9 beauty brands that experts say are destined for M&A or IPOs as Estée Lauder buys Deciem and Jessica Alba's Honest Co. prepares to go public

  • Estee Lauder just agreed to acquire Deciem, valuing the brand at $2.2 billion.
  • Analysts say othter beauty brands could follow, especially those with novel ingredients or e-commerce capabilities.
  • Here are 9 brands they’re watching for IPOs and deals.
  • Visit the Business section of Insider for more stories.

So far this year big names in beauty have either made plans to tap the public markets or found a buyer.

Bloomberg reported in January that Jessica Alba’s The Honest Co. is preparing to confidentially file for an IPO. Meanwhile, Estée Lauder agreed to buy a majority stake in skincare brand Deciem at a valuation of $2.2. billion, according to WWD.

Estée Lauder CEO Fabrizio Freda said before the acquisition that the company, whose brands include Becca, Two Faced, and Dr. Jart+, told analysts that it is still “looking into acquisitions and opportunity for reinforcing our portfolio in areas where we have strategic opportunities or strategic gaps.”

Sales among high-end prestige beauty brands totaled $16.1 billion in 2020, according to NPD. While that represented a decline of 19% over 2019, certain categories of cosmetics fared better than others: Makeup sales were down 34%, while skincare declined 11%, and fragrances fell 8%. Sales of haircare products increased 7%, according to the data.

Even with the pandemic, many companies like Unilever, Estée Lauder, and others have kept up the hunt for the next exciting beauty brand, said Suzanne Kopulos, co-founder at Beauty Consultants and Strategists, which works with up-and-coming labels. One thing the big players are trying to do is acquire companies that use more novel, clean ingredients, she said.

“That is one of our criteria, first and foremost,” Kopulos said. “Whenever we talk to anybody, it’s clear product differentiation and innovation.”

For brands that aren’t ready to work with one of the biggest names in the industry, going public via a SPAC, an increasingly attractive option in a variety of industries, might be an option.

Insider asked beauty industry experts which brands they’re keeping an eye on for potential IPOs or acquisitions. Here are 9 brands and groups of companies they pointed to:

Mented

Retailers from Rent the Runway to Sephora signed onto the 15% pledge last summer in the wake of the murder of George Floyd. Under the pledge, retailers say they’ll dedicate 15% of their shelf space to black-owned brands. 

But whether those brands and their founders have enough support from financiers in the first place represents a challenge to fulfilling that promise, said Kristy Engels, president at the Beauty Strategy Group.

Brands like Mented, a non-toxic, inclusive beauty brand that made its mark on the beauty scene a few years ago with a nude lip color for women of color, have received early-stage investments but have yet to attract the same level of interest as other brands that don’t cater to people of color.

“They’ve been overlooked by private equity,” said Kristy Engels, president at Beauty Strategy Group. Whether backers make investments in these brands will be “the true test” of whether they gain space at retailers and succeed in the long run, she added.

Rachel Weingarten, a consultant who works with beauty brands, pointed to Procter & Gamble’s 2018 acquisition of Walker & Company, which makes Black-focused shaving brand Bevel, as evidence that companies could make more acquisitions in the area.

Sparitual

Sparitual’s products are “for the spa professional and the self-care activist,” according to its website. The company’s lineup includes vegan nail polish, but the real standout products are its skincare treatments developed specifically for hands.

“They’re treating your hands as this part of your body that needs special attention beyond the cheapo hand cream or the fancy hand cream,” Weingarten said.

That focus on a specific use helps differentiate the brand from existing options, and could make it an appealing target for a larger player in beauty, Weingarten said. “That’s something we’re looking for: Does it make me feel special in any way?” she said. “Because EstéeLauder and L’Oréal don’t make me feel special at all.”

 

Tula

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Tula got its start in 2014 when it was created by Ken Landis, co-founder of Bobbi Brown Cosmetics; Dan Reich, a technology entrepreneur; and Dr. Roshini Raj, a gastroenterologist —  a doctor focused on digestive health.

Dr. Raj is the face of the brand which uses bacteria for skin health in the same way that probiotic yogurt uses bacteria to improve digestive health. Its products range from eye balm to acne care and have attracted investment interest from private equity firm L Catterton.

Tula’s focus on probiotics and solving specific skin ailments for consumers in a range of ages makes the brand an appealing acquisition target or IPO candidate, said Kopulos. Tula has also offered more products lately that appeal to a wider variety of needs, including an anti-aging line it released last October. “I think that they’ve probably started to position themselves in a bigger way,” she said.

“They speak to a lot of generations of women,” she said of Tula. “They have this overall feeling of trying to tell you ‘We understand your skin concerns, and here’s something that can help you, and it’s clean.'”

Supergoop

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Supergoop has raised $8.8 million so far from investors including tennis pro Maria Sharapova. While its products range from hand lotions to body butter, they all have one thing in common: sunscreen-level protection. 

Though the company is private, it disclosed to Inc that its 2018 revenue was $40 million, double its total for the previous year. That number has stuck with lots of people in the beauty industry and made the company stand out in a sea of up-and-coming skincare brands, Kopulos said.

“Everybody’s talking about Supergoop because of their SPF skincare,” she said. “Everybody’s looking at them” as a potential acquisition or investment target, she added.

Perfect Corp.

One of the million-dollar questions for beauty companies is how much of the business that’s moved online will stay there even after the pandemic eases. Kenya Watson, intelligence analyst at CB Insights, told Insider that many cosmetics sales will continue to occur online thanks to the full year consumers have had to get used to the e-commerce experience.

“I think more will stay online than if the pandemic had ended in June or July,” she said. “A lot of beauty customers are really adapting their habits to online, especially consumers who buy a lot of products who are already familiar with them.”

That’s where startups like Perfect Corp. come in, Watson adds. The startup’s YouCam Makeup app allows customers to try a new shade of eyeliner, lipstick, and other makeup using augmented reality. The company’s investors so far include Goldman Sachs and Alibaba, according to Pitchbook.

For a retailer, it could be a useful tool that’s better bought instead of built from scratch. “It can do all of these different things, and that helps you in making a purchasing decision,” Watson said.

Amika

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Amika was a well-known name in salons and among professional stylists for years before it decided to start selling directly to consumers over the last few years. That’s included a pop-up shop in New York’s SoHo as well as revamping the chatbot function on its website to accommodate questions from individual consumers instead of salons ordering wholesale, according to Glossy — all things that make it more attractive as a potential deal target.

“Before, they had been a little bit more focused on their salon business, and now they’re really embracing more of their direct-to-consumer relationship,” Engels said. 

Last year, it ranked among NPD’s top 10 best-selling prestige haircare brands. The brand has also expanded its line, targeting consumers with textured hair. 

 

 

Huda Beauty

Huda Beauty takes its name from founder beauty blogger Huda Kattan. The company had a valuation of $1.25 billion and counts private equity firm TSG Consumer as an investor, according to Pitchbook.

The brand has become known for products like its Faux Filter foundation. But Engels of Beauty Strategy Group said that the brand’s ability to get feedback from its most avid fans and act on it separates it from other beauty labels. In January, Huda released a fresh version of Faux Filter with new features prompted by crowdsourced feedback.

“Huda just does a phenomenal job of mining consumer insights, talking to her community,” Engels said. “I think Kylie set the bar on that,” she added, referring to Kylie Jenner’s cosmetics brand, which Coty acquired for $600 million in 2020.

 

Function of Beauty

Function of Beauty has raised $167 million from investors including L Catterton, Y Combinator, and BBG Ventures. Its shampoos, serums, lotions, and other personal care products are all customizable, and first-time customers are directed to a survey with questions about their hair texture, how oily their skin is, and other attributes.

But the real genius move is how Function of Beauty then takes that information and applies it to product suggestions and marketing aimed at specific consumers and their needs, Beauty Strategy Group’s Engels said.

“They’ll know who suffers from itchy scalp and utilize that in their marketing activity,” Engels said. The brand “could be poised for an IPO if they keep their current growth trajectory,” she added. 

Bulk Homme

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Men’s shaving brands from Harry’s to Gillette have received attention for several years as they fought each other over razors. But CB Insights’s Watson said there are a whole range of brands offering men cosmetics and skincare choices.

Japanese brand Bulk Homme, for instance, makes toner, lotion, and face wash for men and started selling in the US earlier this month.

Hawthorne for Men is another brand the industry is watching for an acquisition. That company sells face moisturizers and shampoos for damaged hair.

These brands could become more attractive acquisition targets as they get into a wider variety of products, Watson said. “We’ll continue to see those startups getting funding and men’s grooming continue to expand out of shaving products,” Watson said. “Men, too, saw skincare and these products as ways to take care of themselves and practice self-care” during the pandemic, she added.

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