Beauty & Wellness Market Update: M&A Market Favorable for Private Businesses, Indie Brands See Elevated Interest

Beauty & Wellness Market Expected to Maintain Robust Growth

Capstone Partners released its June 2022 Beauty & Wellness Sector Update, reporting that elevated inflation, rising interest rates, and the potential of an economic downturn have challenged business owners across the Consumer industry and encouraged caution among institutional investors. However, the Beauty & Wellness sector, while combating supply chain issues and rising input costs, is forecasted to maintain robust growth in the near term with the space often viewed as recession resistant. 

Independent (indie) brands have captured significant growth in recent years, which has permeated merger and acquisition (M&A) market activity. Indie beauty brands are often characterized as smaller players, operating mainly through direct-to-consumer (DTC) channels, leveraging innovative social media engagement techniques, and seeking a niche market position. Ethical and sustainable production processes and ingredients sourcing have become a hallmark of this market segment as consumers are significantly more conscious of the environmental impacts of their purchases. 

M&A activity in the Beauty & Wellness sector has continued at a healthy pace through year-to-date (YTD) 2022, with 29 transactions announced or completed. The deal market for indie beauty brands remains robust as buyers have actively pursued private companies appealing to current consumer preferences, which often revolve around environmental, social, and governance (ESG) principles and unique positioning. Notably, Wella recently acquired Briogeo, a leading independent hair care brand offering eco-ethical and natural products (April 2022, undisclosed). The investment appetite for these brands also extends to financial buyers, with brand strength, customer retention, and demonstrated sales growth playing a key role in private equity and family offices’ transaction screening criteria. Family holding company, Famille C recently acquired skincare-powered makeup brand ILIA for an undisclosed sum (February 2022). Achieving $100 million in sales in 2021, ILIA represents the type of high growth indie brands that investors are increasingly backing with capital. 

“Interestingly, in uncertain economic markets, the Beauty sector outperforms other consumer segments. Consumers simply won’t change their beauty regimes in the face of hardships. For this reason, privately owned brands should not be deterred from market conditions that impact other sectors. The market remains strong for beauty brands seeking capital and liquidity,” said Capstone Managing Director Ken Wasik, the lead contributor in the newly released report. 

Also included in this report:

• Insights on how valuations and transaction volume have performed in past economic downturns
• Key sector transactions and commentary from Capstone’s Head of Consumer Investment Banking
• Data on current middle market M&A purchase multiples in the sector