In Q4 2022, the BeautyMatter Deal Index tracked 79 deals, down 28.8% from Q4 2021 and down 12.2% and 9.2% from Q4 2020 and 2019, respectively. In fact, the whole second half of 2022 was a little late. Transaction activity from July to December 2022 decreased by 28.1% compared to the same period last year, and decreased by 9.3% and 15.6% compared to 2020 and 2019. This was a far cry from the beginning of the year, when trading activity fell by just 2.9% versus 2021. A staggering 85.0% and 94.1% increase compared to 2020 and 2019.
Despite a relative decline in trading activity in the second half of 2022 and a consensus that the U.S. economy will enter a mild recession in the first half of 2023, industry executives and traders are Remains surprisingly optimistic about the beauty outlook. .
Kamran Iqbal, commerce strategist at PFS, an e-commerce fulfillment provider, said, “In 2023, more and more people are staying indoors, returning to the office or attending social gatherings. We expect demand for beauty products to increase.”
Ashley Helgans, vice president of investment bank Jefferies, was somewhat cautious, but optimistic about the year ahead. “Although we expect the moderate US recession to continue to put pressure on US consumers in 2023, beauty remains a relatively bright spot. is adapting to inflation and shifting from want to need. So far, beauty has endured an underlying shift from goods to services given its relevance to socialization, opportunity and self-care regimens. Early signs of economic stress could affect trade-ups, leading to further discounts in 2023 compared to 2022.”
To dig into the trends and market forces that beauty investors and dealmakers will be watching in 2023, we reached out to several experts to share their predictions for the year ahead.
Kelly McPhilliamy, Managing Director of Harris Williams
1. M&A in the beauty industry is off to a slow start and could be a strong year. Beauty deals are expected to get off to a slower start in 2023 as sellers assess macro and market conditions, as well as holiday performance and momentum, before starting fundraising or divestment plans. may drive important activity as the year progresses. Ongoing strategic intent to M&A, a pipeline of deals waiting to hit the market (or back), a significant number of private equity investments (60+ Harrison) needing exits to lock in returns his 3+ years from Williams’ own database). We are closely monitoring retail reorders for the holiday season, supply chains and brands, and believe greater stability in the economy and credit markets will boost M&A confidence.
2. Evolving perspectives on skin and hair health will dominate M&A activity: According to the Harris Williams Annual Health and Beauty Survey, skin and hair health will be two out of the top three health and beauty priorities for consumers in the next year. We believe this will lead to his M&A activity in these areas, but it’s an evolved way of doing things. Broadly speaking, buyers are prioritizing brands with proven technology that drives efficacy and brands that drive the ESG agenda, while buying clean SPF, microbiome-focused products, and biotech ingredients. , beauty supplements, and hair loss solutions are seeing more and more attention. The convergence of beauty, wellness and clean science will keep categories such as women’s health at the forefront.
3. Changing landscape will impact strategic and financial buyer channel settings: Beauty Industry M&A Strategies Continue to Adapt to Changing Conditions. Buyers are looking for brands that focus on omnichannel distribution rather than relying on one primary account. Also, interest in mass and masstige brands will continue to grow due to the macro backdrop and increasing quality in mass. Heading into 2023, major retail partnerships will enter their second or third year. This is a good time to assess whether these partnerships have achieved their goal of reaching more consumers. We believe Amazon’s role in the prestige and professional beauty ecosystem will be a potential tipping point in the beauty journey, gaining share by acquiring several notable brands in 2022.
Marissa Lepor, Vice President, The Sage Group, LLC
Four. Ingredient Transparency: Using words like “clean,” “organic,” “safe,” and “natural” has been common practice in the beauty industry for years. However, many of these words lack official, regulated definitions, leaving consumers confused about which products are the safest option. Considering the conversations surrounding the class action lawsuit and the EU’s Corporate Sustainability Reporting Directive, which requires companies to publish detailed information on ESG-related topics, customers will start demanding more. transparency. This demand will further propel brands with a tradition of ingredient transparency, expanding awareness to a wider audience and cementing long-term customer loyalty. As we become more educated about the nuances of our ingredients, we demand transparency from our brands. Brands with a tradition of ingredient transparency and customer trust will benefit most from this dynamic, robust, and long-term customer loyalty. As such, brands seeking to invest need to do more on these topics, as investors want to ensure that their products meet specific safety requirements and that their promises to consumers are comprehensive and accurate. may pay attention.
5. Proven Proprietary Technology: The beauty industry is full of amazing brands featuring newly discovered natural ingredients and innovative technologies. Many brands and products are differentiated and offer something unique, but the real disruptors are the brands with proven or proprietary formulas and technologies. Highly effective formulations, backed by scientific research and reliable data, gain customer trust faster, driving both rapid adoption and long-term loyalty of new customers. As a result, investors are likely to spend more time researching product claims and want to ensure that a brand’s proprietary technology complements what they already have in their portfolio.
6. Innovative and disruptive business models: As the cost of acquiring customers becomes more and more expensive, launching a brand through traditional DTC channels will require significant investment and new brands will increase brand awareness and grow their customer base. is getting harder. To alleviate some of these pressures, new brands may seek ways to market their brands and products to customers more efficiently. Successful new brands are likely to have a content commerce-driven dual model, leveraging unique entertainment and educational content to build community, optimize consumer engagement, and Build loyalty. The smartest brands rely on consumer behavioral analytics to make data-driven decisions to accelerate growth and profits.
Ariel Ohana, Founder and Managing Partner of Ohana and Co.
7. Mass is the new frontier of prestige beauty in the United States. The distinct premiumization of Mass Beauty in Play drives M&A deals targeting next-generation beauty brands that sell at prestige, but can cross over and succeed in the mass channel. Premiumization comes from two sides. First, slowing growth at Sephora and Ulta has encouraged partnerships with mass retailers (Kohl’s and Target), while other mass retailers, especially his Walmart, are also seeing price increases in the category. Second, I no longer dream of being at Sephora, but rather the status quo by sharing some of my successful recipes (clean formulations, minimalist packaging, and an active social media presence). Coming from a new generation of brands and entrepreneurs disrupting at scale. low-end channel. Think The Ordinary, Versed, or Bubble, just to name a few.
8. Asian buyers, including Chinese, are finally becoming a real force in the world of M&A. Arguably the most Western group in Asia, not to mention Japan-based Shiseido, many conglomerates have emerged as reliable buyers for future sales processes. Amorepacific acquired Tata Harper and LG acquired The Claim Shop. Multiple buyers have emerged in China, including S’Young Group, which has acquired Evidens de Beauté, Proya, Pechoin and others. These players should be included in the 2023 sales process.
9. New beauty categories continue to emerge, creating M&A traction. Beauty innovation also emerges by disrupting new categories. A simple recent example is the anti-acne category, which until recently has not been an active M&A space. The success of several key players is driving both fundraising (Peace Out) and M&A (Hero and ZitSticka). So, at the innovation frontier, founders from less visible categories are competing to make their category hot. A few categories come to mind: feminine care, her DIY replacements for the salon (vertically for eyelashes, nails, hair, etc.), body her sculpting, and more.
Rich Gersten, Co-Founder and Managing Partner, True Beauty Ventures
Ten. Investors remain cautious: Given the uncertain macro environment, investors (and strategic buyers) will remain cautious in 2023. This leads to fewer M&A deals, lower valuations, and a flight to quality. High-quality brands will continue to attract strong interest with attractive valuations. True Beauty Ventures remains very active because it believes in the long-term nature of this segment.
11. Enhanced ‘clean’ scrutiny and increased transparency: The term “clean” continues to come under scrutiny. Clinical and efficacy are driving the debate, and as long as there is no standard for “clean” and different retailers have different standards, consumers will continue to be confused. Gender will become more important.
12. Omnichannel Drives Growth and Capital Needs: Brick and mortar will continue to seep through. DTC is still expensive to acquire new customers, and brands looking for profitable growth should consider an omnichannel strategy. At True Beauty Ventures, we’re seeing young brands more than ever prioritizing retail as a driver of growth. This creates additional capital requirements for the brand to grow.