Digital due diligence becomes increasingly important when buying digitally native beauty brands.

By Deborah J. Kirk, Linzi Thomas, Camilla J. Dutton, Laura Kichenside, Catherine Campbell, Tom Evans, and David Walker

Recent high-profile beauty M&A deals, coupled with current economic uncertainty, have brought renewed interest in the “lipstick effect”. Much cited in the aftermath of the 2008/09 downturn, it describes how consumer demand for relatively affordable luxuries, such as lipstick, continues or even increases during challenging economic times. There are signs that the global beauty industry may once again prove resilient, with nail care being coined the “COVID-19 lipstick effect”, following double digit growth.

Attractive Opportunities

The global beauty industry, worth around US$532 billion prior to the COVID-19 outbreak, is expected to be worth US$805 billion by the end of 2024, according to Euromonitor data. The industry has demonstrated recession-resilience with continued growth (including during 2008/09), driven by digitalisation, social media and increasing demand from emerging economies. Investors are taking note — beauty deals offer attractive opportunities in growing companies with potential to generate significant margins at scale. PE accounted for 47% of 2019 beauty M&A deals.