PARIS — Europe-based venture capital and private equity investors are poised to accelerate their pace of beauty deal-making again, probably in the second half of this year. But industry experts say the M&A landscape has shifted.

Over the past two to three years, strategics — multinational players such as L’Oréal, the Estée Lauder Cos. and Puig — ramped up their beauty M&A activity.

“In periods when you have a bit less visibility on the macroeconomic landscape, when you are a big strategic with exposure to all markets and big synergies, your competitive advantage in a transaction is higher,” said Laurent Droin, head of EMEA at Eurazeo Brands.

The period has been volatile on numerous fronts. Contributing to this, for one, are the high interest rates, causing many investors to be more risk-averse. In beauty — as in all industries — the interest rate hikes have contributed to the drying up of capital and a correction starting to be underway of the exuberant valuations seen over the past few years.

“This is a macro trend, and it’s actually healthy,” one executive said.

Droin expects there still will be a lot of deals, and that beauty will remain a hot sector this year.

“I anticipate beauty will remain one of the most active segments,” he said. “The fundamentals of beauty are intact. Beauty is probably one of the best places to invest in, because this is what matters to people.

“We are going to get to a market that is making more differentiation between the brands, valuation will also be more reflective of the intrinsic value of the assets and the deals are going to be competitive, but probably competitive not only from a final valuation point of view, but also on what you can bring to the company — and so on,” Droin said.

“Valuations have been affected for assets which are not good, like brands that are not profitable or that are mono-channel, because there is a perception that it’s too risky, particularly if you are dependent on d-to-c,” said Joël Palix, founder of strategic and M&A advisory Palix Unlimited.

That’s due in part to new regulations on cookies, which impact the way data can be accumulated, and increased transportation and logistics costs.

“Diversification of channels is what investors have been looking at,” Palix said. “When it’s a good asset, you find the money.”

There is also uncertainty because of the weakening of the tech sector and, most recently, from last week’s collapse of Silicon Valley Bank.

“The pure tech investors are probably going to stay out or be less active in beauty,” Droin said.

However, some industry sources believe that the beauty industry is insulated from the tech crisis.

Investors say they’re shining a light on a number of categories today, including niche fragrance, hair care and differentiated skin care.

“We see new brands emerging that didn’t exist in the past in skin care, hair care and also in fragrances that are performing exceptionally, and I believe in the renewal of brands,” said Karine Ohana, managing partner at Ohana and Co. “They are really taking over.”

A few European companies are being shopped around include Parfums de Marly and Juliette Has a Gun in perfumes, and French pharmacy clean cosmetics brand La Rosée, for instance, sources report.

It’s not to say that beauty-related investments by non-strategics have stopped. In mid-February, for instance, U.K.-based Skin + Me, a teledermatology service, scored 10 million pounds in a Series B funding round led by Octopus Ventures.

“If there was any slowdown, it’s probably behind us in beauty,” Palix said. “Tech is a different story. Funds are looking again at targets and I believe a little bit more in Europe than the U.S. I wouldn’t be surprised if we have a strong second half.”

Meanwhile, a few newfangled beauty-related investment platforms have bubbled up such as Silverwood Brands in Europe and Waldencast in the U.S. — that are like a fund-and-strategic hybrid.

“Because of the needs to be omnichannel, it’s getting harder for individual brands to be living on their own. That’s where platforms come in,” Palix said. “A well-organized platform can deliver value, because they bring a bit of cash but they bring also expertise and mutualize a few things between brands in the right way — not in an intrusive way.”

Rather, it’s about helping a company also on its strategy, marketing, commercialization, launches and supply chain.

But whatever the investment vehicle, industry experts are certain beauty will remain a strong investment.

“I’m sure there will be a lot of great [beauty] companies coming to the market in the next few years with great products, and they’re going to be terrific investments,” Droin said.

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