The Price of Beauty: How Much Are Investors Willing to Pay?

These days, it seems it’s more of a question of who’s not in the market for a deal, rather than who is.

In recent weeks, it emerged that Rare Beauty, OSEA, Jane Iredale, Glossier, Merit and Rare Beauty Brands have all hired bankers to explore deal options. More are said to be close to putting the for-sale sign up.

Two of these — Glossier and Rare Beauty — are rumored to be seeking valuations of around a whopping $2 billion each.

But with so many brands in the market and many in the same category — makeup — realistically what does this mean for valuations?

“We really are coming off of what was a peak valuation period,” said Ashleigh Barker, head of beauty and personal care at Lincoln International. “The notion that A-plus assets will continue to get A-plus valuations absolutely still holds true, but they’re also continuing to be higher thresholds for getting through diligence.”

Given the uncertain macroeconomic backdrop that strategic buyers and private equity firms are having to factor into every purchase, Barker believes it’s no longer the case where someone will easily write a nice check at a lofty valuation. 

“[Private equity buyers] truly need to have that conviction that the numbers match the business or the valuation matches the business, and that they feel that there’s going to be that future exit opportunity with the right set of buyers and based on what the business thinks they can achieve,” she continued. 

Indeed, more than ever, brands are judged on what their sales are and how profitable they are. Strategics are also understood to be digging into formulas before making a decision.

This can sometimes come as a rude awakening to those founders, who still think it’s the days of extremely high brand valuations, where their company should go for three to five times revenue.

While that’s been the case in the past — the purchase prices of Too Faced, Creed, Aesop and Paula’s Choice all come to mind as having particularly high valuations with their respective deals — times have changed.

Two well-known skin care brands were in the market last year, but a deal was not done, with both founders failing to find a buyer willing to bite at their valuation expectations.

Nevertheless, that misalignment in terms of deals appears to be easing this year and one of these brands is understood to be considering returning to market.  

“I don’t think that every asset is necessarily going to find a strategic home, maybe a financial home, but I don’t necessarily see today a misalignment between valuations on the buyer or the seller and the buyer side. I think we saw a lot of that in 2023,” said Nadia Pelaez, a managing director of Ardea Partners.

“Sellers are being more cognizant of what their valuation should be and also investors are being somewhat more opportunistic at the same time.”

Assets that bankers grade as a B-plus might be more ripe for rightsizing in terms of valuations.

“We can’t ignore the fact that not every asset is A-plus, but there still are a lot of really good deals to be done,” said Barker. “More and more I’m actually hearing investors say, ‘We’re happy with B-plus. We like those that are just performing really nicely. They don’t need to be in the high double digits every year, but they have strong very sustainable margins and we’ll deliver on that promise that makes them attractive opportunities to begin with.’ That’s where I think you are going to see more of the rightsizing evaluations.”

As for the $2 billion mega valuation numbers surrounding both Rare Beauty and Glossier, industry sources believe the real number may be lower once the deals are done.

In the case of Rare, sources pointed to potential hiccups with an initial public offering, including that it is a single-brand company with a single founder in Gomez and a single retail partner, Sephora. 

For a sale, only a few will be in a position to put down the big bucks. “It’s an expensive proposition for everyone,” said one source. “The number of people who can write a $2 billion check I can count on one hand. I suspect the multiple for Rare Beauty is going to come down to reality a little bit.”

And for Glossier, sources think that given how much money it has raised, an IPO may be its only option, although the rumor mill continues to grind.

Whatever happens, the fact that Glossier is in the market is fitting. In its girl boss days Glossier rode the wave of frothy valuations. Only time will tell if its exit will portend a more down-to-earth outcome.

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