The investment glow of the UK beauty and wellness sector

Monday October 23, 2023

In our latest article, Corporate Finance Partner Victoria Kisseleva explores the investment boom in the beauty and wellness industry

Coco Chanel famously said that no elegance is possible without perfume. And the scent of success has certainly been in the air this year, with some of the world’s leading fragrance brands embracing M&A activity.

One standout deal in recent months saw global private equity investor Advent International take a majority stake in Julie Sprecher’s Parfums de Marly and INITIO Parfums Privés. With a deal value reported to be more than $700 million, the transaction is helping to accelerate the global expansion of Parfums de Marly and Initio Parfums Privés and strengthen their omnichannel presence.

This, alongside Kering Beauté’s takeover of the fragrance brand Creed, means that there’s an increasingly bright spotlight shining on what is now a $60 billion global fragrance market.

Personalisation to drive investment growth

But it’s not just fragrance that is creating waves. Consumer interest in health and wellness is increasing significantly, as more people experience the virtues of personalised skincare and haircare products, they are continually seeking a more tailored approach to their daily routine,

Today’s consumers want to feel like they’re being listened to, and the beauty sector is increasingly focusing on personalisation.

A recent US-based study by market research firm YPulse found that more than half of women aged 13 to 34 want to be able to customise their beauty products, and the industry has undertaken a seismic shift to meet this demand [1].

Personalisation has also brought about the reinvention of fragrance products. More than two thirds (70 per cent) of UK fragrance users want to wear a different fragrance to anyone else, according to a recent report by global research agency Mintel [2]. Customisation can begin with the fragrance itself, where a scent can be blended to suit the preference of the individual now at affordable prices (something that previously was only done at prestigious houses), and can also extend to packaging, with personalised design touches to make the product unique.

But it doesn’t stop there. Consumers are also looking for hyper-personalised services such as personalised beauty boxes, where products are tailored to suit their age, skin type or cosmetic preference. And with the global beauty industry expected to reach $705 billion by 2027, it is likely the UK sector will also see an uptick in investment activity in line with these consumer trends.

What does this mean for those looking for investment?

The allure of the beauty and wellness markets is strong, but it is an intensely competitive and saturated market. This means new entrants to the sector need to have a unique offering that will set them apart from more established competitors.

Bank debt remains increasingly difficult to secure in the current climate, and so many businesses are turning to private equity investors to support their future growth plans.

Investment in the beauty market appeals to private equity investors, as it continues to deliver strong returns. For a business that can secure private equity backing, the partnership will also bring more than a capital injection to the table.

Many of these investors have extensive knowledge of the sector, having previously backed similar businesses. Their understanding of how to help a business turbocharge its growth – whether this is through new product development, acquisitions, accessing new markets or enhancing distribution networks, can be transformational and businesses with sufficient scale, ambitious management and clear growth prospects should consider the benefits of private equity investment to help them achieve the next stage of growth.

But of course, UK businesses thrive on and welcome investment from both UK-based, and overseas backers, and the US currently has a strong appetite for UK markets fuelled partially by a strong dollar.

Business owners should take time to explore which backer is likely to bring the most to a partnership. They should consider everything from the strength of the investor’s network and how readily they can open doors to new opportunities for growth, through to their ability to introduce new senior personnel to the business, such as a new Chair or Non-Executive Director.

How innovation and AI could disrupt the sector

AI also has a big role to play in the move towards providing more personalised products by streamlining the manufacturing process to make it far more cost-effective. It helps consumers to tailor their beauty decisions, such as helping to find the right shade of cosmetics, and these developments in technology are likely to cause a reduction in footfall at in-store beauty parlours, which would have implications for the future UK high street.

But all this comes at a price, and consumers who choose to share personal data around skin tone, eye colour and in some cases, even genetics, to achieve beauty perfection, will need assurance that their data is secure.

GDPR regulations and consumer awareness of data is paramount, and while beauty personalisation technology almost certainly enriches an individual’s experience, businesses that hold the individual details of their customers, enabling them to build a bespoke beauty profile, need to make sure their privacy is protected.

Reviewing the options

The rate of inflation has tempered, with forecasts indicating that the Consumer Price Inflation may start to drop more quickly than initially predicted. This, in turn, could halt further increases in the Bank of England interest rate.

As confidence returns to the market, M&A activity is likely to gather further momentum – particularly in high growth sectors such as fragrance and personalised beauty, and those driven by disruptive technology.

For businesses looking to explore their growth options, we would recommend calling in the help of an independent debt and M&A adviser with knowledge of the changing market trends. This is often what makes the difference for business owners looking to find the most suitable route to growth.