There have been 33 beauty sector M&A transactions so far this year, per a new report from Capstone Partners, a jump of 37.5%, year-over-year. Deal values have averaged $73.8 million*, signaling interest in the "lower middle market."
A key driver of this activity is simple math: per Capstone, the S&P 500 Index has posted a healthy 20.6% return in the trailing 12 months; yet Capstone’s Pure-Play Beauty Index has reportedly experienced a 22.5% return in the same period.
No wonder beauty is so attractive.
Top 2024 Beauty M&A Targets
The most attractive investments for private equity have included "pure-play" beauty companies, particularly in the prestige space. The trend aligns with sales data reported by Circana, which showed that U.S. prestige beauty sales rose 8% in the first half of 2024, totaling $15.3 billion, while mass beauty remained flat year-over-year.
"Digitally-focused brands with strong customer loyalty and clinically-backed beauty products have served as a reliable sector entry point for sponsors to-date," Capstone argues. Perhaps for this reason, skin care brands accounted for 54.5% of the 33 targets covered in the report. In fact, the number of skin care deals jumped 60.6% year-over-year (year to date).
Elsewhere, hair care targets are attractive due to interest in hair loss treatments, per Capstone.
In addition, investors have been drawn to non-discretionary categories such as oral care.
What Beauty M&A Buyers Are Looking For
According to the Capstone report, the following factors are critical to those shopping for beauty brands:
- Prestige and masstige positioning
- Strong pricing power
- Volume growth
- "Sticky" demand
- Scale opportunity
- Effective advertising spend
- Debt servicing capacity & free cash flow for reinvestment
Who Are the Top Beauty M&A Buyers?
According to Capstone, strategic buyers have comprised 75.8% of total transactions, while 66.7% of all transactions year-to-date have been executed by private strategics in particular.
"Capstone expects more engagement from public players in the M&A market as firms turn to inorganic volume growth to help buoy share price performance," the firm explains.
At the same time, Capstone notes, "Private equity buyer activity has seen a noticeable slowdown compared to the 2019-2022 period."
Beauty M&A Forecast for 2025
Capstone reportedly "expects M&A activity to move upstream through year-end and into 2025," per Capstone, signaling an ongoing centering of non-mass investments.
*Excepting Roquette Feres’ acquisition of International Flavors & Fragrances’ Pharma Solutions business, which was valued at $2.9 billion, per Capstone Partners.
