The Latest Cosmetics Trend: Mergers & Acquisitions

For the world’s biggest health and beauty companies, nothing is more in vogue right now than buying up relatively young cosmetics companies with niche products and healthy annual sales. We’ll dive into the details of three recent acquisitions including Coty’s purchase of Kylie Cosmetics, Estee Lauder’s enormous merger with Dr. Jart+, and Shiseido adding Drunk Elephant to its brand portfolio.

“All of these acquisitions are highly strategic and help the larger companies fill gaps in their existing product lines, or reach new customer segments. The holding companies behind these mergers are all very active across Asia, including China. This can help brands like Kylie Cosmetics and Drunk Elephant gain an initial foothold in the market. For Dr. Jart+, which is already selling well in China, having the full backing of Estee Lauder will provide financial resources and a network that can fuel faster expansion.”

Holly Kim, head of MeasureChina’s data business
Figure1. Companies involved in recent M&As | Source: MeasureChina

Kylie Cosmetics x Coty

Just five years ago, Kylie Jenner launched Kylie cosmetics on the back of her enormous social media following. She has more than 160 million followers on Instagram alone, and also uses YouTube and Twitter to interact directly with her fans. She regularly makes videos of her daily beauty routine for her Gen Z fan base, and according to industry lore, she reportedly takes fan feedback into account when designing new products or improving existing ones.

That social media loyalty and a reputation for quality products mean that new items can sell out online and in retail outlets within a few hours. The brand began with Kylie’s Lip Kits but has extended into a full line of color cosmetics that includes eyeshadow, blush, and highlighters. 

Coty purchased a majority stake in Kylie Cosmetics for $600 million last November, according to Bloomberg. This values the company, which reportedly only has 12 employees at $1.2 billion. Looking into Coty’s portfolio, most brands are focused on perfumes and hair care, with just a few cosmetics brands that consumers are familiar with, such as Covergirl and Bourjois. Acquiring Kylie Cosmetics not only extends Coty’s color cosmetics portfolio, it also gives the company access to a younger, fresher group of buyers.

Dr. Jart x Estee Lauder

Dr. Jart+ started in Seoul in 2005 and has grown into a highly successful skincare brand across Asia, reporting about $500 million in revenue last year. They built their reputation on BB cream but expanded heavily into derma cosmetics over the past decade. 

This drew interest from Estee Lauder in 2015, which bought a one-third stake in Dr. Jart+’s parent company Have & Be. After a successful strategic relationship over the past five years, Estee Lauder bought the company’s remaining shares for $1.7 billion, an amount sure to leave permanent smile lines on the faces of founder ChinWook Lee and his employees. Notably, this was the first time for Estee Lauder to acquire a company based in Asia and could signal increased Eastern interest from the world’s largest cosmetics company.

Last year, Estee Lauder’s net sales were $14.9. Of that $6.6 billion (44%) were from skincare products, making this the company’s largest single product segment. The portfolio consists mainly of luxury brands. Recent acquisitions of online startup beauty brands have helped the company grow its skincare base in new directions.

While Estee Lauder already has recognized skincare brands including Clinique, Darphin, Estee Lauder, La Mer, Lab Series, and Origins, Dr. Jart’s brand image and products do not directly compete with any of them.

Drunk Elephant x Shiseido

Drunk Elephant is a premium skincare brand that develops products according to a strict philosophy of using only “biocompatible ingredients” that won’t harm the environment. This has led to a high rate of repurchase among customers, who have proven willing to pay prices similar to those of products from established luxury skincare brands from Estee Lauder and L’Oreal.

The brand focuses on balanced, natural skin. Reinforcing this, they’ve run a very successful social media campaign based around the concept of “#barewithus”, encouraging women to take no-makeup or minimal-makeup selfies.

Up to now, Drunk Elephant has only shipped its products within the United States. The $845 million purchase by Japanese-based Shiseido likely means the company’s products will be introduced soon in Asia. Shiseido is strong in the prestige segment, but most of its recent overseas acquisitions have been color cosmetics brands such as Laura Mercier and NARS. Drunk Elephant expands Shiseido’s high-end skincare portfolio and may help explain how executives can justify paying 5.6 times the eight-year-old company’s net sales for last year.

Figure2. Local revenue trend of acquired companies | Source: MeasureCommerce

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