Nader Naeymi-Rad, founder and publisher of Beauty Independent, said: “A lot has changed in the beauty industry over the last ten years, and one of the things that has changed is dealmaking.”

Referencing data from various sources, Naeymi-Rad said it was clear the volume of beauty deals worldwide had increased year after year in the last decade, coming “back with a vengeance” post-COVID. And whilst dealmaking had slowed in 2023, the overall value of deals in the space broadly followed the upward trajectory of volumes, he said.

Europe versus US beauty dealmaking

Carving up dealmaking geographically, he said, there were interesting trends to be seen. The US, for example, remained “very very strong with early-stage dealmaking” whereas European deals tended to happen “in the middle”, at private equity (PE) investment or merger and acquisition (M&A) stages. So, why was investment at early-stage less frequent in European beauty?

Vasiliki Petrou, group CEO of beauty major Unilever Prestige, told attendees: “Obviously, we are in a very volatile period of high interest rates, there are a lot of geopolitical tensions and strategics have bought quite a bit (…) I can definitely see a stress on what we call ’indie’ brands because funding is much more difficult versus what it used to be.”

Michael Brousset, founder and CEO of beauty and wellness funding and incubator platform Waldencast, added: “There’s also been the factor of the ability for brands to scale – it’s just become a much more competitive market. There are less of those breakout starts, there are still some, but beauty is a business where there are more brands than buyers.”

“...I think there are also a lot more options for venture capital (VC) funding in the US beauty space than there are in Europe: there are dedicated funds. And the VC ecosystem is evolving in Europe but it’s probably five to ten years behind the US, so that would explain why there are more PE deals than VC deals,” Brousset said.

Emily Bullman, investor at UK VC investment fund JamJar Investments, said European founders also tended to be “slightly more cautious” with fundraising approaches than their US counterparts.

Dominic Hawksley, founder of UK luxury beauty oils company Olverum, self-funded since 2015, agreed: “Americans have a greater appetite for risk generally; they are perhaps influenced by the tech sector more. There are also far more funds.”

Hawksley said the barriers to growth in Europe due to varied taxation laws, patchwork regulations and the diversity of beauty and retail cultures across the continent might also be a factor. “The situation is that caution extends to the retailers too; you have to prove yourself [as a brand],” he said.

European beauty deals to ’pick up’ in 2024

Evan Merali, managing director at US independent investment bank Raymond James, said 2023 had also continued to see some uncertainty around consumer spending in beauty, describing it as a “wait and see” year for the true outcome of pattern changes.

However, Merali said fewer, albeit strategic, beauty deals had also created a rising desire to invest amongst the financial world. “The interesting thing about mergers and acquisitions, driven by private equity more than strategics, is that as time goes by without any deals, there is a lot of pressure to do deals. And so, things started to pick up on the front half of the year,” he said.

Looking ahead, he said even more dealmaking was expected in the first half of 2024.

Brousset said the future of beauty – particularly the next 12-18 months – looked “exciting”. “There are a lot of brands coming to market; there is a lot of growth; a lot of consumer excitement. So, I think it’s going to be super dynamic.”

“...The beauty business has always been an acquisition business; we’re still talking about substantial, healthy numbers.”

Unilever Prestige’s Petrou agreed: “I’m very bullish; I’ve signed up to double-digit growth internally. Beauty has always been very resilient. Beauty is part of our self-confidence [and linked to] self-esteem, and that’s why I think it’s such a beautiful category to be a part of.”

So, what categories were set to see more financial dynamism than others in Europe?

Fragrance ’interesting’ to invest in

Jane Carlson, managing editor at Beauty Independent, said fragrance had been “the dark horse” of beauty for the past three to four years, “growing at rates no-one really expected to see”, and would continue to be important in growth terms.

It had also seen some “high profile” and “high value” deals in Europe already made, including Creed-Kering Beauté and Aesop-L’Oréal, Carlson said, with “a lot of white space” remaining for growth in Eastern Europe and across prestige.

Hanadi Al Hamoui, managing director at investment management firm Bank of America Merrill Lynch, said luxury fragrances could be described as “the really hot category of the moment”, though warned there were probably only “a handful of openings” in this space from an investment point of view.

Thomas Buisson, managing director at Natura &Co’s corporate venture investment arm Fable Investments, said growth in this category also took time, so it wasn’t a beauty space that offered “quick-wins” for investors.

“It’s a category that has immense potential but I just want to reiterate that you need to accept that it takes time,” Buisson said.

Petrou said Unilever Prestige would be looking closely at fragrances when considering future investments, though any deals in the category would be with “really rare” brands that already had some level of scale.

Beauty supply chain deals for smart exposure

Beauty Independent’s Naeymi-Rad said that, beyond brand investments, dealmaking would likely continue across industry’s global supply chain in 2024 – following plenty of deals made across packaging, product development, ingredients and more in recent years.

Hui Chan, managing director for private equity at global private investment major Bain Capital, said drivers behind beauty supply chain investments were no different to why companies chose to invest in beauty brands. “Beauty is a phenomenal space; I think it’s incredibly dynamic. But when you step back, if you compare to other consumer spaces, it’s a very growth-filled space. As an investor looking to deploy capital in parts of the market that are attractive, one of the ways to expose yourself to beauty headwinds is investing in the suppliers to these brands,” Chan said.

Investing in the “ecosystem of enablers”, she said, offered strong diversification for investors via exposure to multiple brands.

Sara Hudson, partner at global management consulting firm McKinsey & Co, said that for now, however, there remained more supplier dealmaking in the US versus Europe, likely due to the European market being made up of smaller, family-owned businesses less keen to sell.

Chan agreed, stating this supplier market fragmentation was also likely being maintained because European beauty brands recognised the benefits of working with a plethora of smaller specialists.