Hadley Mullin, senior managing director, at top private equity firm TSG Consumer Partners, knows there’s negative sentiment around the kind of company she works for. For decades, PE firms were thought of as asset strippers, maximising profits at any cost. But Mullin doesn’t hear about it.
“Founders don’t want to hurt my feelings,” she quipped.
Mullin’s experience dovetails with a wider shift in how private equity firms are perceived. In beauty, they have begun to reemerge as preferred investors. Private equity investment has grown in popularity as the broader liquidity landscape has changed. There have been fewer big exits than in previous years, as strategic firms have curbed their shopping sprees. The IPO market has also dried up and valuations have stagnated. Brand founders and their investors are hoping for private equity buyouts as a way to recoup some cash and continue to grow their businesses. Many are approaching PE firms at the same time they are courting L’Oréal or Unilever.
TSG acquired buzzy fragrance brand Phlur; it also picked up white-hot skincare maker Summer Fridays in 2024, both were reportedly eyed by strategics. Earlier this year, General Atlantic, another private equity firm, took a sizable stake in prestige scent maker Kayali.
“[Private equity] can give founders that extra punch of resource and capital,” said Alicia Sontag, co-founder and managing partner at investor Prelude Growth Partners, which backed the likes of Naturium and Sol de Janeiro, both of which have since been sold to conglomerates.
There’s also been a makeover on a more human level.
Historically, some of private equity’s bad reputation was warranted, said Deborah Benton, founder and managing partner at early-stage investor Willow Growth Partners, saying there had been aggressive cost-cutting, and that some firms would “parachute” in their own leadership and try to flip a company.
The sheer competition amongst investors for top brands has changed that.
“You can’t really get away with being a bad actor anymore,” said Benton.
Two Bites of the Apple
As the IPO and acquisition market has slowed, founders have become comfortable with a two-bite approach to a sale, said Mullen. Many have worked hard to get their brands to a sizeable level of sales, often around the $100 million revenue mark and are ready for a change of pace. But top conglomerates like L’Oréal or E.l.f. Beauty may still want to see more success metrics or longevity before taking the plunge.
Beauty brands — and their earlier investors — might not have the time to see money back in their pockets. By selling a chunk to private equity, “[They] still have a lot of upside ownership, but they’ve been able to de-risk the balance sheet, and gain some liquidity,” said Mullen.
Many generalist private equity firms like KKR and Carlyle have stepped back from the beauty sector. While their secession may have decreased dynamism — and valuations — other companies like TSG and General Atlantic are making it clear that their interest in the category is serious.
Mullen said the private equity playbook is to take a business that has a narrow product range and distribution, and to help them selectively expand until it’s ready for its final exit.
“We show [strategic firms] it’s not just a flash in the pan or one-hit wonder,” she said.
The New Pipeline
Founders are also moving back towards specialist investors earlier in their journey.
As direct-to-consumer brands boomed in popularity in the late aughts and early 2020s, venture capitalists who had previously invested in Silicon Valley names took an interest in the consumer sector. The bet that the DTC shopping revolution would yield the hockey-stick growth they look for: Millennial Glossier raised from the likes of Index Ventures, Forerunner Ventures and Sequoia Capital; Index Ventures also invested in British cosmetics brand Beauty Pie; Forerunner backed brand incubator A-Frame and personalised skincare line Curology.
Founders liked these slick, bold-faced firms — and the big cheques they wrote — but as competitive intensity increased, power has gone back to retailers, changing growth expectations and founders’ priorities. Sontag said she understood the attraction towards an outsized, tech-style valuation, but that founders are more aware of the expectations that come with them. “The [attached] terms are more often than not, highly deleterious to a beauty founder,” she said.
It’s not always smooth sailing. Private equity firms have no shortage of bets that have not paid off: in December, California-based TPG sold its $600 million stake in Anastasia Beverly Hills at loss after valuing the company at $3 billion, while Eurazeo-backed Pat McGrath Labs, once valued as high as $1 billion, is now has put its assets up for sale with a valuation understood to be closer to $174 million.
Investors and acquirers need to have a proven track record and know the category. That profile often fits individuals with experience at beauty companies, rather than consumer generalists. They also need to know exactly the right moment to bet on a brand.
“The customer is emerging and growing so quickly that if you fast-forward in 10 years, the leading brands will be very different than they are today,” said Sontag.
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