As the pandemic recedes, M&A and investment activity wasted no time ramping up activity after the world was pretty much in lockdown this time last year. Brands have become more resilient in their ability to deal with shifts in consumer behavior and supply-chain uncertainties, which are expected to continue for the foreseeable future. According to Crunchbase, global venture capital funding for the first half of 2021 shattered records. Investors put more than $288 billion into deals worldwide, nearly doubling levels from a year ago. Pitchbook reports the US private equity industry is trending towards record figures, with almost three-quarters of all deals in the first half being add-ons.


Market data and insights platform Preqin reports that in the first half of 2021, the aggregate value of VC deals in the Chinese consumer discretionary sector reached $11.9 billion, putting it on track to far exceed the value of 2020 and 2019. The size of the China prize has investors globally focused on the market. Following the success of its NX NIVEA Accelerator in Seoul, South Korea, Beiersdorf is expanding the program to Shanghai and has signed a partnership agreement with Tmall to co-incubate Chinese start-ups to establish new brands on the market quickly and efficiently. Domestic Chinese investors have become more active internationally. Investors like Yatsen are making bets on acquiring international businesses yet to scale in the market, while brands like Frank Body are looking for strategic capital from China-based private equity firm EverYi Capital as they enter the market. 

This quarter saw Natura & Co. venture arm Fable make its inaugural investments in Perfumer H and Maude. The group kicked off Q3 with a third investment in LOLI Beauty. Following the $1.6 billion SPAC deal in January, Hims & Hers is on the acquisition trail, snapping up UK-based telehealth business Honest Health and dermatology platform Apostrophe. And biotech leader Amyris continues on the M&A path, closing deals with Beauty Labs and Olika. 

Highlights: 

Investors continue to fuel early-stage investment in men's concepts, haircare, personal care brands with a self-care focus, and wellness businesses. 

While "clean" beauty may have become table stakes, the concept is witnessing a moment of reckoning from the media and consumers calling brands and retailers to task for nebulous definitions, greenwashing, and fearmongering. Investors remain bullish in the category; however, the investment trend in the category leans towards science-backed, environmentally conscious brands with claims substantiation. The private investment firm of the Courtin-Clarins family, Famille C Venture, led a $9 million Series B investment in Pai Skincare; OSEA, the 25-year-old pioneer of clean beauty, took its first outside investment from CAVU Venture Partners; and Waldencast Ventures doubled down on its investment in pioneering clean color brand Kjaer Weis, acquiring a majority stake.  
 The deal of the quarter on the brand side was Unilever's acquisition of Paula's Choice. The brand hired three banks—Financo Raymond James as lead advisor, Piper Sandler, and Morgan Stanley—to explore deal options or a potential IPO before sealing the deal with Unilever, reported being north of $2 billion. The brand, founded by Paula Begoun in 1995, was ahead of its time, with a commitment to ingredient transparency and a DTC business model. TA Associates invested in the business in 2016 when the brand had an estimated $70 million in net sales. According to WWD, industry sources said the brand did about $220 million in net sales for 2020, and that the company expects to do more than $300 million in net sales for 2021. According to one source the company is said to have more than $110 million in EBITDA. 
 A close second was The Carlyle Group's deal to take a majority stake in Beautycounter, valuing the business at $1 billion, which is more than double the estimated $400 million that Beautycounter was valued at in 2018, according to PitchBook data. Beauty Inc’s annual Top 100 research estimates that for 2020, Beautycounter grew 20 percent to more than $500 million in sales. 
 The activity also remains steady on the supply side with consolidation continuing. The big deal in Q2 was THG’s purchase of US-based contract manufacturer Bentley Labs at 17X 2022 EBITDA, an unheard-of multiple for a beauty contract manufacturer. Multiples for such manufacturers have been in the single digits or low teens. This deal builds on THG's acquisition of Claremont Ingredients Limited and David Berryman Limited, expanding on a strategy for vertical integration.  
 Also worth noting less than a year after THG completed its record-breaking London IPO, SoftBank made a $1.6 billion investment in THG Ingenuity, and the intellectual property fueled the e-commerce business’s growth. The deal values the new division at $6.3 billion.  On the supply side, this is a business to watch. 

Looking Forward:

Powered Brands, Waldencast Acquisition Corp, and AF Acquisition Corp are under pressure to strike deals as the two-year clock ticks on these SPACs. Facing increased competition from all sides, some US-listed blank-check companies have shown an appetite to go where the deals are. Could these beauty SPACs have international targets in their crosshairs? 
 Harry's could be the first of what could be a trend towards the creation of DTC holding companies. For digitally natives, joining a portfolio could be another path to exit. The business recently closed a $155 million Series E round of funding and is reported to have more than $200 million in cash to make deals with brands that can leverage the company’s design, marketing, and direct-to-consumer capabilities. Harry's current portfolio consists of Flamingo, Headquarters, and Cat Person that were incubated internally.   
 India: The battle for the Indian beauty market is heating up. Forecast to grow at a double-digit CAGR of 16.39% through 2026 according to data from Research and Markets, venture capital is flooding into Indian start-ups. Market leader Nykaa, founded by former investment banker Falguni Nayar, is moving forward with an IPO at a valuation of $4.5 billion, a sharp rise from its earlier valuation of more than $3 billion. The company is expected to file its draft prospectus by the end of July.  
 Global e-commerce has quickly become the fastest-growing channel in retail due to the pandemic. Worldwide e-commerce sales reached $2.65 trillion in 2020 and are expected to almost double to $4.7 trillion by 2025. With the rate of e-commerce accelerating, UK-based online beauty retailers Cult Beauty and Feelunique were both working with advisors on sale processes as they search to capitalize on the trend resulting in early Q3 transaction with The Hut Group snapping up Cult Beautyand Sephora sealing the deal with Feelunique.

The proliferation of incubators and brand/product development platforms and the growth of e-commerce and D2C channels have lowered the barrier to entry and speed to market for new beauty brands. There has also never been more access to capital outside of venture capital and private equity. Nontraditional investors have become an ingrained part of the venture ecosystem. We have seen a shift among start-ups eschewing the venture capital funding formula, tapping less dilutive ways to fund their growth with more debt and revenue-based financing. One thing is certain—the beauty and wellness category is witnessing tremendous innovation that is certain to fuel interest in the sector. 

For a comprehensive look at the deal flow activity for Q2 check out the BeautyMatter Beauty Deals: Investment + M&A Transactions Q2 2021