Estée Lauder has its eye on millennials with $1.45bn deal

American beauty giant Estée Lauder is no stranger to M&A. The company, founded by its namesake in 1946, already owns a number of the beauty industry’s most popular and largest brands, including MAC, Clinique, La Mer and Jo Malone. However, it is the beauty powerhouse’s latest acquisition of cosmetics company Too Faced, for a reported $1.45bn, which has captured the interest of industry commentators.

The purchase of Too Faced, a popular brand with millennials, is the largest deal in the company’s history, and is seemingly a response to the decline in department store sales and the need to grow across the internet and other channels. This follows a report earlier in November in which Estée recounted quarterly sales that missed estimates due to the decline in department store footfall. Too Faced, on the other hand, campaigns actively online and stocks within stores that are more popular with the millennial shopper, such as Sephora.

The transaction, expected to close in December, is yet another example of traditional, established brands moving into the millennial market. As Estée announced its Too Faced deal, it closed another with Becca Cosmetics. Although at $230m the price tag is considerably smaller than Too Faced, the acquisition of Becca Cosmetics, which is equally as influential in the millennial market, reiterates the company’s vision for the future of its M&A strategy.

In a similar move, L’Oréal, owner of Lancôme, Essie and Kiehl’s, agreed to acquire trendy Los Angeles-based make up brand NYX for $500m in 2014. The subsequent European rollout of NYX has given the millennial-favoured brand access to a new market, and last year L’Oréal reported that NYX’s like-for-like sales growth had increased by 78 per cent. And L’Oréal’s M&A spree continued this year, as in Q3 it announced its $1.2bn bid for IT Cosmetics – the company’s largest acquisition in eight years after purchasing YSL Beaute for $1.7bn in 2008.

Similarly to Too Faced, IT Cosmetics has gained a significant following from the millennial generation, which is becoming increasingly influential to the cosmetics industry’s growth. This generation, and even younger consumers, have redefined the way in which shoppers purchase cosmetics; the department store and the golden era of luxury beauty brands is gradually declining as this new demographic come forward, and social media and e-commerce becomes more important than ever.

Estée Lauder and L’Oréal have acknowledged this shift, and as more up-and-coming cosmetics brands emerge, M&A activity within the beauty industry is set to continue at its rapid pace. The record deals announced by both of these companies in recent months further validates the idea that traditional, established brands must move into younger market spaces in order to remain relevant and continue business growth.

Stay tuned to our blog for M&A news and remember to get in touch with our experienced team with any questions you have about the M&A process and how Benchmark International can help you.

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