The beauty industry is poised for a stronger wave of M&A in 2025, following a conservative 2024.
By November 2024, 57 deals had been made, compared to 43 year-to-date in 2023, according to data from investment firm Capstone Partners, which also reported strategic buyer activity had remained relatively flat year-on-year. “Investor sentiment has been cautious in 2024,” says Neil Saunders, managing director and retail analyst at data research firm Globaldata. “There has been a general appetite for corporate activity, but big-scale investors have been scrutinising returns and financials and are shying away from any deals with too much risk.”
Several factors were at play. “Uncertainty does not drive M&A,” says Marissa Lepor, partner and head of beauty and personal care at M&A firm The Sage Group. She attributes the slowdown to consumer sentiment and global economic dynamics. For Lepor, the US and UK elections and geopolitical challenges made investors uneasy, coupled with dicey inflation influencing consumer sentiment over time. “Even the luxury consumer needed to make choices, affecting brands globally. These trends coincided with investors’ increased focus on profitability. As customers made conscious choices, companies pulled back on marketing spend, which slowed growth for even some of the best brands,” she says.
Dianna Cohen, founder of buzzy haircare brand Crown Affairs, closed a $9 million series B funding round in November last year. Still, she noted challenges compared to previous cycles. “The landscape has changed drastically. Unlike when I started fundraising in 2019, I had to factor in the macroeconomic climate. There’s also an expectation to hit every mark — execution is everything. The brand had to be excellent, have award-winning products, be a healthy business with a strong team and be especially profitable,” says Cohen.
However, an uptick towards the end of 2024 signals a turning point. The industry closed the year with 62 investment and acquisition deals. Highlights from the last 12 months include biotech brand Mother Science completing a $3.5 million funding round, led by Greycroft; skincare brand Allies of Skin raising $20 million from Meaningful Partners; and, at the start of this year, Manzanita Capital acquiring a majority stake in perfume house D.S Durga for an undisclosed sum.
Analysts predict 2025 will be a more fruitful, deal-making year, given how many of last year’s risk factors have dissipated.
For Caroline Weintraub, VP of investment firm True Beauty Ventures, many of the brands in the market — and waiting to transact in 2024 — will likely take place in 2025. She predicts Merit, Kosas and Makeup by Mario could be snapped up based on their size and “rumblings they were looking to trade”, she says. “It’ll be interesting to see if these larger assets find a home this year or if the shift for strategics will move towards other booming categories like fragrance, which has led prestige beauty growth for all of 2024.” Lepor is excited about the makeup brand One Size and haircare brand IGK. “While One Size’s initial growth was catapulted by its renowned On ‘Til Dawn setting spray, One Size has built a multi-category makeup brand for the next generation with a highly loyal and engaged customer base, making it a sought-after M&A target. And IGK’s success across channels and product categories, combined with its loyal customer base, has rendered it a highly sought-after asset among both financial and strategic buyers,” she explains.
Nell Daly, a venture capitalist at Revenge Fund, predicts makeup brands Refy and Westman Atelier could be acquisition targets. “With the market being so over-saturated, they cut through the noise, and that will catch an investor’s eye. Refy has honed in on its community and has identified what their consumer wants, making their lives easier, and that’s ideal in a competitive market,” says Daly. As for Westman Atelier, they have “a strong idea of who their focus consumer is and in turn, creating products that sell”.
Brands should still brace for the geopolitical influence that will add a layer of complexity to deal activities, like President-elect Donald Trump’s proposed tariffs on imports into the US. These could affect beauty companies that rely heavily on global markets for materials and components, potentially reshifting the balance sheet as it navigates greater outgoing costs. Yet, per investment banking firm Harborview’s report, Trump’s administration could be an opportunity for cross-border deal-making as the incoming party adopts a more business-friendly environment, boosting investor confidence and easing regulatory burdens.
The verdict is still out. So, what do investors think will happen this year in beauty M&A?
What buyers and investors are looking for
Profitability is non-negotiable. “Brands need to show that they have either a profitable business or a clear pathway to profitability with a tangible timeline,” says Saunders.
Shana Randhava, head of New Incubation Ventures (NIV), the early-stage investing and incubation arm for beauty conglomerate Estée Lauder Companies, agrees. “The concept of growth at any cost is no longer compelling. Buyers and investors are really evaluating brands through a focused lens on operational efficiency and long-term (financial) growth.”
For brands, that means avoiding unnecessary overhead, crafting agile marketing strategies, building strategic retail partnerships that offer greater brand awareness, and maintaining higher customer retention rates (propelled by sustaining brand loyalty) to keep expenditure low and revenue sales stable with pocketed growth. “These dynamics drive scale and profitability,” adds Lepor.
Weintraub is intrigued by unique brand storytelling, point of difference and a strong engaged community that can continue to drive organic momentum for the business — and isn’t reliant on virality. Skincare brand Topicals is an example of this. It specialises in treating common skin conditions that affect skin of colour, including eczema, psoriasis and hyperpigmentation, with products and ingredients formulated with melanated skin in mind. In addition, prices are affordable (between £14 and £35), and its marketing is centred around educating its community, avoiding over-hyped claims and focusing on results-driven content.
“It’s compelling characteristics for a brand in 2025, especially if they have already reached a certain level of scale, with profitable unit economics, a strong retail partnership and face global opportunities,” Weintraub says.
According to Ken Wasik, co-head of investment banking Capstone Partners, a brand’s sales quality and strong channel diversity matter. “What strategic buyers want to see is proof that brands can still sell through their pipes,” says Wasik. “[A potential buyer will] look at a direct-to-consumer brand who maybe went from $5 million to $50 million in sales year-over-year. Intriguing. But they’ll weigh up whether those internet sales can work if they went through retail channels, if the majority of [the buyer’s] sales come via retail.” For Wasik, groups will scrutinise whether the brand’s customers are willing to buy through other channels, such as retail. That’s why brands need to ensure they are strategically positioned online and offline while retaining repeated customer demand across their portfolio, he says.
Otherwise, ELC NIV’s Randhava is eyeing up hyper-localised luxury beauty brands. “These brands are heavily tapped into regional dynamics and consumer sentiment and deliver product and marketing specifically targeting consumer pain points, especially in emerging markets,” she explains. India’s SkinInspired, for instance, tailors its product portfolio to specific skin types and concerns, using traditional ingredients like neem oil and turmeric. “I’m excited by how they can cater products and beauty rituals to that level of specificity and find a solution that also considers their customer’s environmental factors.”
Categories to watch
By category, investors are driven by intersectionality. “What’s interesting is brands that can fuse beauty, wellness, health, technology and redefine category dynamics,” says Randhava.
For instance, the fragrance category is evolving from a surface-level spritz to something entwined with health and wellness. If brands fuse scent with wellness and related health data, it can unlock a new level of growth, she says. Biotech is emerging as a significant and interesting innovation as it relates to beauty, with players like Deinde, Reome and Mother Science already tapped in. Analysts predict investors and buyers will double their investment in this category in 2025 and beyond.
Daly is also betting on the female health sector. She believes the category, widely linked to the current trend and emphasis on wellness and longevity, is poised for significant brand penetration and, with it, buyers. “The gap in the market presents a lucrative opportunity for brands to develop solutions that cater specifically to women’s wellness, from hormone health to long-term vitality. When brands lean in, they create pathways for growth and investment returns.”
What’s waning? “Feel-good companies that lack scientific advancement and are a pure marketing play,” says Wasik. Regardless of the brand’s size, he explains that investors have lost their appetite for these brands because they can’t retain customer loyalty in a competitive market. They also don’t have a point of difference. Elsewhere, “clean beauty, natural and organic brands don’t mean anything to consumers anymore because they’re too well informed. Without data-driven and scientific results that are proven, brands risk stability,” says beauty investment company Next8 co-founder Denise Russell.
Daly adds that brands that position an extensive shade range as a unique selling point are no longer interesting. “In today’s climate, it should be given,” she says. “Instead, if a brand can balance shade ranges with the ability to adapt to different climates, environments or skin behaviours draws a crowd — that level of hyper-personalisation is appealing.”
Looking forward
Investment banking firm Harborview Advisors predicts private equity will be the big story for 2025 financing, given firms are ready to step in. These firms hold “an unprecedented $2.5 to $3 trillion in dry powder” across industries, according to Harborview, and will fuel a surge in M&A activity this year. Wasik agrees and believes these mid-tier, slightly smaller transactions — compared to beauty conglomerates who are resettling many internal changes and market challenges — will hit the market, “where I predict it will be a feeding frenzy”, he says.
Scaling difficulties are also a factor fuelling private equity firms’ appetite, who made up 30 private equity deals (accounting for 52.6 per cent) in 2024 compared to 29 in 2023, per Capstone Partners. They reported that despite beauty brands having comparatively low barriers of entry, very few brands have been able to scale as they’ve had to battle expensive marketing and high customer retention costs. As a result, private equity firms have been best positioned as investors to propel brands to reach the next growth stage and gain scale, a trend Wasik says will roll into next year.
For brands seeking an acquisition in 2025, Weintraub says they need to get ready by focusing more on proving their established success and their strategic fit, positioning themselves as a valuable addition to a larger entity’s future. Otherwise, “those seeking investment should emphasise their potential for innovation, adaptability and strong unit economics in a more conservative funding environment than we’ve seen a few years ago,” she adds.
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