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M&A activity in the beauty and personal care market shows no signs of abating. The segment has seen record deal volume in the second quarter of this year according to Intrepid’s Beauty Care M&A Report. M&A transaction volume in the…

M&A activity in the beauty and personal care market shows no signs of abating. The segment has seen record deal volume in the second quarter of this year according to Intrepid’s Beauty Care M&A Report. M&A transaction volume in the United States is up 18 percent compared to the previous quarter with 33 transactions announced in Q2 2019 alone. While strategics are going after upstart brands and emerging markets, PE groups are recording successful exits in the quarter.

Like several other industries, the personal care and beauty industry is facing a wave of change in terms of consumer preference. The largest companies in the industry are facing stiff competition from newer, smaller competitors that are on-trend selling natural, organic, ‘clean’ and cruelty free products to millennial consumers. These consumers are more conscious about the environmental and health effects of their skincare, cosmetics and wellness purchases compared to previous generations, and are willing to pay a premium for ethically-conscious goods. The industry has been transformed in recent years by the growth of direct-to-consumer channels and the use of social media to engage directly with consumers. New media and social media influencers in particular are driving the adoption of new trends such as ten-step skincare routines, the use of facial sheet masks and online beauty subscription services.

The global beauty and personal care market is dominated by a few large players such as Unilever, Procter & Gamble, L’Oreal and Colgate Palmolive, followed by several smaller companies. The major corporates possess global infrastructure, distribution channels and multi-brand portfolios, and are constantly innovating to keep abreast of market demand. For instance, Unilever’s beauty & personal care division is investing in water-smart product innovations such as dry shampoo and cleansing conditioner, which use less water. Corporates are also evaluating differentiated, growing insurgent brands that might strategically fit within their portfolio and as a result, strategic acquirers are the primary drivers of M&A activity in the industry.

Last year Unilever completed the acquisition of a 75 percent stake in the Italian personal care business Equilibra, which has a growing presence in the natural skin and hair care segments. The company also completed the acquisition of Quala’s Beauty & Personal Care and Home Care brands. The beauty & personal care division of Unilever generated a turnover of approximately USD 23 billion, accounting for 40 percent of its turnover and 33 percent of operating profit in 2018. The personal care giant is now considering a USD 1 billion offer for U.S. skin-care brand Drunk Elephant, according to the Telegraph.

Ecommerce has also disrupted and revolutionized the industry to a great extent. Direct-to-consumer brand Glossier is one of the latest unicorns in the industry, valued at about USD 1.2 billion. The company sells almost exclusively online and promotes its house-brand serums, balms and cleansers to over 2 million followers on Instagram.

As market leaders struggle to adapt to these shifts in the industry, they will need to pursue more acquisitions of up-and-comers to tap into growing markets. For this reason, it is unlikely that M&A activity in the segment will slow down any time soon.

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Image source: Pixabay

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