Sep 28, 2023

Beauty M&A Update – September 2023

Beauty M&A
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Quality Beauty Brands and Manufacturers Continue to Draw Buyer Interest

Consumers have continued to prioritize spending on beauty products, unwilling to sacrifice personal wellness routines despite lingering macroeconomic headwinds. Elevated interest rates, declining consumer savings, and widespread cost pressures had largely been anticipated to squeeze discretionary spending. Through year-to-date (YTD), the Beauty sector has yet to experience the pullback that many Consumer spaces have witnessed. Product innovation and digital engagement have been key to customer retention and revenue visibility, which have been heavily analyzed target company metrics in Beauty M&A processes through the first half of 2023. Catering to the preferences of younger demographics, such as Generation Z (Gen Z), has been a particular focus point for sector participants seeking to bolster customer loyalty. Notably, nearly 60% of Gen Z shoppers have shown a willingness to keep buying from their preferred brands, according to McKinsey.1 Effectively nurturing and retaining this customer base is expected to provide brands with significant long-term revenue opportunities.

Prestige and Mass Beauty Segments Record Healthy Sales, Equity Markets Underperform

The Prestige Beauty segment largely defied pricing pressures in the first half of the year, with sales rising 15% year-over-year (YOY) in Q2 to $14 billion, according to Circana.2 Prestige Makeup and Skincare led segment growth with sales rising 18% and 14% YOY, respectively. The healthy YOY performance of the segment does not necessarily point to a drastic trade down effect to lower priced products. However, this has not detracted from robust spending in the Mass Beauty segment, which experienced a 9% YOY sales increase. While spending in both the Prestige and Mass Beauty segments has remained healthy through the first half of the year, equity markets have offered less transparent signals.

Public beauty companies have often outperformed the broader market in times of economic stress as consumer sector spending typically remains resilient. However, through YTD 2023, the average total return among public companies in Capstone’s Beauty Index has amounted to 0.85%, trailing the return in the S&P 500 of 18.5%. While this marks a notable underperformance, select beauty players have been among the standouts in equity markets. Notably, e.l.f. Beauty (NYSE:ELF) has achieved a total return of 141.9% through YTD, leveraging a value-oriented approach with effective product innovation that has heavily resonated with consumers. Substantial sales growth and profitability have driven e.l.f.’s performance, with net sales rising 76% and gross margin increasing 2.8% YOY in its most recent fiscal quarter, according to its earnings release.3 Amid heightened inflation, many consumers have increasingly sought high-quality products at affordable price points.

We continue to have success selling beauty brands into this market. The only difference from prior years is we are now razor-focused on positioning brands to strategic buyers. Strategics are particularly interested in proven brands they can bring to a larger market.

Ken WasikHead of Consumer Investment Banking, Capstone Partners

Strategics Drive Resurgence in Beauty M&A Activity

Merger and acquisition (M&A) activity in the Beauty sector has moderated through YTD, falling 23.5% YOY to 39 transactions announced or completed. However, deal volume has demonstrated signs of acceleration with YTD (ending August 29) Q3 deal volume (15 deals) already outpacing Q1 (14 deals) and Q2 (10 deals), respectively. The recent momentum in deal markets may signal that the Beauty sector is emerging from its dealmaking trough, with the expectation for a resurgence in transaction activity towards year end and into Q1 2024. The Skincare segment has continued to comprise the highest percentage of M&A targets, accounting for 46.2% of YTD transactions. The high margin profile of many leading middle market skincare brands has made the segment an attractive space to deploy capital for strategic and financial buyers.

Strategic buyers have continued to lead acquirer activity, accounting for 71.8% of total YTD transactions. While there has been a lull in disclosed large scale deals for much of the year, e.l.f.’s recent announced acquisition of Naturium for $355 million, equivalent to 4.0x EV/Revenue and 21.0x EV/EBITDA, may signal a return to the market for large strategic buyers pursuing transformative acquisitions. The rich valuation multiples also signal a strengthening of the pricing environment for high quality brands, which bodes well for prospective middle market sellers. The addition of Naturium is expected to add $48 million in net sales and $9 million in adjusted EBITDA, according to a press release (more transaction details below).4 Moving through the final months of 2023 and into 2024, strategics are expected to continue to pursue brands and manufacturers that provide synergies, meaningful scale, or complementary products and capabilities. Notable recent strategic acquisitions are outlined below.

  • e.l.f. Beauty Acquires Naturium (August, $355 Million) – e.l.f. Beauty has signed a definitive agreement to acquire high performance skincare brand, Naturium, for an enterprise value of $355 million, representing 4.0x EV/Revenue and 21.0x EV/EBITDA (August). The transaction marks one of the largest disclosed deals in the U.S. Beauty space through YTD. Naturium offers high quality serums and acids, cleansers and moisturizers, body washes, and body lotions and treatments. Its clinically effective products are offered at an average price of ~$18, compared to the average e.l.f. product price of ~$9, according to the transaction investor presentation.5 The acquisition bolsters e.l.f.’s brand portfolio and is expected to be accretive to earnings and growth. In addition, Naturium broadens e.l.f.’s consumer base, which is heavily concentrated among Gen Z and women, to capture more Millennials and male customers.
  • American Exchange Acquires HatchCollective (August, Undisclosed) – American Exchange Group acquired HatchCollective, which will be renamed to AX Beauty Brands, for an undisclosed sum (August). HatchCollective offers a portfolio of beauty and personal care products under brands including NatureWell, Found Active, Orlando Pita Play, TXTUR and Paint & Petals. American Exchange Group is a leading accessories designer and manufacturer that facilitates distribution of its brands to major retailers. The acquisition enhances its presence in the Beauty sector and expands its target audience.
  • Rhyz Acquires BeautyBio (August, Undisclosed) – Nu Skin Enterprises (NYSE:NUS) subsidiary Rhyz has acquired BeautyBio, a premier clean skincare and omnichannel beauty brand (August). Terms of the transaction were not disclosed. Kainos Capital has sold its stake in BeautyBio as a part of the transaction. BeautyBio offers clinically formulated skincare products and beauty devices distributed through retail partners including Sephora, Ulta, Harrods and Mecca. “BeautyBio’s unique device IP in hydration facial and micro-needling technology will further strengthen Nu Skin’s position as the world’s best-selling beauty device systems brand,” said Ryan Napierski, president and CEO of Nu Skin Enterprises in a press release.6

Private Equity Buyers Remain Selective, Actively Pursue Contract Manufacturers

Financial buyers have been increasingly cautious in the current environment, seemingly waiting on greater pricing transparency and a loosening of lending conditions. The elevated cost of capital has required sponsors to increase their equity contribution to complete transactions, with the average debt/EBITDA multiple falling to 3.1x in Q2 2023, a decline from 3.8x in Q2 2022, according to GF Data.®7 Financial buyers have accounted for 28.2% of transactions through YTD, a notable decline from 39.7% experienced in full year 2022. However, recent sponsor activity has shown signs of a rebound—potentially pointing to greater optimism in the near term among the private equity investment community. Notably, Kingswood Capital acquired Obsession Holdings in July, one of the largest designer and proprietary fragrance and related accessories retailers in the U.S. The transaction represents Kingswood Capital's third acquisition in the Specialty Retail space since 2020, according to a press release.8

The uncertainty over the projected cash flows for select brands has led sponsors to increasingly eye opportunities in the Contract Manufacturing segment. Outsourced partners with an established blue-chip client base often offer predictable revenue streams and sponsors can leverage a buy-and-build strategy to efficiently scale operations. In July, middle market private equity firm, Gemspring Capital acquired Bradford Soap International, a developer, formulator, and manufacturer of beauty and personal care products. Terms of the transaction were not disclosed. Bradford leverages its vertically integrated production processes to produce beauty products including specialty soap, shampoo bars, conditioner bars, and facial cleansing sticks for established consumer packaged goods players and emerging brands. Moving through year end and into 2024, contract manufacturers with expansive capabilities, product expertise, and efficient manufacturing operations are expected to continue to draw sponsor interest.

To learn about Capstone's wide range of advisory services and Beauty sector knowledge, please contact us.

Connor McLeod, Vice President, was the lead Market Intelligence contributor to this article.


  1. McKinsey & Company, "The beauty market in 2023: A special State of Fashion report,", accessed September 7, 2023.
  2. Circana, "US Beauty Industry Sales Continue to Rise through the First Half of 2023, Circana Reports,", accessed September 7, 2023.
  3. e.l.f. Beauty, "e.l.f. Beauty Announces First Quarter Fiscal 2024 Results,", accessed September 7, 2023.
  4. Business Wire, "e.l.f. Beauty Announces Definitive Agreement to Acquire Naturium,", accessed September 7, 2023.
  5. e.l.f Beauty, "e.l.f. Beauty Announces Definitive Agreement to Acquire Naturium,", accessed September 7, 2023.
  6. Cision, "Rhyz Inc. Acquires Skincare and Beauty Device Company BeautyBio,", accessed September 7, 2023.
  7. GF Data, "Leverage Report,", accessed September 7, 2023.
  8. Cision, "Kingswood Capital Management Acquires Obsession Holdings, Inc., a Leading Fragrance Retailer,", accessed September 7, 2023.

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