Beauty M&A Update – November 2024

Financial Buyers Bolster a Healthy Beauty M&A Market

The Beauty sector has continued to capture wallet share in 2024 despite a challenging environment for the wider Consumer industry. Consumers have expressed undeterred appetite for beauty products across price points, solidifying expectations for high single-digit sales growth over the coming years. However, barriers to scale have persisted, causing private business owners to pursue merger and acquisition (M&A) strategies to capitalize on favorable demand dynamics and reach next level growth. Private equity groups have flooded the Beauty M&A market, deploying significant levels of capital via investments in unified brands with above-market growth rates competing in multiple product categories. Looking ahead to 2025, Capstone expects the Beauty M&A market to remain healthy, with founder-led, leading brands with compelling stories generating robust buyer interest and competitive valuations.

The Beauty market continues to exhibit strength through market conditions significantly impacting other consumer sectors. Not surprisingly, Beauty M&A remains very active. Interestingly, the advent of private buyers as the predominant force in M&A is something we haven’t seen in some time. However, it makes sense given financial buyers are largely sitting on the sidelines and public companies do not have many large targets to choose from. We continue to believe the M&A markets for Beauty will be opening up and in full force in the coming year.

Ken WasikHead of Consumer Investment Banking, Capstone Partners

Beauty Sector Remains an Outlier in Consumer Industry, Expects Above Market Growth

Beauty sales have risen 5.5% year-over-year (YOY) in the first half of 2024, outpacing broader spending on Goods by 4% in the same period, according to Neilsen IQ and the Bureau of Economic Analysis.^{1, 2} Consumers have continued to view higher-priced, quality beauty products as essentials, a perception that has bolstered the Beauty sector while other discretionary purchases have faced tighter budget constraints. Prestige and Masstige categories have continued to experience robust demand, attracting consumers across multiple income brackets. Meanwhile, consumers in the Mass Market category of the sector have increasingly exhibited trade-up behavior, or the tendency to upgrade purchases to a higher-priced, more premium products. Driven by price hikes in the Mass Market category, these customers have moved up market into the Masstige and Entry Prestige categories, opting to pay marginally higher prices for products with superior quality.

Business owners bringing innovation under a unified brand at comparatively more affordable price points, landing in the Masstige and Entry Prestige categories, have benefitted from robust consumer demand. The added value in these products has resonated with consumers, building a base of loyal customers and insulating companies from trade-down behavior. “What we’re seeing in our business is, when we come with a compelling product, even if it’s at a high price point, we’re not seeing any barriers to consumers being willing to spend on it,” noted Christopher Peterson, CEO of Newell Brands (Nasdaq:NWL), at the September Barclays Global Consumer Staples Conference.³ This trend has shown limited signs of being transitory. Masstige, Entry Prestige, Prestige, and Luxury category sales are expected to grow at a combined compound annual growth rate (CAGR) of 7% from 2023 through 2028, according to McKinsey.⁴ The Prestige and Luxury categories are poised lead the charge, projected to grow 7% and 9%, respectively, through the forecasted period. Strategic buyers and financial sponsors alike have been acutely aware of the shifting consumption patterns and have continued to express fervent acquisition appetite for innovative beauty brands with value-added products spanning multiple categories.

Beauty M&A Market Flourishes, Private Businesses Continue to Grow Via Acquisitions

Deal volume in the Beauty sector has risen 32.6% year-over-year (YOY), from 43 transactions announced or completed in year-to-date (YTD) 2023 to 57 in YTD 2024. Strategic buyer activity has remained relatively flat YOY, with only one more deal to date compared to the prior year period. Strong public company performance in the sector has yet to catalyze significant dealmaking in the public sphere. Still, Management Teams’ continued emphasis on M&A in capital allocation priorities has fueled tailwinds for sector deal flow into 2025. In contrast, private businesses have driven the majority Beauty sector dealmaking, accounting for 52.6% of total volume. Private strategic deal volume has risen 43% YOY to 30 transactions YTD, surpassing 2023’s full-year volume (29 deals). Barriers to scale have continued to rise, attributing to the influx of M&A strategies in the private company universe. “While Beauty has comparatively low barriers of entry, very few brands have been able to scale. Of the over 1,900 Cosmetics and Skincare brands tracked by Nielsen, only 61 have surpassed $25 million in annual retail sales. Only 26 have surpassed $100 million retail sales,” noted Tarang Amin, CEO of e.l.f. Beauty (NYSE:ELF), in its fiscal Q1 2025 earnings call.⁵ Private business owners have increasingly explored synergistic M&A to reach the next stage of growth and gain scale. Several related transactions are detailed below.

• BosleyMD Acquires Profectus Beauty (August, Undisclosed) – BosleyMD acquired Profectus Beauty, doing business as Keranique, for an undisclosed sum in August. BosleyMD offers market leading non-surgical, clinically proven, vegan hair growth solutions for both men and women across 35 global markets including 25,000 distribution points in the U.S., according to a press release.⁶ Keranique offers a variety of haircare products targeting the Hair Thinning category with hair regrowth, strengthening, and volumizing offerings via its ThickHead and Hydroxtone brands. Keranique, which began selling direct-to-consumer (DTC) with backing from Dr. Sonia Batra, now boasts distribution channels including Television via HSN, drug outlets at CVS (NYSE:CVS), Ulta Beauty (Nasdaq:ULTA) stores, and Amazon (Nasdaq:AMZN). The merger is expected to immediately provide scale and take market share in the global Hair Loss, Growth Treatments & Products market, which is projected to reach $11.2 billion by 2025, according to World Metrics.⁷ BosleyMD cited product development, distribution, and consumer engagement synergies as the key deal rationale and hopes the combined entity will create the top doctor-endorsed Hair Growth business in the U.S.
• American Exchange Group Acquires Indie Lee (July, Undisclosed) – Fashion accessory producer and brand management company American Exchange Group acquired Indie Lee, for an undisclosed sum in July. Indie Lee operates as an online DTC retailer of natural skincare products, with offerings across a range of categories, such as eye balm, toner, cleanser, and body scrub under its unified Indie Lee brand. The deal helps American Exchange further solidify its presence in the Beauty space, building off its marquee acquisition of HatchBeauty Brands, whose brand portfolio includes NatureWell, Found, Orlando Pita Play, TXTUR, and Paint & Petals, in August 2023 (undisclosed). American Exchange plans to facilitate Indie Lee’s next phase of growth by expanding the brands’ presence beyond the Skincare category, via in-house and licensing opportunities, and its distribution network through American Exchange’s existing retailer portfolio.

Private Equity Deploys Significant Capital in the Beauty Sector, Unified Brands Reap Rewards

Anticipated and now realized interest rate cuts, coupled with decelerating inflation, has sparked a rebound in sponsor Beauty investments through YTD with no signs of slowing down in 2025. The U.S. and Canada have seen more capital invested in middle market Beauty companies from private equity players than in full-year 2023. Compared to the prior year period, capital investments in the sector’s North American middle market have grown 194% YOY to $1.7 billion, trending towards the $1.8 billion 10-year historical mean. Capstone expects a healthy 2025 for private equity dealmaking in the Beauty sector, with fund managers eager to deploy robust levels of dry powder into the space. Sector participants with multiple products under a unified brand, healthy gross margins, and strong customer acquisition and retention rates have continue to draw premium valuations from private equity groups.

Private equity groups have contributed a near record percentage (40.4%) of transactions to the Beauty sector’s total deal volume in YTD 2024. While sponsor-backed acquisitions to date have kept pace with YTD 2023 levels, platform activity has risen 157.1% YOY to 18 deals YTD, marking the highest volume since 2018. Private equity firms have been attracted to the Beauty sector’s proven resiliency amid a wider economic downturn and consumer spending pressures. In addition, consumers’ unwavering appetite for quality, premium beauty products has piqued heightened private equity investment. These sector dynamics have attracted both large-scale private equity firms as well as smaller shops and family offices, exemplified by the notable transactions outlined below.

• CORE Industrial Partners Acquires Winky Lux (July, Undisclosed) – Private equity firm CORE Industrial Partners announced the acquisition of Winky Lux, a cosmetics and skincare brand (July, undisclosed). CORE invests in lower middle market Manufacturing, Industrial Technology & Service, and Consumer Product sector businesses. The private equity firm entered the Beauty sector in July of 2020 via its investment in beauty contract manufacturing platform, Cohere Beauty (undisclosed). Winky Lux has developed a highly loyal customer base with a strong online presence while also retailing in Target (NYSE:TGT), Ulta, and Shoppers Drug stores. The partnership is expected to help Winky Lux meet customer demand, scale operations, expand its digital and brick-and-mortar channels, and facilitate product innovation. “The growth prospects and underlying demand drivers of the Beauty industry remain highly attractive and we’re confident the strength of the Winky Lux brand combined with our resources and operational experience will assist their leadership team in executing against their long-term plans for growth,” said CORE Managing Partner, John May, in a press release.⁸
• L Catterton Acquires Stripes Beauty (June, Undisclosed) – In June, L Catterton, a middle market and Consumer Industry-focused private equity firm, acquired actress Naomi Watts’ Stripes Beauty for an undisclosed sum. Stripes Beauty markets science-backed personal care and beauty products in the Nutritional Supplements, Skincare, and Haircare categories under its Stripes brand. Under L Catterton’s management, Stripes Beauty aims to launch sleep support products, expand existing product categories, build its DTC sales channels, and develop a presence in the Canadian market. The deal also taps into a key pocket of the Beauty sector: celebrity brands. In 2024, Serena Williams and Dwyane Jonhson have launched Beauty brands in the Makeup and Personal Care categories, while Bella Hadid and SZA have reported plans to bring Beauty brands to market in the near future. While investors have heavily scrutinized customer acquisition costs and digital marketing efficacy, celebrity-affiliation can provide added marketing strength, a compelling story, and customer loyalty, evidenced by 64% YOY growth in celebrity brand sales during Q1 2024, according to Circana.⁹

With the market outlook appearing positive from both a consumer spending standpoint and a capital markets perspective, 2025 will likely bring robust dealmaking and healthy valuations in the Beauty sector. Strategics are expected to continue consolidation efforts in the highly competitive sector to gain scale and competitive advantages while private equity investors seek out leading brands to create platforms to execute rollup strategies.

To discuss the competitive landscape of the Beauty sector, provide an update on your business, or learn about Capstone's wide range of advisory services and Beauty M&A knowledge, please contact us.

Andrew Woolston, Associate, was the lead Market Intelligence contributor to this article.

Endnotes

1. Nielsen IQ, “The Beauty Category’s Dynamic Growth: A 2024 Mid-Year Update,” https://nielseniq.com/global/en/insights/commentary/2024/beauty-2024-mid-year-update/, accessed October 22, 2024.

2. Bureau of Economic Analysis, “Table 2.4.5 Personal Consumption Expenditures by Type of Product,” https://apps.bea.gov/iTable/?reqid=19&step=2&isuri=1&categories=survey&_gl=1*qa8umc*_ga*MTE1NTQ4NTU3NC4xNzE2MzA0ODk4*_ga_J4698JNNFT*MTcyOTYwNDU4NC4yOS4xLjE3Mjk2MDQ2MTguMjYuMC4w#eyJhcHBpZCI6MTksInN0ZXBzIjpbMSwyLDNdLCJkYXRhIjpbWyJjYXRlZ29yaWVzIiwiU3VydmV5Il0sWyJOSVBBX1RhYmxlX0xpc3QiLCI3MCJdXX0=, accessed October 22, 2024.

3. Newell Brands, “Fireside Chat at the Barclays Global Consumer Staples Conference,” https://ir.newellbrands.com/events/event-details/fireside-chat-barclays-global-consumer-staples-conference-1, accessed September 26, 2024.

4. McKinsey, “The Beauty Boom and Beyond: Can the Industry Maintain its Growth,” https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/the-beauty-boom-and-beyond-can-the-industry-maintain-its-growth, accessed September 26, 2024.

5. e.l.f. Beauty, “Q1 FY2025 Earnings Call,” https://event.choruscall.com/mediaframe/webcast.html?webcastid=LvBlNCJG, accessed September 26, 2024.

6. PRWeb, “BoselyMD Acquires Keranique, Uniting Leading Brands in Thinning Hair Category,” https://www.prweb.com/releases/bosleymd-acquires-keranique-uniting-leading-brands-in-thinning-hair-category-302213503.html, accessed September 26, 2024.

7. World Metrics.org, “Global Hair Loss Industry Statistics: Market Worth Reaches $10.99B by 2025,” https://worldmetrics.org/hair-loss-industry-statistics/, accessed September 26, 2024.

8. CORE Industrial Partners, “Winky Lux Announces Majority Growth Investment by CORE Industrial Partners,” https://coreipfund.com/news/winky-lux-announces-majority-growth-investment-by-core-industrial-partners/, accessed September 26, 2024.

9. Circana, “U.S. Beauty Industry Sales Slow but Continue to Grow in Q1, Circana Reports,” https://www.circana.com/intelligence/press-releases/2024/us-beauty-industry-sales-slow-but-continue-to-grow-in-q1-circana-reports/, accessed October 10, 2024.