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The Allure of Beauty for Private Equity

It's mainly the exit multiples.

For some private equity firms, beauty was love at first sight — the margins, the replenishment, the consumer appetite and the near-guaranteed exit — were a perfect match.

Those beauty-centric private equity firms have hung around the space for years, taking stakes in growing brands and selling them to large strategic beauty players for hefty price tags. Other private equity firms found inspiration in the exit multiples and jumped into the beauty investment game. That second wave of private equity beauty investors — firms like Ares Management, Warburg Pincus or Winona Capital — has created an increasingly competitive dynamic.

But that competition hasn’t slowed down private equity’s appetite for a category with so many exit options, according to experts. Plus, with an influx of so many new beauty brands, the investment opportunities are plentiful.  

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“In the beauty industry, there are very low barriers to entry, unlike some other verticals, and therefore there’s a constant stream of innovation,” said Andrew Charbin, director at The Sage Group. “When you layer that into an industry that spans multiple product categories, price points and distribution channels, geographies, demographics and psychographics, there’s a lot of opportunity to build a brand, focus on a space, and do it well.”

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“It’s also a space where after you have one success, you can learn relatively quickly what it takes from a strategic operational and brand-building perspective, and you take those best practices and apply them to your next investment,” Charbin added.

Broadly, the dynamics are in place to keep the beauty M&A cycle rolling.

“You don’t have headwinds, you have tailwinds,” said Ilya Seglin, managing director at Threadstone LP. “The macro factors are still in place for beauty to continue to grow. It’s growing not just domestically, but internationally, and it’s growing in mass and prestige, though those lines are blurring.”

Plus, the category continues to benefit from the supply-demand dynamic, according to Vennette Ho, managing director at Financo.

“There’s demand for beauty companies from strategics, and that demand has only increased as more players have entered the space, like Colgate or Procter & Gamble,” Ho said. Colgate recently entered the beauty space with deals for EltaMD and PCA Skin, and P&G rejoined the beauty M&A landscape recently with purchases of Native, Snowberry and First Aid Beauty.

Private equity firms that can find a business with more international potential have even more exit options, Seglin noted. “The ultimate exit to a strategic is easier to sell because you can sell the global expansion story,” he said.

Other more recent entrants on the buying side include The Hut Group, which has made a handful of beauty acquisitions recently, and BWX, an Australian business that bought Mineral Fusion. Those newcomers join L’Oréal, the Estée Lauder Cos. Inc., Shiseido, Unilever, Kao, Kose, Henkel and other players that have been buying assets for years.

That gives a private equity firm a lot of potential buyers to sell an investment to.

“There’s a healthy and rather well-established universe of strategic buyers who can very easily pay good prices for these assets, and if there’s not a strategic buyer for some assets, going public is an option, too,” Charbin said.

And while more private equity firms in the space means competition has gotten heated over the past few years, new firms should realize that many brands in the arena are looking for a genuine partner, according to Ho.

“It’s not just about dollars and cents,” she said. “The people who resonate best with founders are the people who can pay up on value, people who have an angle or a value-add they can bring to the table.”


The private equity exits that launched a thousand firms, according to industry sources:

TSG Consumer Partners + It Cosmetics:

TSG made a 26-times return for the minority stake — said to be less than 40 percent — it owned in It Cosmetics when the company was sold to L’Oréal for $1.2 billion in 2016.

The Carlyle Group + Vogue International:

In 2014 year, the Carlyle Group bought a 49 percent stake in Vogue International for about $400 million. In 2016, it sold the company to Johnson & Johnson for $3.3 billion.

General Atlantic + Too Faced:

In 2015, General Atlantic bought a majority stake in Too Faced for around $500 million. In 2016, it sold the company to the Estée Lauder Cos. for $1.45 billion.

Castanea Partners + Urban Decay:

In 2009, Castanea Partners paid $40 million to acquire Urban Decay, which it sold to L’Oréal for almost $360 million in 2012.

Tengram Capital Partners + Nest:

Tengram paid $11 million for a 57 percent stake in Nest Fragrances in 2012 and sold the stake for $45 million in 2017.