Looking back over the past year, capital in the fashion and beauty sector remains active:
Victoria's Secret acquires lingerie startup Adore Me while acquiring a minority stake in Frankies Bikinis; The Estée Lauder Companies acquires Tom Ford; Authentic Brands Group acquires Ted Baker; Oxford Industries, the parent company of brands such as Tommy Bahama and Lilly Pulitzer, is now the owner of bohemian womenswear brand Johnny Was; Levi's acquires Beyond Yoga; Calida Group acquires Cosabella... The list goes on, and many other companies have said or hinted that they are looking for the right acquisition.
The macro environment was one of the reasons for these deals, with interest rates remaining high, IPOs all but stagnant, and the era of inflated valuations coming to an end, cash more expensive than ever, leaving many smaller brands struggling to raise investor capital, and selling all or part of their business to larger companies is currently one of the fastest ways to scale.
Large companies benefit from access to expertise in areas such as digital, as well as established online communities and followers, often expanding into new markets.
But will the pace of M&A in the fashion and beauty industry continue into 2023?
"This is a big question for the next two to three years," Brooke Kiley, one of the founders of VMG Catalyst, the venture capital arm of VMG Partners, told WWD, "My gut feeling is that in the next two to three years, this is going to be an acquisition market, especially since there are a lot of late-stage private companies with fairly solid financial performance, and they took the opportunity to raise money in 2021 due to high valuations and cheaper capital." Now that these companies are well-funded, they would be a good soft landing for some interesting but potentially unsustainable business models. ”
This situation creates a buyer's market for companies with cash, and as the party with the resources, they can decide which brands to work with or whether to add them to the brand portfolio.
David Shiffman, co-head of the global consumer retail group at investment bank Solomon Partners, said smaller DTC brands could face a merger. But he also pointed out that as the company's valuation has fallen since last year, some brands are reluctant to sell at their current market prices.
"You need willing sellers to create a buyer's market," he says, "and often, brands that get big checks from VCs tend to be unprofitable and ultimately don't make money." Today's entrepreneurs are still eager for 2020 valuations, but companies need to have higher cash flow—in other words, be able to make money—to justify those higher valuations. ”
While the market opportunity appears to be ripe, Shiffman sees mergers and acquisitions as "very selective," while investors are shifting their focus from apparel brands to health and wellness, beauty, home and outdoor sports products.
"Private equity firms have been reluctant to get involved in the retail game, and the cost of borrowing money has become high," he said, "but you look at high-quality companies that are looking for investors from a holistic perspective, and people are always interested in owning good companies, regardless of industry." We see that the most active capital activity is in the brand management sector. ”
One example is WHP Global's recent investment in Express, a brand management company that acquired a 7.4% stake in the fashion retail chain for $260 million, a partnership that includes building a platform to acquire more brands in the future.
"Historically, the fashion industry has always been full of opportunities. But given today's environment, the number of opportunities is sure to increase," Yehuda Shmidman, chairman and CEO of WHP Global, told WWD last December, "As you can imagine, there are many different types of fashion brands in the market that we are very interested in chasing."
He added: "This year, with macro markets changing and IPO markets closed and funding hard to come by, there are definitely more opportunities for institutions like ours. ”
Indeed, in the first month of 2023, the fashion and beauty capital market has shown a hot start: L'Oréal acquires a minority stake in non-permanent tattoo printing device company Prinker and invests in the metaverse platform Digital Village with the British Fashion Council; Procter & Gamble acquires hair care brand Mielle Organics; L Catterton sells beauty brand Bliss to AS Beauty; Tex invested in start-up brand management and investment firm Ignite Venture Studios...
With the continuous flow of capital, the fashion and beauty industry pattern in 2023 may usher in a new round of changes. WWD
Written by Editorial Office
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