Can’t stop, won’t stop.
That has been the theme of beauty M&A for the past several years, and 2017 was no exception. The years-long deal spree endured, driven by innovation from indie brands and big players’ requirements for growth.
This year hosted a slew of transformational deals, the continued influx of new acquirers in the space and the resurgence of skin-care M&As.
As expected, increased competition meant high price tags. According to data gathered by Intrepid Investment Bankers, 2017 saw some of the highest price tags ever. “There have been more beauty-care M&A transactions at valuations over four-times revenue in the last 18 months than in the previous 15 years combined,” said Steve Davis, managing director at Intrepid.
If anything, interest in the beauty space only seemed to accelerate during the course of the year. Ares Management, for example, a firm with no experience in beauty — bought into the category with hair-care brand Devacurl — a $260 million deal, according to sources — in May. CVC Capital also made its first formal move into beauty and personal-care brands with the acquisition of PDC, a move expected to help the owner of Dr. Teal’s and other mass brands grow globally.
Other private equity firms tapped industry experts to help them invest. Winona Capital recruited Space NK founder Nicky Kinnaird and Frederic Fekkai alum Lori Perella Krebs for Ancora; Eurazeo hired former Estée Lauder Cos. Inc. executive Jill Granoff to head Eurazeo brands, and Warburg Pincus is backing former Revlon chief executive officer Alan Ennis for Glansaol.
Those firms have all been active in the space. Kinnaird and Krebs invested in skin-care brand Indie Lee in June as their first deal, and Granoff acquired Nest from Tengram Capital Partners in her first beauty transaction. Ennis made his first three acquisitions — Laura Geller, Clark’s Botanicals and Julep — in December 2016.
On the strategic side of the equation, Unilever was on a particular deal tear, with multiple acquisitions that gave it access to new categories and transformed the prestige side of the business. In February, Unilever closed a deal for prestige hair business Living Proof, its first move into prestige hair.
“I personally believe it’s an underdeveloped market and there is a lot more to do in this market of prestige hair,” said Vasiliki Petrou, executive vice president of the prestige division at Unilever, at the time of the deal. The Anglo-Dutch group liked Living Proof because of the scientific depth of the organization and its innovations in developing waterless dry shampoo, she noted, pointing 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.
Later in the year, Unilever also made its way into prestige makeup with its acquisition of Hourglass, which was said at the time to have about $70 million in net sales. “We have been working on prestige for the last three years, and in the last two years have been very much focused on getting a top color cosmetics brand,” Petrou said, when Unilever bought Hourglass.
Then Unilever paid more than two billion euros for Carver Korea, which added South Korean manufacturing capabilities to the company. In November, the group purchased Sundial — the owner of SheaMoisture, Madame C.J. Walker and Nubian Heritage — in a deal industry sources are estimating cost between $1.1 billion and $1.6 billion. Most recently, the company followed Procter & Gamble into natural deodorant acquisition territory with a deal for Schmidt’s Naturals, which makes deodorant, toothpaste and soap.
P&G’s natural deodorant move — the acquisition of Native — was the CPG giant’s first acquisition in years. Until then, P&G had been much more focused on selling. It completed the divestment of its specialty beauty portfolio to Coty in October 2016, keeping only select brands, like Olay and Head & Shoulders.
“We’ve really been focused on this fast-growing segment of the category with consumers that are really discerning and deliberate about the ingredients that are in or not in their products,” said Bill Brace, vice president and general manager of North America Beauty Care at P&G when the company bought Native. “We really started to focus in on making a play in that segment.”
Coty, once one of the more active buyers on the beauty scene, took it down a notch acquisition-wise as it focused on integrating and revamping prior purchases — like P&G’s specialty beauty portfolio and GHD. Early in 2017, Coty bought a stake in social selling business Younique. Overall, though, the group is actively trying to divest 6 to 8 percent of its portfolio, including some celebrity fragrances.
The other beauty strategic buyers were also active.
The Estée Lauder Cos. Inc. invested in Deciem — The Abnormal Beauty Company; LVMH Moët Hennessy Louis Vuitton acquired Maison Francis Kurkdjian; L’Oréal closed the deal for CeraVe, Acne Free and Ambi and its SalonCentric division acquired Four Star Salon Services to expand its geographic reach; Shiseido bought technology businesses MatchCo and Giaran, and Henkel acquired professional hair business Zotos (from Shiseido).
In terms of categories, skin-care M&A made a comeback in 2017.
Deal motivation in the earlier years of the beauty boom was driven mostly by growth in makeup. And while 2017 hosted its share of cosmetics deals — including the Unilever-Hourglass transaction, TSG Consumer’s investment in Huda Beauty (the first-ever private equity investment in an influencer brand), Charlotte Tilbury’s investment from Sequoia and Summit-backed Elevate Brandpartners investment in Morphe — skin-care deals stole the show. (The category is also growing faster than makeup, according to recent numbers from the NPD Group.)
In 2017, Tengram Capital acquired ReVive from Shiseido; Ancora invested in Indie Lee; BWX acquired Andalou Naturals; Castanea Partners invested in Tatcha; Yellow Wood bought Freeman Beauty; VMG invested in Drunk Elephant; Juggernaut Capital added MyChelle to French Transit; L Catterton invested in Tula and Kopari, and the Estée Lauder Cos.’ invested in Deciem.
“Skin care is back, and people are getting more cautious of color cosmetics given the proliferation of new brands and declining brand loyalty,” said Ilya Seglin, managing director at Threadstone Partners. “Skin care is having a moment because there’s more innovation and the customer responds to true results, which translates into stickiness and loyalty.”
Plus, most of the large color brands — except Anastasia Beverly Hills, which is said to have hired a banker to consider a deal — have already been purchased. “Some of it was due to a lack of targets,” acknowledged Shaun Westfall, managing director at Jefferies. “There were some moves around skin care and mass. We don’t see strategic buyer interest waning at all,” he added.
For the big companies, acquisitions have remained critical to growth. The Estée Lauder Cos., for example, consistently pointed to the 2016 purchases of Becca and Too Faced as drivers of its sales growth on its earnings calls in 2017. L’Oréal’s growth has similarly been boosted by past acquisitions, including NYX.
Looking forward, activity in the space isn’t expected to slow down, though the flurry of deals toward the end of the year may create a slight pause in early 2018.
“While 2017 was one of the greatest vintages ever in terms of the quality of the assets, 2018 still seems to be a pretty prodigious year,” said Andrew Shore, managing director at Moelis. “We’re still just at the tip of the iceberg.”
“You saw a lot more skin care and you started to see some hair-care [deals] in 2017,” Davis said. “You’ll see some of that shift [continue into 2018], there are some interesting color cosmetics brands out there, but the list is shorter.”