The European beauty investment landscape has shifted in recent times, but venture capital and private equity investors are set to increase their pace of beauty deal-making again, especially in the second half of this year. Over the past two to three years, multinational players such as L’Oréal, the Estée Lauder Cos. and Puig have ramped up their beauty M&A activity. Experts say that in periods when there is less visibility on the macroeconomic landscape, big strategics have a competitive advantage in a transaction. Although the period has been volatile, the fundamentals of beauty are intact and the industry remains a hot sector this year.
Shift in M&A Landscape
There has been a correction of exuberant valuations seen over the past few years and high interest rates have led to many investors being more risk-averse. The trend is healthy and is expected to continue, according to Laurent Droin, head of EMEA at Eurazeo Brands. “Valuations have been affected for assets which are not good, like brands that are not profitable or that are mono-channel, because there is a perception that it’s too risky, particularly if you are dependent on d-to-c,” said Joël Palix, founder of strategic and M&A advisory Palix Unlimited.
The impact of Regulations and Logistics
New regulations on cookies have affected the way data can be accumulated, increasing transportation and logistics costs. Investors are looking for diversification of channels, according to Palix. Investors are shining a light on categories including niche fragrance, hair care, and differentiated skincare. New brands are emerging in skincare, hair care, and fragrances that did not exist in the past and are performing exceptionally well.
Insulation of the Beauty Industry
Although the tech sector is weakening and Silicon Valley Bank collapsed last week, the beauty industry is believed to be insulated from the tech crisis. Droin expects that there still will be a lot of deals and beauty will remain one of the most active segments this year.
Investment Vehicles
Newfangled beauty-related investment platforms have surfaced, such as Silverwood Brands in Europe and Waldencast in the U.S. These platforms are like a fund-and-strategic hybrid that can deliver value and help companies with their strategy, marketing, commercialization, launches, and supply chain.
