As private equity investment slows in the cosmetics sector, investors are now targeting smaller, founder-owned brands.
With just $1.63 billion invested across 24 deals, this year may fall short of the total $2.03 billion invested across 42 deals in 2022, according to PitchBook data. Last year also saw a significant drop from the 2021 peak when there were 61 deals in the sector worth a combined $6.2 billion—with activity steadily increasing over the course of the pandemic.
Some recent deals have come out of distress situations. In April, a consortium of PE firms including Cerberus Capital Management and Oaktree Capital Management acquired the San Francisco-based brand Morphe from its bankrupt parent Forma Brands—a beauty brand incubator—for $33 million. Morphe, which is reported to have generated 80% of Forma’s revenues, uses influencers, such as US content creators James Charles and Jeffree Star, to promote their products.
Other recent deals have involved platforms rolling-up smaller competitors. Naturalia Tantum, an Italian cosmetics company backed by Milan-based Assietta Private Equity, added soap maker L’Amande and luxury fragrance maker Zeca to its portfolio in March for an undisclosed amount.
However, there have been fewer large-cap deals. One of the biggest in the sector in recent years was when KKR bought the hair business of struggling cosmetics giant Coty, which included its Wella and Clairol brands, for $2.58 billion.
Recently, the largest deals have gone to strategic buyers. In August, L’Oréal paid $2.5 billion for luxury skin care brand Aesop. CVC Capital Partners was named as an early suitor for the company at a time when the price tag was estimated to be half that.
This year’s largest PE deal in the sector involving a global brand was when a group of investors including hedge funds Glendon Capital Management and King Street Capital acquired Revlon for an undisclosed amount in May. The cosmetics giant, which was facing bankruptcy for the third time, had been struggling to raise capital following a dispute with its main lender Citi.
Featured image by Iryna Veklich/Getty Images
