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.
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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 there also continue 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 believe 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.