Cosmetics set for continuing recovery and M&A growth

Like many industries, from hospitality and events to formalwear, the cosmetics industry suffered as a result of COVID-19-enforced lockdowns throughout 2020. With people staying at home during the pandemic, the need, desire and (in some cases) the expectation, to wear make-up or to shampoo every day vanished.

This drop in appetite was accompanied and exacerbated by the mandated closure of physical shops for much of 2020 – something that was particularly damaging to the cosmetics industry, which, according to figures from McKinsey, still made 85 per cent of its sales in-store prior to the pandemic.

That’s not to say that the industry was among the worst-affected by COVID-19. Unlike, say, many former UK high-street fashion retailers, most cosmetics brands had decent online offerings when COVID-19 hit, enabling e-commerce sales to contribute, despite the prevalence of in-store sales and the overall drop in consumer appetite during lockdown.

Meanwhile, some sub-sectors of the wider industry fared well, with the growing focus on self-care during lockdown meaning that areas such as skincare remained resilient. Others were also able to quickly pivot to producing hygiene products such as hand sanitiser, allowing them to tap into soaring demand.

Overall, though, the picture for the industry as a whole was one of managing as best as it could and hoping to wait out the crisis. In 2021, this approach seemed to pay off, as the sector’s sales figures improved dramatically and, concurrently, M&A activity resumed.

This year, the recovery looks set to continue, although that’s not to say that there aren’t headwinds that could continue to impact the industry during 2022. Here, we’ll examine the impact of the pandemic, the recovery, the sector’s prospects for the future and potential challenges that the sector could still face.

The initial impact

As mentioned above, prior to the pandemic, the vast majority of cosmetics and beauty sales were made in-store, with the sector seemingly less susceptible to the wider shift towards e-commerce that has been so prominent for retailers in other sectors.

When lockdowns forced stores to close, of course, cosmetics firms had to quickly adjust to a scenario in which e-commerce necessarily became their core sales channel. According to McKinsey, despite some beauty brands and retailers reporting that e-commerce sales had as much as doubled at the start of the pandemic, these figures weren’t enough to meet the shortfall of lost in-store sales.

This, of course, occurred alongside a major drop in demand during lockdown (helping to explain the failure of online sales to come close to matching the decline of in-store retail) as social events ceased, employees worked from home and many households tightened their budgets.

Even at essential retailers such as chemists, which remained open and continued selling cosmetics and beauty products, such products were among the main drivers of an overall drop in sales early in the pandemic, with this being cited as a factor in Boots seeing a two-thirds drop in sales from March 25 – April 3 2020.

However, the picture for the cosmetics industry wasn’t total doom and gloom even at the apex of the pandemic. While consumers were of course spending less on cosmetics products as COVID hit, such products have generally been seen as more resilient to economic shocks than others.

In the past, this resilience prompted former Estee Lauder chairman Leonard Lauder to create the now infamous “lipstick index” which operated under the logic that lipsticks (a more affordable luxury than, say, formalwear) would continue to see strong sales during economic downturns. During the COVID-19 pandemic, while lipstick sales slumped due to the ubiquity of facemasks, sales of mascara remained strong, reinforcing the perception that cosmetics are seen as affordable luxuries and are therefore less vulnerable than more expensive products.

Such resilience, combined with solid e-commerce offerings and partnerships with retailers, no doubt helped many cosmetics brands to record strong online sales during the early pandemic (with e-commerce growth still being considerable, even if it didn’t match the drop-off in physical sales). Meanwhile, others were able to pivot their product offerings to meet the soaring need for hygiene products and others, including some prestige brands, were able to attract customers, boost sales and move inventory by offering online discounts and promotions.

Overall, the cosmetics industry showed considerable resilience and adaptability in the face of the monumental challenges posed by the initial waves of the COVID-19 pandemic. This meant that, despite an understandable decline in sales, investment and dealmaking, the industry was well-poised to target recovery in 2021.

2021: The Recovery

According to Statista figures tracking monthly sales volumes of cosmetics and toiletry products in Great Britain, the sales index fell to an all-time low of 54.2 at the height of the first wave of the pandemic in April 2020. As the UK emerged from the strictest lockdown rules in Summer 2020 and people began shopping and socialising more, sales figures recovered, with the index returning to as high as 93.8 by September 2020.

However, with the emergence of the Alpha variant during the autumn and winter of 2020, the UK was plunged into a second wave of COVID-19 (and new lockdowns). This caused sales to plummet once more, meaning that 2021 started with a figure of 59 on the index in January, almost as low as figures seen in April 2020.

However, since that point, the vaccine rollout and the UK’s policy of living with the virus rather than entering new lockdowns have seen consistent recovery in sales. Statista figures released earlier this year show that, by October 2021, cosmetics sales in Great Britain had recovered to register an index score of 98.8, the highest figure since 99 in November 2019, nearly two years previously.

This resurgence in sales was accompanied by increased dealmaking throughout the year, as several different groups of buyers made cosmetics and beauty a core part of their return to M&A activity in 2021. While figures still largely lagged behind transaction activity from pre-pandemic in 2019, 2021 has set cosmetics M&A on an upward trajectory that is expected to continue this year.

According to a November 2021 report from Capstone Partners, M&A activity for the sector in the year to date at that time was up 56 per cent year-on-year. While this is perhaps little surprise given the huge impact of COVID-19 on 2020’s dealmaking, it still represents a genuine recovery, with the growth in cosmetics outpacing the rate seen across the wider consumer sector.

Within this recovery, some interesting trends emerged. As we mentioned earlier, the greater onus on self-care and healthy routines during lockdowns meant that skincare was among the best-performing sub-sectors of cosmetics at the height of the pandemic, this resilience being further bolstered by stronger customer loyalty and lesser exposure to fashion risk.

As dealmaking started up again in 2021, this was reflected in the fact that, according to Capstone Partners, skincare was the most sought-after category within the sector. Capstone Partners’ Head of Consumer Investment Banking, Ken Wasik, commented: “Skincare remains the most sought-after category in Beauty, largely due to its high price points and margins, its lack of fashion risk, and customer loyalty to brands,”

M&A data for the cosmetics sector in 2021 also showed interesting trends in terms of deal volume, demonstrating how the recovery played out among dealmakers. Looking at the US market, Intrepid reported that deal volumes actually decreased in Q3 2021 compared to figures seen in Q1 and Q2. However, the third quarter’s deals were characterised by strong private equity activity, much of which focused on larger investments than the minority stake deals that prevailed in Q2.

The third quarter also saw strong continuing activity from strategic buyers within the beauty and cosmetics sector. However, while Q2 saw mainly outright takeovers, Q3 demonstrated that more strategic buyers were opting to acquire majority stakes rather than targeting full ownership.

What (and who) is driving this recovery?

The most obvious factor leading to the recovery of both sales and M&A in the cosmetics sector is the ending of COVID-19 restrictions and the slow return to something resembling pre-pandemic “normality”. This is a process that is well underway in the UK, given the government’s shift in strategy away from lockdowns.

Initially, of course, this recovery would have been driven by the resumption of in-store shopping and greater amounts of socialising. These activities are expected to continue to grow throughout 2022 as people become more confident, consumer sentiment rises and the UK learns to “live with” the virus. Furthermore, as companies and the government continue to place a greater onus on employees returning to offices after more than two years of widespread remote working, this is expected to be a key driver of sales and investor interest in the beauty and cosmetics market.

In terms of what is driving M&A more specifically, the COVID-19 pandemic has, like in many industries, accelerated trends that pre-dated it, forcing beauty and cosmetics brands to think strategically about acquisitions.

Trends such as e-commerce, sustainability and organic products have all become more pronounced over the past two years, prompting buyers to target newer, smaller brands that can improve their online offering, green and organic credentials and help them appeal more to younger millennial and Gen Z customers.

According to Capstone’s 2021 report, 46.7 per cent of deals tracked were made by private strategic buyers, with existing brands turning to acquisitions in order to help them diversify their business, futureproof their business model and strengthen their overall offering.

Capstone also noted at the end of the year that it was seeing a “surge” of newer brands entering the market, indicating that emerging trends are helping smaller companies to flourish. Such firms will become natural acquisition targets for bigger brands looking to reposition in 2022, helping to spur further M&A activity.


Earlier this year, consumer products giant PZ Cussons struck a deal to acquire UK-based baby and child personal care brand Childs Farm for £36.8 million. The deal saw PZ Cussons acquire 92 per cent of the firm, with a pathway to full ownership by the end of May 2025.


Founded in 2011, Childs Farm sells a range of ethical, sustainable, vegan and cruelty-free personal care products for children and babies, including bath and shower products, skincare and haircare. The company has seen rapid growth since its founding, with turnover of close to £17.5 million in 2020.


The acquisition reflects PZ Cussons aim to attain B Corp certification for social and environmental performance, as well as its strategy within its core baby and hygiene sectors.


After strategic private companies, the next biggest buyers according to Capstone’s figures are, unsurprisingly, private equity firms. Private equity spending has been perhaps the defining feature of post-COVID M&A recovery across numerous sectors, with PE firms entering 2021 with vast reserves of capital – having largely halted their M&A strategies in 2020 – and under pressure from investors to deploy these funds.

Beauty was no different in this regard, with private equity buyers accounting for around 32 per cent of deals in the sector to November 2021, according to Capstone figures. Capstone’s report showed that 18.7 per cent of deal activity was driven by private equity add-on acquisitions, as firms that already had a presence in the sector sought to tap more fully into its recovery by bolstering their portfolios with fresh acquisitions.

Perhaps more interestingly, however, and something that bodes extremely well for continuing private equity interest in the sector, 13.3 per cent of deals in the report were private equity platform acquisitions. In other words, deals that saw a private equity firm enter the cosmetics/beauty space for the first time.

As M&A in the sector continues to evolve this year and the recovery gathers pace, these new entrants are likely to seek further acquisitions to add to their nascent portfolios, while it is likely that even more private equity firms will look to enter the market for the first time.


In April 2022, private equity firm Eurazeo announced a minority investment in beauty brand Gisou. Originally focusing on haircare, Gisou has seen rapid growth since its founding in 2015 as it diversified its range of products, launching complexion-focused products in addition to a full range of haircare.


The company operates what it calls a “bee-based approach to beauty”. Sustainably-sourced honey and propolis are key ingredients in all of Gisou’s products, while the company – whose co-founder has bee-keeping heritage – seeks to raise awareness for bees.


Gisou sells its products through an omnichannel retail approach, encompassing a strong e-commerce platform and selective, international wholesale rollouts with several high-profile partners, including Sephora and Selfridges.


The company’s unique, ethical brand, combined with its thoroughly modern, multi-channel retail approach, were clearly huge factors in Eurazeo pursuing the deal. Following the acquisition of the minority stake, Eurazeo will support Gisou’s continued growth, invest in its digital and e-commerce capabilities and help in its global expansion.


Commenting on the acquisition, Eurazeo, Brands Managing Director Laurent Droit said: “Gisou – through its natural, transparent and effective approach – is ideally positioned to benefit from the current attractive premium haircare trends. Gisou is differentiated by being truly authentic and offering unique high-quality bee-based products to a large, global, and engaged customer community.”

What challenges does the market face?

Despite the strong recovery in sales and dealmaking since 2020 and the forecast of this activity continuing, the beauty and cosmetics market will experience challenges requiring careful navigation.

Striking the right balance
Although physical retail remains arguably the key priority for many beauty brands (with the customer experience of trying products such as make-up in-store unlikely to be challenged by e-commerce), and despite the growth of online retail slowing, there is no doubt that the pandemic has made e-commerce a more important consideration for beauty and cosmetics brands.

According to figures from McKinsey, online sales will represent 23 per cent of the beauty market this year, compared to just 11 per cent prior to the pandemic in 2019. By 2024, online will be the most important single channel, with a projected 28 per cent share of sales.

Despite this, physical sales (comprising department stores, drugstores and pharmacies and grocery retailers) are still expected to dominate overall. A key challenge for beauty brands moving forward, then, will be adapting to the changes in the market, reflecting the growing importance of e-commerce, while still focusing on pushing physical sales.

For this reason, “channel blending” (strategies in which multiple retail channels are prioritised) is being described as a potentially crucial approach, with companies of all sizes facing a growing need to balance physical and e-commerce channels.

M&A may prove an effective way to establish a successful channel blending strategy, potentially with older brands that have previously focused on brick and mortar acquiring younger, digitally-native companies. Meanwhile, for companies looking to tap more deeply into physical retail to power future growth, strategic partnerships with retail brands may prove vital. Such an approach may see unlikely collaborations as luxury brands look to boost their physical sales by partnering with big retailers, such as the recent partnership between prestige beauty brand Ulta and US retail giant Target.

Could the cost-of-living crisis test resilience?
We mentioned earlier the so-called “lipstick index”, which operates on the logic that make-up and other beauty/cosmetic products are viewed as “affordable” luxuries, therefore making them more resilient to economic shocks and downturns than other luxury items.

In 2022, this theory could be tested to the limit (potentially far more so than during the height of the pandemic), as customers contend with the growing cost of living crisis. With prices rising across the board – from household bills, to groceries to petrol – it is possible that beauty products could see some decline in sales as households tighten their belts and prioritise essentials.

This issue is exacerbated by the fact that the beauty industry is not immune from rising costs either, with supply chains and raw materials among the costs that are rising. Companies may face a difficult choice this year between attempting to absorb these costs or passing increases onto consumers who are already contending with rising prices, potentially further impacting sales.

Pandemic remains unpredictable
Finally, companies will also have to contend with the fact that the pandemic remains unpredictable and that its impacts are continuing to be felt. Could the continuing use of masks in some parts of the world (with many countries still requiring or encouraging them in enclosed/crowded spaces) continue to hit sales of make-up? Such concerns are also pressing given the possibility of new, more transmissible variants pushing countries back towards tighter restrictions.

Meanwhile, although the push for workers to return to offices is being cited as a potential source of growth for beauty and cosmetics brands in 2022, there is also considerable resistance to the idea and an overall recognition that flexible working will remain a popular model going forward. If working from home continues to be widespread post-COVID-19, then this could represent a long-term lag on an important driver of sales for beauty and cosmetics companies.

Issues such as these could certainly prove problematic to cosmetics firms as they seek to target growth post-COVID-19. However, overall, they seem currently to represent slight headwinds in the midst of a strong recovery.

Sales in the beauty and cosmetics industry have recovered solidly after the initial impact of the pandemic. Furthermore, with private equity investment flooding into the sector, exciting young companies entering the market en masse and businesses of all sizes and types facing the need to diversify in order to secure growth, the prospects for dealmaking appear strong.

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