Beauty Investors Seek Wellness Deals as Consumer Focus Shifts to Self-Care

Beauty investors are looking for wellness deals.
Several of the beauty industry's established investors have added wellness to their M&A checklists, targeting scalable businesses that fall in the health-beauty-wellness overlap. Interest from investors follows that of consumers, who are increasingly focused on experiences and self-care, and retailers, who have started to stock related items and services. Saks Fifth Avenue offers Face Gym, a facial workout, for example, Ulta Beauty sells Gua Sha crystals, meant to alleviate puffiness, and Sephora has a dedicated collagen offering.
According to the experts, the trend has been a long time coming.
The wellness M&A craze really started in food, which led to traditional snack companies gobbling up better-for-you options as consumers started reading nutrition labels closer. Then, M&A picked up in boutique fitness, where people were able to find workouts and communities that better fit their lifestyles and overall wellness goals, and investors wanted in. (L Catterton, an investor in StriVectin and Cover FX, invested in Pure Barre in 2015, and TPG Growth, a backer of Beautycounter and E.l.f. Beauty, invested in AKT earlier in 2018.)
These days, as wellness increasingly overlaps with beauty, investors are taking a more open approach to both categories.
"Because the consumer is going there, M&A activity is going there," said Ilya Seglin, managing director at Threadstone LP. "Life's not getting less stressful.…The consumer is interested in all new things that help them to deal with life at any point in the day."
"The new thing, the thing that's getting a bit more buzz, is wellness being positioned more on a beauty platform," said Robin Tsai, managing director at VMG Partners, a private equity firm with a history in investing in everything from better-for-you dog food to Vega, a plant-based protein company it sold to WhiteWave Foods for $550 million.
"We've spent a lot of time thinking about the different types of consumers in each type of these silos, but the truth is, they're very similar — the same people attracted to a skin-care brand are attracted to an exercise regimen," Tsai said.
Recent transactions include Johnson & Johnson's acquisition of Zarbee's Inc., a natural medicine company that makes children's cough syrup and nutritional supplements, and the $5 million fund-raise of Hum Nutrition, the maker of supplements like Glow Sweet Glow and Collagen Pop, which are sold direct-to-consumer and at Sephora and Nordstrom. There's also Bulletproof 360, which makes collagen bars and coffee, and which raised a $40 million round led by Cavu Venture Partners, including Trinity Ventures and Silicon Valley Bank, meant to help fund the company's omnichannel growth strategy.
According to Bulletproof president and chief operating officer Anna Collins, Bulletproof customers are seeking health, but may find up finding beauty, too.
"The first priority is feeling great and it's less about looking great — though looking great is a part of feeling great," Collins said. "It's not about beauty so much as that being healthy is beautiful."
That's a similar attitude to what Anna Kaiser, founder of dance fitness class AKT, sees with her clients. "The majority of my customers are women. They value health and looking and feeling as young as they possibly can, not just for themselves, for their families. They want to be there to raise their kids," Kaiser said.
"They definitely are taking the class because it's part of their beauty regimen," Kaiser said. "We're on the second floor — you have to be an insider and care about wellness to seek out AKT, and they do that with everything, the products they use, their beauty regimens."
The TPG deal has allowed Kaiser to scale her fitness classes to more than 25 new fitness studios, she said.
"Wellness is happiness and feeling your best self whether it's treatments, products, fitness — and investors want a piece of that multibillion-dollar pie," Kaiser said. "They know that's happening and they want to be the first to bring something cool and different to market."
For Kirsten Green, founding partner at venture capital firm Forerunner Ventures, the opportunity to invest in wellness is vast. Forerunner already backs a few wellness companies, like Hims, which provides products and medications for things like baldness and erectile dysfunction, and Ritual, a supplements company.
While she's still working out her specific thesis when it comes to wellness, Green said she sees "opportunities across the board, both from an experience and services standpoint, from an other-ways-to-access-information standpoint, to a financial offerings standpoint."
People have been left disappointed by prior wellness offerings, including health care, Green says, and that provides an opening for new businesses and investments. "When you start talking about people's bodies, in health and wellness, where the interest is being driven by being disappointed…your opportunity, if not your obligation, is to build trust," Green said.
Brands that can capitalize on those needs with attractive unit economics will likely be attractive acquisition targets, she noted. Wellness businesses also come with the added bonus of an attractive, savvy, early-adopting customer base.
"People are bringing new offerings to market and waking consumers up; consumers are starting to get more excited about it, and it's starting to become a mutually fulfilling flywheel, if you will," Green said.
For strategic acquirers looking at the space, brand DNA is crucial, according to Houlihan Lokey director Susan Roddy. Brands like Vital Proteins or Hum, which seamlessly blend beauty and nutrition, could be attractive targets for big strategic buyers.
"Ten years ago you'd just have bottles that said vitamin C sitting on the shelf in the store, but now you have brands like Hum saying, 'this is for sleep,'" Roddy said. For Zarbee's, which Houlihan helped sell to J&J, the brand component was a driving force of strategic interest in the brand, she said.
"It was about the brand being a platform and standing for something with the consumer," Roddy said. "More natural versions of anything, really, will continue to be attractive."
Walter Faulstroh, founder of Hum, says wellness companies are attractive targets for strategic buyers because they fill a white space that large companies haven't been able to fill. It's the same trend he saw when he sold a former company, V Water (a functional water business), to Pepsi in 2008.
"None of the bigger players were in functional waters…because of that, it was a white space, it was very attractive to larger companies," Faulstroh said. These days, "there's a real move toward wellness and none of the big players have managed to execute wellness well."
For potential beauty companies, who normally see a sales spike around holiday time, a wellness company may provide a sales boost in the early part of the year as people attempt to commit to healthier lifestyles, Faulstroh noted. "Consumers are shifting more from product to experience, and the wellness sector works very well in that space," Faulstroh said.
According to Tsai, just about any company in the wellness space that's looking to scale is also looking for investors. Faulstroh said Hum, for example, is weighing its options in terms of raising its next round or taking private equity investment. And Jane Iredale, a natural makeup line that has also launched nutritional supplements, is said to have hired The Sage Group to consider a transaction.
"If you think about it from our perspective — can you build an iconic brand within the category? For sure. Can you build a great business model? Yes, these are high-margin products, and there's a good amount of repeat purchase because consumers are on a regimen," said one private equity investor interested in the space. "It's a fertile environment, and it's going to be an area where consumers and investors spend a lot of time."
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