"How are emerging managers approaching investors in a difficult fundraising environment?

Mrinalini Lhila, Caroline Gillespie Greer, Daniel McQuade, Rilwan M. and Ron M. are exploring strategies for success in 2025!👏🏻"

RON MACKEY

Managing Partner, Clinton View Capital

2025 Beauty M&A Predictions:

I believe private equity beauty M&A activity will grow modestly in 2025 driven by 1). significant levels of dry powder that remain from depressed acquisition activity in 2023, 2). a convergence of buyer and seller price expectations, and 3). continued mid-single digit growth in the beauty category broadly.

Beauty Industry Outlook:

I expect Amazon to continue gaining market share within the beauty sector, which creates a significant growth opportunity for 1). brands sold on Amazon and 2). marketing and distribution services companies that support these brands.

 Macroeconomic indicators show that the U.S. consumer is under pressure. For example, credit card debt is at record levels with delinquency rates rising and cracks in the U.S. job market are emerging.

As a result, I believe beauty shoppers will be more selective on how they spend their discretionary dollars in the intermediate term. Brands that deliver differentiated product efficacy, clean formulations and authenticity in their marketing messaging are poised to gain share.

The U.S.’s tariff policy is evolving and will potentially affect the margin profile and price point of beauty products. Beauty investors and brand executives will be focused on this issue and ways to mitigate the effects of any significant tariff policy changes.

RON MACKEY

Managing Partner, Clinton View Capital

I believe that the beauty sector will continue to attract significant capital from VC/PE investors given the sector’s demonstrated growth. High-quality beauty companies typically have strong gross margins and low capex, which are attractive characteristics for private equity buyers targeting strong financial returns.

Here are reasons why I think VC/PE investors will continue to be active in beauty:

Sector growth: According to Circana, year-over-year U.S. prestige and mass beauty retail sales grew 14% and 6%, respectively, in 2023. Leading beauty retailers Sephora and Ulta have reported strong sales performance in recent quarters despite operating in an uncertain macroeconomic environment. McKinsey expects beauty retail sales in North America to grow at a 6% CAGR through 2027.

Outperforming companies: Within beauty, there are brands with strong management teams and compelling operating fundamentals, which should allow these companies to expand at rates that exceed broader market growth.  In my opinion, VC/PE investors and strategic acquirers will actively seek out investments in these high-quality opportunities.

Underperforming companies: Overall, in due diligence, I think that VC/PE investors will place a greater emphasis on the profitability and the return on capital metrics of the operating initiatives of companies they are evaluating than they have in the past.  This enhanced focus will make it more difficult for weaker brands, which may have been able to attract capital in 2021 and 2022, to successfully raise funding in the current environment.  This dynamic will likely cause underperforming brands to shutter and allow stronger beauty brands, regardless of stage, to gain share in an expanding market.

RON MACKEY

Managing Partner, Clinton View Capital 

I think M&A volume in the beauty and personal care space in 2024 will exceed levels achieved in 2023. Investment/acquisition volume was muted in 2023 due to a rising interest rate environment that contributed to a disconnect between buyer valuations and seller price expectations.

I believe that this interest rate dynamic helped enhance the positioning of strategic buyers in sell-side processes relative to financial buyers that experienced leverage constraints.

In 2024, I think a more robust transaction pace compared to 2023 will be driven by:

• - A flat to declining interest rate environment

• - Significant levels of private equity dry powder

• - More moderate valuation expectations from early-stage brands that faced challenges finding funding in 2023

• - Strategics continuing to look for differentiated brands (like K18, Barbara Sturm and Dr. Dennis Gross) to enhance their portfolios

• - Sustained beauty and personal care sector growth