Sep 13, 2022

Beauty & Wellness M&A Update – Sept 2022

Beauty M&A Activity Holds Strong While Inflation Challenges Profit Margins

M&A in the Beauty & Wellness sector has continued to weather recessionary headwinds, supported by an affluent consumer base unwilling to sacrifice personal care routines. The sector has often been viewed as recession-resistant due to the stickiness of purchasing behavior, a trend that has been reaffirmed through the midpoint of 2022. While inflation has certainly impacted consumer behavior and sentiment, the Beauty & Wellness sector draws 47% of its shopper base from high-income households with over $100,000 in annual earnings, according to NPD.1 This cohort of beauty enthusiasts, less impacted by elevated pricing, has contributed to robust revenue for sector players. Notably, in the first half of 2022, high-income households spent nearly $9 billion on beauty products, which marked a 14% year-over-year (YOY) increase, according to NPD.2 The precarious economic environment will continue to test this level of demand elasticity through the second half of the year, particularly as sector participants raise prices to combat inflation. Elevated input and freight costs have challenged the margins of leading public companies—forcing beauty companies to implement pricing adjustments and identify additional cost savings across the value chain.

Public Strategics See Margins Fall Amid Rising Costs

Leading players in the Beauty & Wellness sector have captured robust top line growth, benefiting from resilient consumer demand for trusted, quality brands. Notably, premier cosmetics and skincare provider e.l.f. Beauty (NYSE:ELF) achieved a 26% YOY net sales increase in its fiscal year Q1 2023, fueled by strength across its national and international retailers and healthy consumption growth, according to its earnings release.3 Sector EBITDA trading multiples have also demonstrated strength, outpacing the broader equity market and displaying the value of sector players amid recessionary conditions. The average EBITDA multiple among companies in Capstone’s Beauty & Wellness index through year-to-date (YTD) has reached 15.6x, outperforming the S&P 500 average of 14x.

The Beauty & Wellness sector is not immune to inflationary pressures which have manifested in margin compression for many leading public companies. Notably, 11 of the 14 public companies analyzed by Capstone have experienced YOY margin declines. Of the companies experiencing lower margins, the average YOY decline amounted to approximately 335 basis points. Interestingly, e.l.f. Beauty and Ulta Beauty (Nasdaq:ULTA) have achieved increases in gross margin compared to the prior year, recording growth of 390 basis points and 120 basis points, respectively, according to their earnings releases.4 Innovation, favorable product mix, and cost savings have been key to maintaining and growing margins in the current environment. E.l.f.’s accessible, mass beauty products at attractive price points have resonated strongly with consumers, helping to increase its Color Cosmetics market share to 6.6%, according to its earnings release. While e.l.f. leverages mass beauty products to drive profitability, Ulta offers a mix of both prestige and mass brands. This allows the specialized retailer to capture consumers of all income levels. Moving through year end and into 2023, brand engagement and multichannel capabilities will remain critical for sector players to maintain customer loyalty. Sector participants are expected to continue to search for cost savings which may drive increased demand for efficient outsourced manufacturers—a trend private equity firms seem to be anticipating.

As the ecosystem of the Consumer world gets bombarded by extraneous factors (inflation, supply chain, retail disruptions, etc.) the Beauty & Wellness sector remains a bright spot, reflecting consumers loyalty to their beauty regimes and brands.

Kenneth WasikHead of Consumer Investment Banking, Capstone Partners

Beauty M&A Volume Remains at Healthy Levels, Normalizes from 2021’s Elevated Deal Count

Beauty Merger and acquisition (M&A) volume has remained robust through YTD 2022 with 49 transactions announced or completed. While this marks a 24.6% YOY decline, 2021 experienced historic levels of deal activity, making it an outlier. Strategics accounted for a majority of YTD deal volume, comprising 59.2% of total transactions. While large public strategic buyers, including Unilever (LSE:ULVR), LG H&H (KOSE:A051900), and Procter & Gamble (NYSE:P&G), have completed acquisitions in 2022, there is evidence that smaller buyers are dominating transaction activity. Notably, the median market capitalization of public buyers that completed acquisitions in YTD 2022 stood at a modest $103 million, according to Capstone Partners. This may indicate that middle market buyers are fueling the healthy deal volume, rather than large-scale personal care conglomerates.

Private equity buyers (40.8% of YTD transaction volume) have continued to build and add to sector portfolios. Sponsors have demonstrated a strong appetite for brands with healthy cash flow, recurring revenue, and high customer loyalty. Add-on acquisitions have served as a common means to deploy capital and enhance portfolio company holdings, accounting for 28.6% of YTD deal volume. While a rising interest rate environment poses challenges to transaction financing, borrowing costs remain historically low. Private equity firms also have the luxury of vast reserves of dry powder, which has amounted to $1.2 trillion globally through June 2022, according to PitchBook.5 Select recent private equity-led transactions are outlined below.

  • Beauty Industry Group Acquires Bellami Hair (May 2022, Undisclosed) - L Catterton-backed Beauty Industry Group has acquired leading direct-to-consumer (DTC) hair extension provider Bellami Hair. Terms of the transaction were not disclosed. In addition to its DTC channel, Bellami leverages a direct-to-stylist approach that brings its products to digital platforms frequently engaged by haircare professionals. Beauty Industry Group will utilize its scale and multichannel distribution network to accelerate Bellami's growth and increase its consumer following. The transaction highlights the focus L Catterton has placed on the Haircare segment and its commitment to bolstering the Beauty Industry Group platform.
  • Bansk Group Acquires amika and Eva NYC (May 2022, Undisclosed) - Bansk Group, a consumer-focused private investment firm, has agreed to acquire a majority stake in two independent haircare brands amika and Eva NYC for an undisclosed sum. Amika is one of the largest U.S.-based independent hair care brands, operating through professional, prestige, and digital channels. Its product portfolio is formulated following E.U. standards and absent of harmful ingredients. Eva NYC is a masstige haircare brand, offering high-quality products at accessible price points. Its products are also cruelty-free and sustainably-minded.

The transaction demonstrates the strong appetite among financial buyers for scaled and growing independent beauty brands. "Consumer interest in high-quality haircare has accelerated in recent years, following the premiumization trends we have seen in other Beauty and Personal Care categories. Today's haircare consumers are increasingly passionate and educated about the quality of the haircare products they use—and how those products are formulated—driving exciting growth opportunities in prestige and masstige hair," said Chris Kelly, Partner at Bansk Group, in a press release.6

Private Equity Pursues Contract Manufacturers

Private equity firms have been active buyers of beauty-focused contract manufacturers in recent months, attracted to the stability of cash flows and the ability to scale through acquisitions. Outsourced production often offers cost savings to beauty product providers, which is especially relevant at a time when many leading sector players are struggling to maintain margins. Private equity firms seem to be recognizing this opportunity and are deploying capital to gain exposure to the Contract Manufacturing segment. Recent notable private equity acquisitions of contract manufacturers are discussed below.

  • Knox Lane Acquires Elevation Labs (June 2022, Undisclosed) - Knox Lane, a San Francisco-based investment firm, has acquired a majority stake in premium beauty products formulator and manufacturer Elevation Labs. Terms of the transaction were not disclosed. Elevation Labs provides formulation and filling capabilities to over 100 beauty brands across more than 80 product categories. It operates through its facilities in Idaho Falls, Idaho, and Denver, Colorado.

John Bailey, Managing Partner and co-founder of Knox Lane, is the former President and CFO of e.l.f. Beauty—which speaks to the value knowledgeable sector professionals see in outsourced production and formulation players. “There’s a certain level of competency and technical requirements to work within this framework, particularly if you are an innovation partner, and Elevation Labs, through our work in the industry and our relationship with many different brands, really stood out as a true leader,” commented Bailey, in an interview with Beauty Inc.7

  • Cosmetic Solutions Acquires Private Label Select (March 2022, Undisclosed) - Cosmetic Solutions, a leading innovation partner for turnkey private label skincare, customer formulation, and contract manufacturing, has acquired Private Label Select. Terms of the transaction were not disclosed. Funds managed by private equity firm Lee Equity Partners invested in Cosmetic Solutions in October 2019 (undisclosed). Private Label Select provides development and manufacturing for products including skincare, lip balms, salves, sunscreens, and lip tints and glosses. The company specializes in organic and natural formulations and became one of the first personal care manufacturers in the U.S. to be Certified Organic to the National Organic Program (NOP) standard, according to a press release.8

“Over the past few decades, brands have shifted to organic and natural formulations in response to consumers’ desire for more effective, safe, environmentally friendly, and sustainable personal care products,” said Private Label Select President Micah Halpert, in the press release.

Private equity firms are expected to continue to eye contract manufacturing acquisitions amid mounting economic uncertainty. The lack of brand risk and high degree of revenue visibility make outsourced providers an attractive asset for firms looking to bolster the defensibility of sector portfolio holdings.

Key Takeaways for Privately-Owned Beauty & Wellness Brands

  1. The Beauty & Wellness sector is expected to continue to be a bright spot in the U.S. economy.
  2. Capstone believes inflationary pressures are going to linger for some time.
  3. The fight to maintain margins will become more acute.
  4. Regardless of macroeconomic conditions, M&A demand for strong beauty brands remains robust.
  5. There is currently a positive reception in the market for contract manufacturing of beauty products, evidenced by healthy M&A activity in the segment.


To discuss sector M&A activity, provide an update on your business, or learn about Capstone's wide range of advisory services and Beauty & Wellness sector knowledge, please contact Capstone's Head of Consumer Investment Banking Kenneth Wasik


  1. NPD, "In 2022, the Beauty Index is Born,", accessed August 18, 2022.
  2. NPD, "Higher Income Consumers Increased Spending on Beauty Products by 14% in 2022, NPD Reports,", accessed August 18, 2022.
  3. E.l.f. Beauty, "Q1 FY 2023 EARNINGS WEBCAST,", accessed August 18, 2022.
  4. Ulta Beauty, “Ulta Announced Record First Quarter Fiscal 2022 Results,”,
    accessed August 18, 2022.
  5. PitchBook, "Q2 2022 Global Private Markets Fundraising Report,",
    accessed August 22, 2022.
  6. Cision, "Bansk Group to Acquire a Majority Stake in Industry-Leading Haircare Brands amika and Eva NYC,", accessed August 22, 2022.
  7. Women's Wear Daily, "Knox Lane Acquires Majority Stake in Premium Beauty’s Elevation Labs,", accessed August 23, 2022.
  8. Lee Equity Partners, "Cosmetic Solutions Acquires Private Label Select,", accessed August 18, 2022.

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