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Why indie beauty brands are grabbing the attention of private equity investors

13th February 2020 | Daniel Appleton

Why indie beauty brands are grabbing the attention of private equity investors

The beauty landscape is not what it once was; the consumer is no longer limited to what they can find in big stores, or what they see during an ad break on their TV. Individuals are now discovering their beauty online and on their social media feeds. 

It’s the age of the indie beauty revolution – medium-sized, niche brands that place focus on personalisation and the needs of the individual consumer are grabbing market share away from the established beauty giants. 

Rather than focusing on selling en-masse by telling consumers what they should want, as giant conglomerates (for example, Procter & Gamble) have in the past, indie brands reflect the unique needs and desires of their customers and engage in a constant dialogue with them on social channels to keep the products they want coming. 

Brands such as Anastasia Beverley Hills, Huda Beauty and Too Faced are examples of niche brands that have amassed a cult following of dedicated consumers while achieving exceptional sales growth year-on-year. 

Large corporations were among the first to start snapping up indie brands, for example, Unilever acquired Hourglass and Carver Korea. However, private equity firms have become more heavily invested in the world of indie beauty in recent years, with no sign of their interest waning.

So, why exactly are indie beauty brands attractive to private equity firms?

For one, the popularity of niche and indie beauty brands has been on the rise for years, with independent brands up by 42.7% in 2016 alone, while traditional makeup fell by 1.3%. This, coupled with shifting consumer trends towards areas that big brands have failed to deliver effectively in the beauty sphere – i.e. personalisation, social communities and captivating influencer-led marketing, has turned the heads of private equity investors away from the big players, and towards smaller, fast-growing niche brands. 

One example of this is the niche skin-care brand Drunk Elephant. Drunk Elephant has been backed by US private equity firm VMG since 2017, and was recently acquired by Shiseido for the hefty price tag of $845 million. 

Glossier, another beauty startup, has, to date, raised $34.4 million in venture capital startup. These are just a couple of examples of niche beauty brands that have seen significant investment from private equity firms, and who have developed to be incredibly successful brands. 

Commenting on the reasons for increased interest from private equity firms in niche and indie beauty brands, Rich Gersen, partner at private equity firm Tengram Capital Partners, noted that the mass-market was taking a hit from the growing popularity for prestige and luxury brands, alongside a need for more natural and clean product ranges.

Where big brands have failed to step into these spaces, indie and niche brands have picked up the baton. With big beauty slow to follow and even slower to catch up, it has become clear that the only way to navigate today’s fast-moving beauty market is to be agile and able to react to trends with an almost chameleonic reflex.

Giant conglomerates are unable to do this in the same way that indie brands can, which makes indie brands a more attractive and exciting venture for many private equity investors. 

In summary 

Indie beauty brands have carved out a large portion of the modern beauty market through providing niche, high-quality product offerings that speak to, and market to, a modern social-media centric audience. 

In doing so, they have pushed giant beauty brands slightly down the beauty totem pole, and have made themselves an attractive investment opportunity for private equity firms. As indie beauty brands continue to grow, we are sure to see the trend for private equity investment in niche beauty brands grow further still.

To find out more about indie beauty brands and their impact on the modern beauty landscape, take a look at some of our previous blogs: ‘Taking over: how indie and niche beauty businesses are transforming the fragrance market.’ and ‘How indie beauty brands are changing the rules in the world of beauty and wellness.’