A lot can happen in 12 months. Heading into 2020, M&A activity in the beauty sector had been on fire for several years, and while there was constant chatter of a beauty bubble, 2019 proved to be another strong year. Everything seemed to get bigger—the investments, the deals, and without question, the exits. As of 21 November, beauty deal activity for 2019 had already outpaced 2018 by 19%, according to investment bank Capstone Headwaters. Strategic buyers, venture capital firms, and private equity companies had all been active, with many newcomers entering into the space. Beauty unicorns emerged, there were a number of billion-dollar deals, some brands were trading for more than eight times revenue or 10 to 15 times earnings, and bets were made on the next crop of indies with smaller capital raises in the $5–$10 million range.

The consensus was the market would continue to be healthy, with many investment bankers reporting robust pipelines of beauty deals for 2020. Others didn’t expect 2020 to be as robust as 2019 because the pool of mature independent brands of scale was quite small while valuation expectations remained high, predicting it could take two to three years for the next crop of indies to surface as the next beauty leaders driving the continuation of smaller capital raises. The decade also began with a new environment—magical unicorn thinking was replaced with investors looking for profitability and practicality rather than the high-flying bets on disruptors focusing on growth before profitability. “Where we are in M&A today, there’s a cautionary tale between the past and present,” said Andrew Shore, Managing Director at Moelis. When the makeup category was strong, purchase prices for brands went way up, Shore noted. “You found that every year, lower-quality assets were sold at higher prices, and now strategics are being more selective.”

But no one could have predicted the turmoil COVID-19 would unleash, creating a global crisis sparing few industries. While this year will be one of the worst, with the biggest sales declines in history, the beauty industry has shown resilience with decreases far less dramatic than that of many other sectors. Even with all the uncertainty and disruption of 2020, our 2019 predictions for the year held true. Below were the predictions in our Beauty Deals: M&A Transactions Year End 2019:

Clean Color: The overarching color cosmetics category continues to struggle, and consequently transaction activity will continue to be slow with the exception being the clean color segment. Formulation technology has evolved, allowing clean color brands to compete on long-lasting wear, performance, and payoff. Clean color brands are going to be a hot commodity in 2020, breaking out of their niche status.

The Activity: While the general color category continues to struggle, as predicted a bright spot could be found in the category with sustainably minded brands with clean formulations.

The Deals:

• Ilia Beauty raised a Series B from Sandbridge Capital to fuel growth.
• Kjaer Weiss received funding from Waldencast, a dynamic new fund focusing on early-stage beauty and wellness brands.
• e.l.f. paid $27 million in cash for W3ll People, which was expected to do $7 million in net sales for 2020.
• After 12 years of partnership, Kat Von D Beauty announced that founder Kat Von D sold her ownership stake and made a full departure from the brand, making Kendo the sole owner of the business.
• Kosas secured Series B funding to fuel growth. The round was led by Stripes with participation from existing investors. 2020 projections had the business tripling to $50–$60 million in retail sales.
• Saie announced a seed funding round led by previous investor Unilever Ventures with participation from Gwyneth Paltrow, G9 Ventures, and Stage 1.
• La Bouche Rouge secured €2.5 million ($3MM) in funding from French public investment bank Bpifrance along with a group of business angels.
• Freck Beauty closed a round of seed investment led by Stage1 Fund and KarpReilly.
• Millie Bobby Brown purchased a majority stake in her Gen Z clean skincare and makeup brand Florence by Mills from beauty incubator Beach House Group that helped develop and launch the line last year.

Note: It’s also worth noting La Bouche Rouge and Kjaer Weiss are not only luxury product propositions, but they are also based on refill concepts which have finally begun to gain traction.

Personal Care: The traditional back-aisle personal care category is undergoing a rapid evolution, with taboo-breaking brands tackling period care, sexual wellness, menopause, and body acceptance redefining the category. With investment, indie brands will continue to grow and take or create market share.

The Activity: Personal care fared well during the shutdown given the category proliferation in essential retail. This, coupled with a tremendous bout of innovation and reinvention of the category, has created excitement in what has been a staid category.

The Transactions:

• P&G bolstered its female grooming portfolio with the acquisition of DTC disrupter female shaving and body care brand Billie.
• Colgate-Palmolive acquired oral care disrupter Hello Products, a portfolio company of Tenth Avenue Holdings, a New York City-based private, diversified holding company.
• Brüush closed an oversubscribed $6.5 million Series A financing round, exceeding its original $4.0 million target, led by Gravitas Securities, followed by an announcement that comedian and actor Kevin Hart joined the brand as an investor and collaborator.
• Attn: Grace, the first subscription-based, sustainable wellness brand for women as they age, secured an additional round of $900,000 in pre-seed funding, bringing the total amount of funding to $2 million.
• Period-care brand Callaly raised £1.7 million in equity crowdfunding on Crowdcube, achieving 170% of the target. The company had previously raised around €8.8 million through angel investors and government funding. This latest raise brings Callaly’s total funding to £9.6 million.
• Female-led specialist investment fund Vaultier7 expanded its wellness portfolio, leading a €10MM Series B investment in French mom and baby personal care brand Joone.
• Personal care brand Beast raised $3 million in a Series A round led by Callais Capital Management.
• Burst Oral Care closed a Series C funding round led by Goldman Sachs’ Growth Equity Platform, GS Growth.
• Public Goods, the digitally native, membership-driven, one-stop-shop that offers high-quality, sustainable essentials across grocery, household, and personal care, received a significant strategic investment from the Growth Fund of L Catterton.
• Beiersdorf and purpose-driven natural beauty brand Stop The Water While Using Me! joined forces. The two Hamburg-based partners intend to jointly intensify the impact of sustainable skincare and to further their commitment to climate and resource protection.
• Clean deodorant brand Type:A raised $2.4 million in seed funding led by Marigay McKee and William Detwiler’s Fernbrook Capital Management, and is launching in 1,500 Target doors.

Note: It remains to be seen if the P&G acquisition of Billie will go through. The Federal Trade Commission plans to file suit to block the deal. The complaint alleges that the proposed acquisition would allow P&G, the market-leading supplier of both women’s and men’s wet shave razors, to buy Billie, a newer but expanding maker of women’s razors, and thereby eliminate growing competition that benefits consumers. Earlier this year the FTC filed a similar claim over competition concerns that prevented Schick-owner Edgewell from buying Harry’s in February.

Purpose-Driven Brands: Simply selling products is not enough. Consumers want brands that stand for something that aligns with their beliefs. Activist brands like Beautycounter and Milk Makeup will continue to be acquisition targets for the strategics because of the authenticity and community that are at the core of these businesses.

The Activity: While most brands speak to purpose, for others their purpose is the reason for being—it is a non-negotiable. Consumers have made it clear they expect brands to make a positive contribution to society. The rise of B Corps will add a level of validation to these claims, rewarding those that can substantiate values, claims, and commitments. The shift from profit to purpose is just getting started.

• Grove Collaborative, an online shopping destination that targets millennial customers with clean household and beauty products, raised $125 million at a $1.32 billion valuation.
• Canadian B Corp-certified home and sustainable lifestyle marketplace Goodee closed a $1.5 million Series 2 seed round of financing led by BDC Capital.
• Early-stage venture capital fund Eutopia closed a €100 million round of funding and received B Corp certification.
• Producer and rapper Pharrell Williams coupled his entrepreneurial spirit and activism with the launch of Black Ambition, an incubator for Black and Latinx entrepreneurs launching start-ups in tech, design, healthcare, and consumer products.
• London-based fund The Craftory, which invests exclusively in purpose-led consumer brands, has now joined the ranks of 3,200 businesses globally to be awarded B Corp certification.

Note: This year we not only saw more funds launch with the focus of investing in purpose-led consumer brands, but they are also becoming B Corp certified. They are walking the walk.

Increase in Asian Activity: In 2020 strategics in the region got more active in overseas deals. The Asia-Pacific region is the largest skincare and cosmetics market in the world—partnering with an APAC-fluent company is an interesting and potentially lucrative way to fuel growth.

The Activity: In addition to strategic activity in the region, the rising trend of homegrown brands is driving venture capital’s interest in funding C-beauty start-ups.

• L’Oréal signed an agreement to acquire the Japanese company Takami Co-owned by Japanese doctor Hiroshi Takami, founder of two eponymous dermatological clinics in Tokyo. The business generated sales of around €50 million ($60.95 million) in 2019 and continues its growth this year despite difficult market conditions.
• LemonBox, the supplement company selling American-style supplements to Chinese millennials, completed a pre-A round of $2.5 million led by Panda Capital and followed by Y Combinator.
• Yatsen Holding Ltd., the parent company of C-Beauty unicorn Perfect Diary, raised $617 million in a US IPO, valuing the company at $7.82 billion, and acquired iconic skincare brand Galénic from French pharmaceutical and dermocosmetic group Pierre Fabre.
• Dufry agreed to form a joint venture with Alibaba Group to partner in the Chinese travel retail markets.
• Hyundai Department Group acquired cosmetics material supplier SK Bioland for 120.5 billion won ($101.9 million), venturing further into the beauty and healthcare market.
• Shiseido announced a new joint venture with Yaman Co. for skincare and beauty devices called Effectim Co.
• DFS Group took a 22% stake in Shenzhen Duty Free Ecommerce Co, which is majority-owned by Shenzhen Duty Free Group.
• Indonesian start-up Social Bella secured $58 million in a Series E funding round from existing investors Temasek, Pavilion Capital, and Jungle Ventures.
• South Korea’s Handsome diversified into cosmeceuticals, acquiring a majority stake in Cleangen. The brand signed a deal to acquire a 51% stake worth 10 billion won ($8.2 million). The fashion company plans to leverage the distribution channel run by its parent group, Hyundai Department Stores, one of South Korea’s three major department store chains.
• South Korean beauty conglomerate Amorepacific acquired a substantial minority stake in Australian luxury skincare brand Rationale.
• Japanese beauty brand Etvos received a significant investment from Groupe Arnault and LVMH-backed global private equity firm L Catterton’s Asia fund for 125 million pounds ($161 million) from a global pharmaceutical company GlaxoSmithKline.

Beauty Tech: Shifting consumer preferences have changed the relationship between consumers and products. The demand for transparency, personalization, experiential retail, and community are all powered by technology working in the background across the value chain of the category. There is no end to the need for tech innovation, so investment and strategic acquisitions will continue.

Activity: Below are brands grounded in technology facilitating personalization and customization. The pandemic has been an accelerant, rapidly increasing the pace of innovation and adoption of technology to bridge the gap between physical retail and digital.

• Aryballe, the pioneer in digital olfaction, raised €7 million in a new global funding round from investors across Europe, North America, and Asia.
• ManiMe raised $6 million in venture capital funding led by Canaan Partners and Trinity Ventures.
• Function of Beauty, a leading creator of customizable hair, skin, and body care products, received a $150 million strategic minority investment from L Catterton.
• Shampora, a platform that lets you create and buy completely customized personal care products online, closed a new €3 million investment round.
• Nourished, the UK-based customized nutrition product that uses patented 3D printing technology, raised £2MM in seed funding.
• Customized skincare business Atolla closed a $2.5 million seed round led by Lyra Growth Partners.

Supply Side: Consolidation of smaller players, especially those in the organic and natural value chain, will remain attractive targets, as will those innovating on the sustainability front like Sulapac. There is tremendous opportunity for packaging companies capable of commercializing and scaling sustainable materials. Other B2B-focused companies working behind the scenes innovating fulfillment technology, e-commerce experience, and retail staffing will become interesting investments. The competition will heat up as funds that are typically brand and consumer focused are now looking at these assets.

Notes: Supply-side consolidation in contract manufacturing, ingredients, and packaging continued at a rapid pace. The pandemic saw consolidation begin across the e-commerce supply chain, from technology to warehousing.