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Weighing Greener Options in Beauty M&A

In beauty M&A, buyers and investors are looking further into sustainability.

Sustainability, meet the investment community.

Environmental best practices, as part of an overall ESG focus, are making their way not just into beauty brands, but into beauty deals.

Beauty investors and acquirers are now looking into sustainability and other ESG initiatives as part of their due diligence. The examinations are not yet at the point where sustainability initiatives would make or break a deal, but things are trending in that direction, experts said.

Consumers, who are more interested in sustainability and spend in line with their values, are at the heart of the shift.

“These topics are so top of mind for consumers,” said Lauren Leibrandt, director in Baird’s consumer investment banking group. “Inevitably, consumers are putting their dollars behind companies that are really truly living and breathing around these values.” 

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Many companies, big and small, have been honing their focus on sustainability in order to meet consumer expectations.

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Big beauty businesses, including Procter & Gamble, L’Oréal and the Estée Lauder Cos., have made commitments around key environmental platforms. P&G Beauty launched its comprehensive Responsible Beauty platform touching on everything from recycling to responsibility, L’Oréal has said that by 2025, all of its sites will be carbon neutral and Lauder has also outlined plans to reduce greenhouse gas emissions and transition to more recycled and refillable products. 

Small companies, too, are trying to make an environmental difference. There’s Saie, which meets Sehpora’s new Clean + Planet Positive certification, as well as niche players, like hand soap business Soapply, which focuses on refills and eliminating single-use plastics.

“People are looking beyond the surface and trying to make sure that the brands they align themselves with and the brands that they purchase are companies hat really aligns with [their] values. They tend to be more loyal to those brands, they tend to support those brands, they tend to be advocates and highly engaged — that’s a very attractive consumer base to have for your company,” Leibrandt said.

Those companies and their engaged consumer bases are attractive to buyers, too. 

When P&G acquired Farmacy Beauty, Ouai and Tula Skincare in December and January, CEO Alex Keith mentioned the importance of each brand’s alignment with its corporate values. Meanwhile, L’Oréal recently acquired Youth to the People, which also meets Sephora’s Clean + Planet Positive standards. Youth to the People’s website outlines its ESG commitments, including sustainability and social justice. 

When big strategic buyers have an appetite for sustainability, that trickles down into the rest of the investment ecosystem. Today, private equity firms are also expressing interest in brands that take ESG seriously. 

“You really know when a topic is resonating or has reached more critical mass when you start hearing a lot of the investors talk about it as a key theme in terms of what they’re focused on for the businesses that they’re acquiring. In some cases, maybe even tweaking their original strategies or original investment theses to include more ESG,” Leibrandt said. 

In a Baird report on sustainability called “The Green Lining,” Baird’s Boris Partin, senior investment banker on the firm’s consumer team, wrote that a CEO for a large company told him the business “won’t even consider an acquisition if the target isn’t sustainable.” 

Vennette Ho, one of the busiest bankers in beauty (she worked on the Ilia deal, the Paula’s Choice sale and the Olaplex IPO, recently), said that in “every deck” she includes a slide on sustainability, ESG or social giving. 

“It’s like talking about China. We started to have to talk about China for every company,” Ho said.

“It’s a question that people get all the time,” Ho said. “The reality is right now, it’s a little bit of a check the box, unless for the target company it’s a real strength — unless they’re doing something super different or they’re leading the charge or they have a different approach. Most of the people want to know [that] companies care about it and are thinking about it.” 

For beauty brands looking to find investors or sell, sustainability is something that must be on the priority list, Ho said. “All companies need to be thinking about this now. It’s just part of being a beauty company,” she said. “It’s not make or break yet, but it is definitely increasing in importance.” 

“It’s hard as a small company to really enact sustainability efforts because sustainability is about looking down the supply chain, and small companies can’t really impact supply chain as easily as big companies,” Ho said. “Their quantities are so small.” 

For right now, buyers are asking about ESG efforts, in part, to avoid a public relations crisis. 

Leibrandt said she sees buyers and investors “wanting to protect against the downside.” 

“If they invest in a company and it comes out later that the company somehow gets its ingredients or parts of the product or sources something in a way that’s not ethical or not totally above board, there’s risk there,” she said — that the information would come out and consumers would abandon the brand or products. 

Leibrandt has worked on deals where the potential buyer has hired an ESG consultant during the due diligence phase specifically to try to prevent that type of issue, she said. Those consultants are looking to make sure a brand’s claims — vegan, cruelty-free, et al. — can be backed up. “Does the company have the specific documentation for record that they can point to in their ability to make that claim to the marketplace?” Liebrandt said.

While buyers and investors will continue to look at sustainability in deals, Ho doesn’t think it would be the sole reason for an acquisition, she said.

“It’s going to be important, but it’s never going to be the reason why someone does a deal. Does it become a reason why somebody doesn’t do a deal?” she questioned. “Probably, at some point.”


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