When e.l.f. Beauty announced its acquisition of rhode, Hailey Bieber’s minimalist skincare brand, for a headline-grabbing $1 billion, the global beauty landscape was awash with admiration, envy, and misconceptions. Many assumed that the full billion-dollar figure would line Bieber’s pockets overnight. However, in the very high-stakes world of M&A, especially in beauty, deals are rarely so simple.
The rhode deal included $800 million upfront ($600 million in cash and $200 million in e.l.f Beauty stock), and potential for a $200 million earnout, contingent on Rhode meeting performance targets over the next three years. This structure, typical in many M&A transactions, proves just how nuanced the acquisition landscape truly is. Today, being acquired is often seen as one of the foremost accomplishments in a brand’s success story. For founders, it’s the ultimate validation and proof that years of bootstrapping, branding, and building have culminated in real commercial value. For buyers, it’s a chance to tap into new audiences, innovation, or cultural relevance that can't be built in-house.
What’s in a Deal? Understanding the M&A Mechanics
At its core, an acquisition occurs when one company purchases another, often to expand market share, access new customer bases, or enhance its product offering. A merger, by contrast, typically involves two companies of relatively equal size coming together to form a new entity. “In beauty, people often conflate the two, but they’re distinct,” John Cafarelli, President and co-founder of BeautyMatter explained. “Acquisitions are far more common because they offer full control to the acquiring party,” the investment banker and private equity expert continued.
The rhode transaction is a textbook example. Though the public may fixate on the billion-dollar figure, only $600 million is guaranteed, and $200 million granted in stock. The remaining $200 million is an “earnout,” a common deal feature that makes part of the payment contingent on the brand’s post-acquisition performance, typically profitability, measured by EBITDA (earnings before interest, taxes, depreciation, and amortization). This structure protects the buyer. “If rhode performs, e.l.f Beauty pays. If it doesn’t, they don’t,” Cafarelli said. “It’s essentially e.l.f Beauty saying, ‘We think you’re worth a billion, now prove it.’”
Despite the allure of M&A, not every indie beauty brand is ripe for acquisition. Buyers, especially large strategic ones like L’Oréal, Estée Lauder, and Unilever, typically seek targets that fill a specific gap in their portfolio. This could be new channels, audiences, categories, or technologies. “Strategics use acquisitions to buy what they can’t build internally, whether that’s a cult following, a disruptive distribution model, or scientific innovation,” Cafarelli said.
Rhode ticked several boxes. Though it offered a limited product lineup, it had achieved $200 million in revenue, largely through DTC sales. It was profitable and influencer-powered, with a community that punched far above its weight. “To achieve that kind of scale in such a short time—entirely DTC—is remarkable,” Cafarelli noted, adding that “Rhode gave e.l.f Beauty channel diversification, customer diversification, and prestige market presence.”
Other recent deals, like L’Oréal’s over $1 billion acquisition of clinical skincare brand Medik8, suggest a growing appetite for science-backed premium brands. In contrast, e.l.f Beauty’s prior acquisition of Naturium reflected less diversification, as both brands sell into the same mass retail channels. Rhode, with its prestige positioning and unique distribution, was a strategic leap.
The Goldilocks Zone: Too Small, Too Big, Just Right
Founders dreaming of a billion-dollar payday may be surprised to learn that scale can be both an asset and a liability. For example, the bigger a brand grows, the smaller the pool of acquirers gets. “There’s a Goldilocks zone in beauty M&A,” Cafarelli said. “If you’re too small, you’re not acquisition-ready. But if you grow too big, you can outprice yourself from potential buyers.” This is especially true for indie brands with limited cash flow. Scaling too far may push them toward private equity or IPOs, routes that rarely match the valuations of strategic buyers.
One of the most enduring M&A myths is that the founders walk away with the full acquisition figure. Taxes, equity splits, earnouts, and legal fees significantly reduce take-home payouts. Additionally, founders often remain contractually involved post-deal, sometimes with little influence. “You can be part of the brand post-sale but have no real say,” Cafarelli warned. “They can keep you around or sideline you entirely. And if there’s an earnout, that lack of control can affect your ability to hit targets.”
Brands should also be wary of who they sell to. While L’Oréal has a strong reputation for nurturing acquired brands, including CeraVe, La Roche-Posay, etc., others like Shiseido have struggled, although the former, L'Oréal, has also had unsuccessful integrations. “They acquired Drunk Elephant and mismanaged it. It’s down 65% this quarter,” Cafarelli pointed out. It has also divested from brands like ReVive, Buxom, Laura Mercier, and bareMinerals. “So if I were a founder who cared about my brand’s future, I’d think twice before selling to a company with a poor track record.” Conversely, Sheseido has had tremendous success with NARS.
Despite the risks, however, acquisitions can be transformational. For founders looking to move on, reduce risk, or scale beyond their operational limits, a strategic buyer offers invaluable support like a more global distribution, sophisticated marketing, product development infrastructure, and capital. Cafarelli praised e.l.f Beauty’s marketing muscle as a major asset for rhode. “E.l.f Beauty is one of the best marketers in consumer brands, full stop. Plugging into that machine is a huge opportunity for rhode.”
Moreover, acquisition enables innovation at scale. With access to elite labs, advanced manufacturing, and robust R&D budgets, brands can execute ideas that previously sat in the pipeline due to a lack of resources.
Yet, for many founders, especially those who’ve built brands tied to their own identity, the psychological toll of letting go is significant. Control over everything from product formulas to marketing narratives may be lost. In cases where the founder’s name is the brand, like Bobbi Brown or Jo Malone, legal restrictions may even prevent them from launching future ventures under their names.
“Jo Malone sold her brand and her name. She doesn’t own it anymore,” Cafarelli said. “If the brand fails, her name goes with it. That’s a big risk.” Founders also risk cultural dilution. Strategic acquirers may prioritize profitability over the brand’s ethos, leading to product reformulations, shifts in messaging, or even layoffs.
Valuation: Then vs Now
Beauty valuations today aren’t what they were five years ago. According to Cafarelli, many brands that once commanded six to eight times revenue multiples are now trading closer to three to five times, a sobering reflection of tighter capital markets, macroeconomic uncertainty, and less frothy investor sentiment. “Rhode is a unicorn,” he explained. “It’s incredibly rare to see that kind of number in this market.”
E.l.f. Beauty’s acquisition of Naturium for $355 million in 2023, reportedly at around four times its revenue, a solid but not explosive multiple, and L’Oréal’s purchase of Medik8 earlier this year for £1 billion ($1.3 billion) are perfect examples. “Buyers are more conservative now,” Cafarelli said. “They want proof of scalability, not just hype.”
Whether M&A is a dream or a cautionary tale depends on the founder’s goals. Some are motivated by financial exit, while others are by legacy. A few want to remain involved long-term, while others want a clean break. “The best deals are the ones that align with the founder’s values,” Cafarelli said. “But always remember that the minute you sell, it’s no longer your brand.”
In today’s seemingly saturated beauty landscape, acquisitions are more than just glamorous press releases. They’re high-stakes transactions that require clarity, legal expertise, and strategic foresight. The rhode-e.l.f Beauty deal is a landmark moment—not just for the billions involved, but for what it teaches the industry about timing, positioning, and performance.
The billion-dollar acquisition of rhode will likely shift expectations and strategies across the beauty M&A ecosystem, but that doesn’t mean a flood of billion-dollar deals is coming. “E.l.f Beauty’s rhode deal is the outlier, not the rule,” Cafarelli cautioned. “What it does, though, is reaffirm that beauty brands with real communities, DTC efficiency, profitability, and cultural currency can break through. But the bar is higher now. Buyers are more disciplined, and founders need to be sharper.”
The days of pure hype-driven valuations may be over, but strong fundamentals still sell. “Smart money still believes in beauty,” he said. “But they’re asking better questions. Founders need to be ready with better answers.”
