The beauty industry has a particularly diversified consumer base across many demographics, and like its fashion sister industry, many trends can exist simultaneously. Both industries thrive on their promise to provide the tools for individual expression and enhancement. Beauty has the added potential of being able to hook consumers in to make multiple purchases of the same products over time. The sheer diversity of the consumer base, and therefore products, makes the beauty industry a very fertile ground for M&A.
Several deals that took place in 2019 suggest that the beauty industry might be a great place to be doing business right now. Analysts believe it to be a seller’s market, so if you’re looking to buy a beauty business, be prepared to pay a high multiple. If you want to sell your beauty business, this could be a great time.
1) Shiseido buys Drunk Elephant
Shiseido is a Japanese/American beauty business that already owns some high-end brands such as NARS, bareMinerals and Laura Mercier. Shiseido paid a staggering $845 million (£632 million) for Drunk Elephant, which is thought to be more than eight times the value of the sales the brand made in 2018. The value of the deal is over 20 times Drunk Elephant’s earnings before interest, taxes, depreciation and amortization.
Why was Drunk Elephant so attractive to Shiseido?
Ultimately, it comes down to the attractiveness of the brand, and how it fits with the beauty trends that are emerging for the decade to come. Drunk Elephant was founded in 2012 by Tiffany Masterson, who has kept a very close hold on the brand and has nurtured the social media community it has created.
Shiseido’s President and CEO Masahiko Uotani, said it was one of the fastest growing prestige beauty brands ever, adding: “Drunk Elephant’s approach strongly resonates with its highly engaged and loyal consumers, who value the integrity and effectiveness of Drunk Elephant’s formulations combined with a fun, curious approach.”
Masterson messaged the brand’s social media followers, reassuring them that the integrity of the brand wouldn’t be compromised as a result of the ‘partnership’, adding that she would remain at the helm of the business.
The deal reflects the appetite for beauty brands that can demonstrate integrity and a responsible approach to developing products, valuing things like sustainability and being cruelty-free. Having a strong ecommerce presence also helps to drive up values. Indeed, a refocus on ecommerce was part of Shiseido’s motivation for buying the brand.
2) Canopy Growth Corp buys This Works
Diversified cannabis and hemp products business Canopy Growth Corp purchased London-based beauty brand This Works in the second quarter of 2019 for some £45 million. The valuation was for around four times the brand’s sales in 2018.
This Works is a popular beauty brand offering a range of products that have been formulated with the body’s natural daily rhythms in mind, from pillow spray to help you sleep, to face serum specially formulated to wake skin up in the morning.
Why was This Works so attractive to Canopy Growth Corp?
Beauty brands that can diversify into the wellness market are doing well. Overall wellness is a major growth area and Canopy Growth Corp is already part of this industry as it sells CBD oil products, which are sought after for pain relief, reduction of anxiety and depression and alleviation of cancer-related symptoms. The two brands are now planning to work together on developing This Works products that are formulated with CBD oil.
This Works stated: “As a leading wellness brand and a pioneer in sleep beauty products, we are passionate about the opportunity CBD offers beauty consumers.” Meanwhile, Bruce Linton, Chief Executive Officer of Canopy Growth, identified the diverse range of markets This Works operates in as an attractive attribute, adding: “We’re framing up a line of business which, in part, will be driven by CBD as an active ingredient set, so we needed some party to work with that actually felt that science was important to getting it right, and having a brand and reputation based on outcome.”
What trends are driving beauty M&A?
The beauty industry is undoubtedly experiencing a boom in deals at the moment, and analysts believe this is not going to ease up any time soon. By the end of November 2019, the value of beauty M&A deals completed had already exceeded those made in the entirety of 2018 by 19 per cent.
One theme running through many of the larger deals is the notion of older, well-established and more traditional businesses buying up young, socially aware and environmentally responsible brands to try to broaden their appeal to younger, more ethical consumers.
Technology is making fast inroads into beauty industry marketing. We are seeing data collection and segmentation at unprecedented levels of granular precision. Augmented reality is very likely to profoundly influence the beauty consumer's purchasing experience in the future. L'Oréal acquired AR firm ModiFace in 2018. ModiFace was at the forefront of developing AR technology to allow people to simply use an app on their mobile phone to essentially try cosmetic products before making a purchase. Following the acquisition ModiFace stopped supplying technology to competitors including Estée Lauder, moving the competitive edge to L'Oréal.
Looking to buy into beauty? What should you be looking for?
Brands that are offering a more inclusive approach to cosmetics are attracting a lot of attention at the moment. Milk Makeup, which has developed gender-fluid makeup, is expected to become a potential target in the New Year, while brands that appeal to older users are also in demand. Make-up and skincare that offers ranges specifically for BAME customers or those with specific requirements are also likely to grow over the coming years.
One heavy investor in beauty is Traub Capital. Its CEO, Mortimer Singer, explained: “Sustainability is no longer a trend. It’s a fact of life and a spiritual concern of the young consumer.” Cosmetic businesses must now be able to demonstrate their sustainable credentials and their gentle environmental footprint.
Those looking to buy into this new political and ethical approach to beauty, however, may have to prepare themselves from some serious competition from private equity, especially those from Asian markets such as Korea and Japan. Shiseido’s deal with Drunk Elephant is a major indicator that these markets are opening themselves up to Western purchases.
In conclusion, beauty is a hot investment area right now, but with the important caveat that it must be the right kind of beauty. There is a whole host of smaller, sustainable, ethical and inclusive brands that are growing quickly and winning fans online. Take your pick and dig deep.
This practice, which was established over 40 years ago, is available for sale due to the impending retirement of the practitioner.
This practice, which was established in the 1980s, is available for sale due to the impending retirement of the partners.
This practice, which was established around 2003, is available for purchase due to the impending retirement of the partners.
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