Beauty M&A isn’t taking a holiday break.
Unilever’s deal for hair-care brand Living Proof Inc. is an indicator that the frenzied pace of beauty acquisitions will linger throughout 2017. It also marks a turning point for the industry — a shift away from a heavy focus on prestige makeup acquisitions toward deals in hair care, skin care and potentially fragrance. After all, with the 2016 purchases of It Cosmetics, Too Faced, Becca Cosmetics and Laura Mercier, there are fewer big makeup companies than ever up for grabs.
But the appetite for beauty companies remains.
With that in mind, experts predict 2017 will be a year with more skin-care and hair-care acquisitions — and Living Proof may be the deal that kicks off that shift. DevaCurl, which is projected to reach $100 million in sales by 2019, is expected to sell next year. In skin care, Dr. Brandt, MyChelle, Perricone and Drunk Elephant are considered acquisition targets. In fragrance, Nest is expected to come to market next year.
“The overall M&A environment for beauty and personal-care products is going to remain extremely strong throughout 2017, and it’s going to be led by the disruptive brands that either have a heavy following and promotional strategy aimed at social influencers or some strong celebrity ties,” said Martin Okner, managing director at SHM Corporate Navigators.
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The Living Proof deal is a “[continuation] of large houses using M&A to augment innovation and new brand development,” said Andrea Weiss, founding partner at The O Alliance, adding it “seems the buy-or-build question is being answered by many with deals…like [Dollar Shave Club] and new brands like Living Proof.”
Unilever unveiled the Living Proof acquisition on Friday. While the companies did not disclose terms of the deal, industry sources estimate that Living Proof has between $60 million and $80 million in net sales, and could have sold for around $200 million.
The brand was founded by venture capitalist and entrepreneur Jon Flint and MIT Professor Robert Langer, who focused on launching problem-solution product ranges backed by bio-medical technology. The line’s patented formulas were designed by a group of MIT scientists and are meant to tackle common hair woes, such as frizz and lack of volume. Living Proof chief executive officer Grace Ray is expected to stay with the brand and report to Vasiliki Petrou, executive vice president of the prestige division at Unilever.
“I personally believe it’s an underdeveloped market and there is a lot more to do in this market of prestige hair,” Petrou said, ticking off the attractions of Living Proof — the scientific depth of the organization and its innovations in developing waterless dry shampoo. She also pointed out that Unilever can be “picky” in demanding that a target brand satisfies the requirements of its Living Sustainable Plan and benefits either the environment or society.
But she sees opportunities for premium hair care in a changing digital world, in which prestige products will not be restricted in terms of distribution. “We will see a lot more action in premium hair care outside the salon,” Petrou continued. “So far, the salon has had [a corner on] premium hair care, but in the future, we’ll see a lot of great brands that coexist in both salon and premium selective distribution.”
In addition to making acquisitions, there is a question of growing the brands. Petrou said the company intends to expand the distribution of Living Proof. “Definitely not outside selective,” Petrou said. “We want to do more selective channel and e-commerce, direct to consumer and more markets — more global for sure.”
For Unilever, Living Proof is the first specialty hair care acquisition after a series of other deals. Earlier in 2016, the company bought Dollar Shave Club for an estimated $1 billion, and before that, scooped up prestige skin-care businesses Murad, Dermalogica, Ren and Kate Somerville.
Living Proof will help Unilever build its hair-care distribution in retailers such as Nordstrom, Sephora and Ulta Beauty, said Okner, adding that company’s alignment with Jennifer Aniston and “tone and character of the brand” are added pluses. Aniston will no longer own part of the company once the deal closes according to a spokesperson, but her involvement could have a “halo effect,” Okner said. “The brand represents a level of authenticity in the voice, but in the prestige price point, which doesn’t really exist in the existing Unilever portfolio,” Okner said.
Wendy Liebmann, ceo of WSL Strategic Retail, suggested that Unilever may turn to other categories as it cozies up to the prestige market. “The more they’re comfortable with that consumer and how they have to deliver, they’ll feel more comfortable with those kinds of acquisitions,” Liebmann said, indicating that Unilever may simply be in the market for more prestige brands in general. “It’s about a premium price point and higher value customer.”
The Living Proof acquisition could spur some movement from other industry giants such as The Estée Lauder Cos. Inc. and L’Oréal, which have focused recently on buying color and fragrance brands. “That might be the carrot that generates more interest in premium hair care brands by other companies,” Liebmann said.
NPD global beauty analyst Karen Grant noted that almost every category in prestige hair care is experiencing double-digit growth, including shampoo, which is up 17 percent. The category as a whole is up 4 percent, dragged down by sluggish growth in conditioners. “Hair care is doing quite well,” said Grant, who noted that products such as dry shampoo and treatments have helped build the category up as consumers focus on the health of their hair. “It’s smart [for Unilever] to build out the portfolio to not be focused on face.”
She, too, noted that the Living Proof acquisition could be a harbinger for other players to enter the hair-care acquisition mix. “It makes everyone up their game,” Grant said. “Having Unilever in prestige hair will help reshape a category that we haven’t paid that much close attention to in the past.”
Another financial source also suggested Unilever would do more prestige hair care deals, saying, “Their focus in prestige has shifted from skin care to hair care, so I think this is the first of several [acquisitions] to come.”
Unilever’s venture capital arm is active in making investments in all kinds of companies, including beauty brands such as Sachajuan, StriVectin and CoverFX, pointed out another source.
On the flip side — literally — the exit of Living Proof, backed by about $53 million in venture capital from Polaris Partners, Leerink Partners and other investors, including Aniston, is another beauty win for the VC community. “[Living Proof] has been another big exit for venture capital firms that have invested in the beauty and personal care space, and I think it’s going to increase their interest in funding startups in the space with a defined path for exit,” Okner said.