Beauty Market Report – August 2024

Sales of Beauty Companies in 2024 Accelerating, Driven by Corporate Buyers

Capstone Partners latest Beauty Market Report finds that dealmaking in the sector has accelerated year-to-date (YTD), with a 37.5% increase in transactions announced or closed compared to the prior year period.

Prestige Sector is driving growth: The Prestige segment has experienced strong sales growth across Skincare, Haircare, and Fragrance products in contrast to the Mass Market segment, which has dragged overall sector sales growth down. Middle market participants will likely face scaling headwinds in the near- to mid-term. While e-commerce sales have comprised an increasing share of total retail sales, consumers have continued to shop in person, leaving ample white space for digitally native brands. Successful firms are projected to diversify sales channels, expand distribution networks to reach new, high-growth markets, and supplement marquee products with innovative developments in adjacent categories in order to scale operations. Inelastic demand for high-quality, all-natural products has driven merger and acquisition (M&A) appetite as companies target growing end markets to enable seamless integration and margin accretion post-acquisition amid consumer spending concerns across the broader Consumer industry.

M&A activity increased from independent corporate buyers: Private strategics have buoyed dealmaking YTD, accounting or 66.7% of transactions, while public strategics have largely sat on the sideline. Public equity investors have piled into defensive pure-play Beauty players, driving share prices higher on the back of strong fundamental performances. The S&P 500 Index, a common benchmark for public equity performance, has set all-time highs over the past year, recording a 20.6% return in the trailing twelve months (TTM). However, Capstone’s Pure-Play Beauty Index has surpassed the S&P 500 Index, seeing a 22.5% return in the same period. Capstone expects large-scale M&A to rise alongside continued share price outperformance as firms leverage robust retained earnings to fund aggressive growth strategies. Private equity buyers have remained cautious but have deployed more capital in the sector compared to the prior year period. Acquirers have continued to pay premiums for exposure to the Beauty sector, outperforming the wider Consumer industry on a revenue and EBITDA multiple basis. Dealmaking is projected to continue its resurgence through the remainder of the year and into 2025 as spending in the sector holds up, public companies turn to inorganic growth to buoy share price performance, and sponsors find reliable entry points to put capital to work in the sector to meet limited partner (LP) demands for returns.

Also included in this report:

• A breakdown of consumer preferences, segment growth, and challenges to scaling in the current environment.
• A spotlight on public sector participants and key performance drivers.
• Insights on buyer activity, transaction pricing, and M&A market outlook.
• Analysis of recent key M&A deals in the sector, including strategic rationale, deal structures, and key drivers behind the transitions.

Capstone Partners’ Consumer Investment Banking Team provides M&A, capital formation, and financial advisory services to the owners of middle market businesses in the consumer and retail industries. Our team partners with leading mid-to-large sized consumer businesses that serve growing end-markets. For more information on the trends featured in our Beauty Market Report or to speak with one of our Consumer Investment Banking Team members about how to grow, value, and/or sell your company, we are here to help. Contact us today to start a conversation.