Consumer Products M&A Activity Bounces Back by 1Q 2021

Beauty and Personal Care M&A Activity Rebounds

If it seems that you’ve seen an uptick in news and announcements about mergers and acquisitions activity recently --you’re correct. M&A deal volume in consumer products categories, including beauty and personal care, has steadily gained traction after the significant decline that began in March last year as COVID shutdowns took effect.

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The number of completed M&A transactions has picked up steadily since hitting rock-bottom in April 2020. M&A deal volume in consumer products categories in the first quarter 2021 was generally on par with pre-COVID levels of first quarter 2020.  ‍

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Many of the first beauty and personal care transactions that closed right after the COVID lull were relatively safe bets. For example, in August, Edgewell acquired men’s brand Cremo. With growing revenue, strong cash flow and broad distribution, Cremo was a direct fit for Edgewell’s growth strategy of acquiring selective bolt-on opportunities to accelerate growth and profitability. Several large private equity firms with strong expertise in beauty were also the first to jump back into deal-making mode, including L Catterton’s investment in Function of Beauty; and Main Post Partners investment in Dr. Gross.

By October 2020, there was a steady increase in acquisitions and investments in beauty and personal care. A wider range of strategic and private equity buyers made acquisitions, including both very large and smaller transactions. This was followed by a significant increase in transactions that closed in December, as sellers pushed to close transactions in 2020 to avoid potential increases in capital gains taxes in 2021.

Given all the deals closing in December, January was off to a slow start in some categories, but the number of reported consumer products transaction closed in February and March 2021 bode well for a strong year. Buyers who sat out 2020 are now aggressively looking for acquisitions, but demand is outpacing supply of strong companies on the market.

‍We expect 2021 to be a strong year for consumer products M&A, with the caveat that demand from buyers has generally outpaced the number of companies currently on the market. Buyers are ready, but many sellers have had to focus on managing through COVID rather than preparing for a sale. In other cases, sellers are waiting for revenue to return to pre-COVID levels before a sale.

There is a wide range of buyers currently looking to acquire beauty and personal care brands:

Private equity firms are looking for acquisitions that can drive growth by leveraging synergies with their existing platforms. This means we’ll see continued emphasis by private equity firms on add-on acquisitions that tuck into their existing platform companies or areas of expertise (always good for smaller brands).

Strategic buyers already in beauty and personal care are looking for opportunities to leverage their marketing, distribution, manufacturing and supply chain expertise, or to acquire smaller companies with unique capabilities that would be hard to develop internally.

Strategic buyers in other consumer goods categories are looking for opportunities in beauty and personal care categories. Beauty and personal care have enviable gross margins that can be attractive for buyers in other categories.

Multi-national consumer products companies based in emerging markets are looking at opportunities in the United States, to capture high growth and expertise that can be applied in the their home markets.

There has been a surge in funds to buyers who are focused on Amazon businesses, including Thrasio, Boosted, and Elevate Brands. Thrasio has acquired 100 Amazon businesses to date. As a result, we may see increases in valuations of Amazon businesses, which until now have lagged valuations on DTC and wholesale companies. And as finding strong Amazon businesses to acquire becomes more challenging, some of these buyers may start to look at multi-channel distribution businesses as an alternative to Amazon-only distribution.

Valuations are generally strong, but vary significantly based on individual profile of each opportunity. Long-term retail relationships, growing DTC sales, healthy gross margins, proven growth trajectory, and positive cash flow all drive up value. We’ll also likely see transactions for companies who are struggling with cash flow and where an exit is an alternative to closing the business. These deals will be structured to deliver some cash to the founders and investors, but valuations will need to leave plenty of room for the acquirers to invest and turn around the brands.

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In today’s market, if you and your business are ready for an exit, buyers are receptive to conversations.

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Today, as always, the best way to sell a small or mid-sized beauty or personal care business is to understand your personal goals, priorities, and options; prepare the business and yourself for the sale process; and reach out to a range of qualified buyers where there is a clear fit.

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Select US Beauty and Personal Care Transactions

Below is a selection of recent industry transactions, all with US based companies and US buyers.

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1Q 2021 Transactions

• Our client, home fragrance brand Skeem Design, was acquired by IUC Brands.
• Reckitt Benckeiser Group acquired Queen V from Brandable
• AS Beauty Group acquired Mallygirl from Beauty Visions
• American Securities acquired Conair Corporation
• Amyris acquired Costa Brazil from Elizabeth Street Ventures and Valor Capital Group. Amyris also acquired CBD brand Terasana.
• San Francisco Equity Partners acquired Smith & Vandiver.
• Contract manufacturer Bright International acquired California-based Bocchi Labs.
• At-home hair color company Madison Reed raised $52 million from eight investors. This follows $51M raised in 2019 and $25M in 2017.
• Omega-3 oil company Omeza raised $5 million, following $5.75M in 2019. Skincare company American Vanity raised $1 million, as die Aether Beauty. By Humankind raised $1.65 million. Sustainable deodorant company Paper Cosmetics raised capital from Obratori, a venture group arm of L’Occitane Groupe; and Curlsmith raised capital from BFG Partners.
• Beauty by Imagination, owner of Oidad, WetBrush, and Goody, invested in Curls, Inc.
• Estee Lauder acquired 47% of Deciem for $1 billion. Forbes reports Deciem has revenue of approximately $460M, which if true, puts total valuation at 4.6x revenue.
• Harry's raised $155 million in a series E round from Bain Capital and Macquarie Group, in a transaction that values the company at $1.7 billion.
• Start-up Revea, a personalized skincare brand operated by Compass Beauty, raised $3.5M from Waldencast.
• Unilver acquired a majority stake in first-aid company Welly, led by Method founder Eric Ryan.

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4Q 2020 Transactions

• PureKana acquired No B.S. Life, sold in Target.
• Ipsy acquired Boxy Charm from private equity firm Karp Reilly.
• Prelude Growth Partners invested in at-home hair color brand dpHue.
• Main Post Partners acquired men’s grooming brand Duke Cannon Supply Company.
• Hair care company Virtue Labs was acquired by Combe.
• The Carlyle Group acquired men’s grooming company Every Man Jack.
• L Catterton invested in Function of Beauty.
• Hero Cosmetics raised $20 million from Aria Growth Partners.
• ZO Skin Health was acquired by Blackstone Tactical Opportunies Advisors
• Natural deodorant company Hume Supernatural raised $3.1 million. Latinx hair care brand Ceremonia raised $1M from Flybridge Capital Partners and others. A-Frame brands raised $2 million from Initialized Capital Management; Boom! By Cindy Joseph raised capital from Juggernaut Management and Farragut Capital; and LA-based Freck Beauty raised capital from Karp Reily.
• E-commerce company Pharmapacks raised $40M from Reckitt Benckiser, The Craftory, and Sawaya Capital; followed by $250M from The Carlyle Group.

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3Q 2020 Transactions

• The HUT Group purchased NV Perricone from Lion Capital for $60M.
• Manufacturer Mansfield King was sold to aerosol company Plz Aeroscience Corp; and NYC-based Mana Products was sold to Traub Capital.
• Present Life raised $20M from London-based The Craftory, and acquired One Ocean Labs Beauty, adding to their brands Loum and Healist.
• Edgewell acquired men’s grooming brand Cremo for $230M. Edgewell reports Cremo had revenue of $58M, which puts valuation at 3.9x revenue.
• Art of Sport, also men’s grooming, raised a total of $24M.
• Forma Brands (Morphe) acquired Playa
• Amazon-acquirer Boosted E-Commerce raised $87M to acquire Amazon companies.
• Stick-on gel nail company Mani-Me raised $6M from Canaan Partners and Trinity Ventures, Kosas received $5M in funding from an undisclosed source and Brooklyn-based Atolla received $2.5M in funding from Lyra Growth Partners.
• Private equity firm Gardner Standard acquired bug-repellent company Wisconsin Pharmacal Company.

Data source: Cap IQ.

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About Hughes Klaiber

Hughes Klaiber is a mergers and acquisitions advisory firm based in New York City. We help clients turn a desire to exit their business into a successful sale that meets their personal and financial goals. We focus on working with brands who are too small to receive personalized attention from large investment banks, but need the professional advice and guidance to navigate a complicated financial transaction. If you are considering a sale of your business, please give us a call. We would be happy to share our insight into the current M&A market, learn more about your business, and discuss how we may be able to assist you. Contact us here.

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