Reports have come out that The Honest Company is beginning the process of finding a strategic buyer, after previously exploring an IPO. The possible shift in attention comes after recent consumer claims that detergent products produced by the “unquestionably safe” company caused skin irritation, and that its sunscreens weren’t protecting users. With public markets already volatile, the negative press could have deterred investor confidence in the company, which has been valued highly in the private market at $1.7 billion.
The switch to a possible M&A transaction from an IPO also poses the question: what will be the best exit strategy for all the unicorns if market conditions don’t improve in the near term? Though fundraising has been strong over the past few years in the U.S., investors may not be willing to continue funding late-stage companies while sustaining several more years of illiquidity.
Potential buyers of The Honest Company could include Procter & Gamble (NYSE: PG) or Johnson & Johnson (NYSE: JNJ), both of which could easily incorporate its products and have the resources to make such a large acquisition. But larger unicorns—especially those in the $5 billion+ range—could be hard-pressed to find a large enough buyer to complete a “successful” exit, and may need to take a major haircut in an attempt to enter the public markets.