It’s been a big year for beauty M&A. But if you ask a trio of the industry’s financial leaders, there’s still much on the horizon.
“One of the most exciting things about the beauty category is that it’s incredibly dynamic,” said Alicia Sontag, cofounder and managing partner of Prelude Growth Partners, which has invested in Tower 28, Summer Fridays, Westman Atelier, Sol de Janeiro and more. “Retailers are changing, you look at Amazon, TikTok — strategics are changing, we saw Kering go to L’Oréal. We saw Kenvue go to Kimberly-Clark. The winners will be the brands that have been built to last.”
Sontag joined Kelly Dill, partner at Imaginary Ventures, and Fei-Fei Zhang, managing director and head of beauty for North America at J.P. Morgan Commercial & Investment Bank, in a conversation moderated by senior beauty editor of WWD Kathryn Hopkins at the inaugural The Catalysts event.
“Beauty as a culture is a really interesting phenomenon,” Dill said. “I get excited about the power of the consumer. In today’s age, you have to hit someone over the head 10 times with something for them to know about a product or brand. Everything old is new again, they’re speaking to product efficacy, they’re talking about how a product works.”
From Zhang’s perspective, it’s not a surprise how many players want to break through. “It is no wonder that more platforms want exposure to beauty as part of their overall portfolios,” she said before noting a few bonuses. “When you think about the traditional beauty consumer journey, you’re going from cleanser to moisturizer to makeup. Many people have more steps. That routine now involves supplements, treatments, injectables, prescription medication. We’re seeing dermatologists more frequently recommend supplements so that medical validation is a tailwind for ingestible beauty.”
Zhang also noted that executive shifts at the largest players hasn’t hampered activity. “If you think about the mindset of a publicly traded strategic, the markets reward businesses with scale that deliver exceptional and top-quartile growth, and there’s a higher premium assigned to that in periods of uncertainty,” she said. “We’re also seeing that the cost of disappointing investors has increased. Negative earnings reactions is more than double the 10-year average.”
As for why some players have stepped away, “this category is very dynamic and experience in the category serves you well,” Sontag said. “While that dynamism is happening around you, you can continue to chart a true north. If you have less experience, you might have less success and therefore be skittish.”
Dill is bullish on newer ventures. “We always think about true brand and true soul,” she said in a nod to Imaginary’s investment in Mikayla Nogueira’s POV Beauty. “We get excited on the really early stage side to help build. There are a couple parts to that, such as a unique person or idea or category where we see so much going on.”
As Zhang summarized, “The pace of change is accelerating at breakneck speed, and also that uncertainty feels like it’s here to stay. To be able to make educated decisions as you’re planning for the future, building your businesses, scaling, that represents a major advantage. AI creates a lot of new opportunities and also risks to manage, but the ability to harness AI to process data to make more informed business decisions […] being able to leverage that is a real benefit. Embracing that opportunity will help.”
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