The SPAC: Beauty brands’ favourite new exit?

Further SPACs in the beauty, wellness and lifestyle sphere have been announced from the likes of serial entrepreneur Katherine Power, who has formed Powered Brands with Greycroft’s Dana Settle. Power also founded and leads the skincare line Versed and the beauty brand Merit.

Why the SPAC is attracting interest

Historically, selling to the likes of L’Oréal or Estee Lauder has been much more popular than an IPO. That’s partly because of the “incredibly high” sums corporations have been willing to pay, says Lauren Leibrandt, head of beauty and wellness investment banking at Baird. “Typically it would be a revenue multiple in the mid to high single digits or even low double digits, which is a very robust valuation.”

Beyond the price, Leibrandt said brand owners have traditionally been attracted to finding a home for their brands within a conglomerate, given the natural synergies and potential for future growth thanks to the infrastructure of the acquiring company.

The IPO process, by contrast, is fraught and difficult. Many companies, spanning all sectors of industry, struggle with the complexity and intensity of the process.

SPACs offer a faster route. While not new, SPACs attracted interest in 2020 from consumer brands as retail and institutional investors looked for more ways to capitalise on the rapid growth of many brands. “Since the beginning of the pandemic, consumer savings rates have increased significantly as people weren’t able to spend on things such as travel and entertainment,” notes David Silverman, a senior director at credit ratings agency Fitch Ratings. “There are now more consumer dollars to be invested, and more platforms and services that will facilitate such investing.”

Beauty companies enjoy a level of personal connection with their customers not shared by other kinds of consumer goods, owing to the intimate and sensorial nature of applying cosmetics and skincare, notes Waldencast’s Brousset.

An optimal SPAC acquisition might mirror the benefits of selling to a bigger player in the beauty sector. Male grooming company Manscaped was acquired by a SPAC, Bright Lights Acquisition Corp, a move that helped connect the brand with celebrities, important for marketing. “We were at a healthy point where many avenues of fundraising were available to us, but we were not able to get connected with virtually anyone in Hollywood, and we felt that would be incredibly valuable to increase media efficiency,” says Paul Tran, founder and CEO.