The pros and cons of beauty companies aspiring to the public markets.
“In beauty, specifically, there’s been a lot out there, there’s been a lot of strategic deals…the sector is growing faster and fostering more successful companies than it would be possible for the five major consolidators to acquire. As these businesses reach scale, they’re going to look for other means to drive liquidity and create value for shareholders,” said Shaun Westfall, managing director at Jefferies.
Indeed, the financial path for most beauty companies used to be: bootstrap or secure venture funding, possibly consider a private equity backer to scale, and then sell the company to L’Oréal, Estée Lauder or another big beauty firm. But today, many beauty organizations are thinking through the IPO path — especially the ones that have business models that don’t clearly fit in a strategic home.
But single-branded beauty companies do not always have that predictability, and have not always fared well on the public markets. E.l.f. Beauty, which went public in 2016, saw its stock price stumble at one point, and quickly had to revamp the plan — including closing owned stores, focusing on core categories and reimagining the line on shelf — to regain its footing. Now, E.l.f. Is a more diversified, multibrand business, with stock trading in the $30 range.
She also noted that that may make it more difficult for some beauty companies to make long-term strategic decisions. “The downside is, if you want to make a really big investment to grow the business and it takes your numbers down temporarily — it’s hard to make big changes,” Ho said.
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