Beauty Investments — Top 3 Reasons for Big Players to Invest

The Beauty Industry Became a Vibrant Environment for Investments.

Our last article Beauty Investors — VC Firms and Angels to Know showed that the industry has become a popular playground for many VC companies and angel investors worldwide. Especially beauty startups are hot targets for investment or M&A activities. Also, the large beauty corporates have been very active in closing deals. In 2019, the deal volume in the industry reached an all-time high. The overview of last year’s most important Beauty Investments shows that the big companies were splashing the cash…

The 9 most important beauty deals in 2019 exceeded a value of $7 billion

For 2020, another record in terms of deals is predicted by experts. The year already started promising with Beiersdorf becoming the second largest shareholder of a Seoul-based, rapidly growing skin care and tech startup. During the last year, this startup has been working closely together with Beiersdorf’s startup acceleration program, NIVEA Beauty Accelerator (NX), located in Seoul. But why have M&A deals become so interesting for the big players? What are their main reasons to invest in startups and where did the corporates recently spend their money?

One of the first Beauty Investments in 2020: Beiersdorf acquired a significant stake in the Korean beauty startup “LYCL Inc.” From left to right: Ji-Hoon Jeon, Endrik Hasemann, Manhwi Han, Jacek Brozda

The Rationale Behind — Why Do Corporates Invest in Beauty Startups?

As seen in many other industries these days, it is hard for corporates to catch up with the latest trends compared to small disruptive players on the market. The startups are closer to the consumer, able to act more agilely and have stronger digital capabilities. Since the beauty industry is being disrupted by cool indie brands, beauty tech startups, and new business models, there are various reasons to go for Beauty Investments or M&A.

The top 3 reasons for Beauty Investments are:

1) Staying Trendy

Consumers in the beauty space like to explore and test new brands and products. Especially millennials and GenZ are tough target groups for the big beauty companies since they change consumer behavior quickly and have specific needs when it comes to their beauty products. For example, last year’s main trends “clean beauty” and “natural cosmetics” led to various new indie brands on the market.

The young brands are usually extremely successful when it comes to their digital presence and social media community. One famous case is the brand “Kylie Cosmetics”, the second-most-followed brand on Instagram. The cosmetics startup used the power of the social media reach of the founder, Kylie Jenner, to become a popular indie brand right from the start. Last year, the fragrance and cosmetic company Coty Inc. acquired a 51% stake in Kylie Jenner’s beauty business for a total of $600 million to address a younger target group. The deal values the business at nearly $1.2 billion. This example shows that big beauty corporations try to catch up with the latest trends and reach younger target groups by enhancing their brand portfolios with hot indie brands.

In 2019, Kylie Jenner sold 51% of her beauty business to Coty Inc. based on a unicorn valuation (src:

2) Going Tech & Digital

Building own beauty platforms, using big data and AI or inventing beauty tech devices has not necessarily been the core of the global beauty corporates in the past. But since consumers ask for more personalized products, use digital platforms multiple times along their customer journeys, and expect new technologies for their skin treatments, beauty tech startups are the rising stars in the industry. By investing in digital platforms or deep tech startups, beauty incumbents try to build a more intimate relationship with their consumers.

The acquisition of ModiFace, a Toronto-based startup for augmented reality and artificial intelligence, by L’Oréal shows that the boundaries between beauty and tech become blurry. With ModiFace’s technology, L’Oréal offers makeup and hair color try-ons, AI powered skincare diagnostics, and real-time beauty consultations online.

The technology of the tech startup “ModiFace” was used to create the augmented reality beauty app for Sephora and Estée Lauder (src:

3) Testing New Business Models

Since the consumer behavior has changed and the world has become more digital, new business models already disrupted the beauty industry. As a result of a higher demand of convenience and an increasing digital-savvy consumer base, subscription and direct-to-consumer models came up a couple of years ago. Using those trends, many indie brands started their business based on a D2C channel only — which is also beneficial regarding tight startup budget. Skipping the classical retailer saves margin and allows the brands to communicate directly with the consumer. This is why many beauty corporations acquired startups that are based on a successfully running direct-to-consumer model.

One of the most prominent examples is the acquisition of Dollar Shave Club by Unilever. The razor startup from California combined the subscription model and the D2C approach to create a new business model in the shaving category. The deal was executed in 2016 and is valued at about $1 billion.

Also the investment of Beiersdorf in the K-beauty startup “LYCL” underlines the importance of D2C expertise as a reason for Beauty Investments and M&A activities. LYCL started selling their own brand unpa.Cosmetics via Instagram and their own website before expanding into traditional offline channels for the distribution to reach less digital-savvy target groups as well.

The K-beauty startup “LYCL” initially launched their brand “unpa.Cosmetics” with a D2C approach

Looking at the reasons why beauty corporates invest in startups, it is obvious that the big players have similar goals when it comes to their M&A activities. Since they are all hunting for the hottest startups and the number of deals within the beauty domain is constantly increasing, it is hard to keep track. Let us now have a look at four recent investments from some of the most famous beauty companies.

Who Invested Where? — Beauty Investment Overview

1) L’Oréal

As mentioned before, in 2018 the French beauty company acquired a Canadian tech startup with focus on AI and AR technology. Besides strengthening the digital footprint, they also expanded their brand portfolio by taking over Stylenanda. The acquisition of the Seoul-based makeup and fashion brand is supposed to attract millennials — especially in South Korea and China.

With the acquisition of Stylenanda L’Oréal wants to win over young Asian consumers (src:

L’Oréal is not only acquiring stakes of beauty or beauty tech startups, the industry incumbent is also investing in venture capital funds like “Cathay Innovation” or “Fireside Ventures” to develop beauty tech startups in China and to push Indian consumer brands.

2) Estée Lauder

Since K-beauty became a global trend, not only Beiersdorf and L’Oréal invested recently in hot Korean beauty brands. After an initial investment in 2015, Estée Lauder acquired the remaining two-thirds of Have & Be Co. Ltd, the company behind the famous brand “Dr.Jart+”, end of last year. The global brand offers high-performance skincare products like moisturizers, masks, cleansers and serums which are well known for the quality and innovative formulations. On-trend collections like “Cicapair” and “Ceramidin” show that Dr.Jart+ is able to realize a fast-moving innovation pipeline and has outstanding speed-to-market capabilities. The brand is loved by a wide range of consumers and has a strong follower base among millennials in Asia and the US due to the unique combination of dermatological science and art.

The Ceramidin collection by Dr.Jart+ is one of top-sellers of the beauty brand (src:

With their M&A and investment activities Estée Lauder tries to approach millennials in various ways. In 2017, the corporate invested in DECIEM, an innovative multi-brand company that is famous for their vertically integrated structure. Having their own laboratory, manufacturing, e-commerce sites, retail stores, and marketing infrastructure enables DECIEM to rapidly speed up the go-to-market process. The cycle from identifying unmet needs over creating new brands to launching much-sought-after products is significantly faster compared to many beauty corporates. With brands like “The Ordinary” and “NIOD” it was possible to attract a broad consumer base who was looking for science-based functional beauty products and to create a vibrant following among millennials.

3) Shiseido

Shiseido is considered one of the oldest cosmetics companies in the world. With brands like “Nars”, “Laura Mercier”, and “Bareminerals” the company has a strong footprint in the high-quality and luxury beauty segment. Looking at their big investment last year, it becomes clear that the beauty incumbent is also trying to win over younger consumers and stake its claim in the fast-growing category of clean beauty. By acquiring the indie beauty brand “Drunk Elephant” for $845 million, Shiseido stepped a big foot into the clean beauty market.

Drunk Elephant was founded in 2012. By that time the terms “clean beauty” and “safe beauty” were not yet industry buzzwords. The founder, Tiffany Masterson, advocated for more ingredient transparency. This is why she created all formulations free of essential oils, drying alcohols, silicones, chemical sunscreens and fragrances, dyes, and sodium lauryl sulfates — her so-called “suspicious six”. With this concept and the modern design, the brand attracts consumers among all age groups including millennials and GenZ.

Drunk Elephant is famous for clean and selected ingredients, high-quality products and a well-designed packaging (src:

For 2020 A New Record of Deals Is Expected

All in all, the examples show that there are many reasons for beauty corporates to continue their M&A and investment activities. Since also VCs, private equity firms and angel investors discovered the industry as an attractive field to spend their money, 2020 promises to become an interesting year.

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