sooner, and nothing seems too small to have on the radar, because at any moment one of these brands can catch digital fire and scale quickly, and no one wants to be left flat-footed.
“While 2017 was one of the greatest vintages ever in terms of the quality of the assets, 2018 still seems to be a pretty prodigious year,”Andrew Shore, managing director at Moelis & Co, said. “We’re just at the tip of the iceberg … I think the pendulum has begun to shift to skin and hair.”
“The beauty M&A environment will continue to be robust in 2018,” Vennette Ho, managing director at Financo, said. “Even beyond the typical brand acquisition, we expect to see new entrants to the industry, big companies making small investments and folks playing all along the beauty value chain—from manufacturers to digital agencies to technology to retailers.”
“You’ll see activity in a bit of a continuation with 2017 with skin and hair, and you’ll see some color peppered in there as well,” according to Steve Davis, managing director at Intrepid Investment Bankers.
“I’m not sure chasing more makeup is necessarily what you’re going to see,” Stifel analyst Mark Astrachan mentioned. “I’m not convinced of it.”
“The next generation of acquisitions are going to be the most digitally inspired, heavy in social media, heavy in influencer marketing and finding [differentiated] ways to consumers,” said Shaun Westfall, managing director at Jefferies.
“If anything, demand should increase because going into 2018 you’ve got all the pieces of the puzzle,” Intrepid’s Steve Davis added. “All major strategics are active.… You’ve got a bunch of platforms in place and new platforms that formed in 2017 that didn’t exist [before].”
If there’s any slowdown this year, it’ll only be because demand for buyout candidates outstrips supply, Colin Welch, a managing director at TSG Consumer Partners, told Bloomberg in July.“There’s a lot of capital chasing investments,” says Welch.
“The beauty companies have become extremely acquisitive because their portfolio brands have been tired and dated,” says Ryan Craig, a partner at Bertram Capital Management. “That has left an opportunity for a lot of small, nimble brands to attract younger consumers because they offer something new.”
Transaction Predictions in 2018:
- Arbonne (Groupe Rocher has entered into a definitive agreement to acquire Arbonne International)
- Array Marketing
- Cover FX
- Not Your Mother’s
- Derma E
- This Works
- Thrive Causemetics
- Anastasia Beverly Hills
- Coty has publicly said it hopes to sell a portion of its portfolio
2017 M&A Beauty Deals in Review:
Photo: Justin Clark via Unsplash