Beauty & Wellness: Hair care is still poised as an M&A darling

After a series of hair M&A deals, I look at high-growth brands in the category.

When I returned from parental leave in May, a lot had happened in the beauty and wellness industries. Between executive shuffles, new brand and product launches, and M&A deals, change seemed to have occurred at a faster clip.

Of the many themes that emerged, I was somewhat surprised to see just how many hair brands had popped during that time period. While the hair category has experienced immense growth since the onset of Covid-19 in the U.S., it has remained a smaller piece of the overall beauty pie. Still, in December 2021, Procter & Gamble acquired Ouai; in April, Briogeo and Curlsmith were acquired by Wella and Helen of Troy, respectively; and in May, Bansk Group acquired majority stakes in Amika and Eva NYC. L Catterton’s Beauty Independent Group also bought extension brand Bellami that same month.

Beyond the overall category doing well, the exact themes aren’t obvious. Certainly, rumors of Briogeo selling had been swirling; it was one of the first brands to bring the proposition of clean to the category in 2013 and was one of the most mature businesses among the above brands. But, Curlsmith’s exit was fast; the brand, which became a bestseller at Ulta Beauty, only launched in 2018.

Hair’s growth is not slowing down, which suggests more brands have the opportunity to stand out, even in a recessionary environment. Last week, NPD Group reported that hair continues to be the smallest yet fastest-growing category in the beauty market, according to second-quarter 2022 sales. Sales grew across nearly all segments, including hair care, styling and color, to $781 million, a 24% year-over-year increase.

“Our last four deals have been hair deals,” said Venette Ho, managing director and global head of beauty and personal care at Financo Raymond James. “Hair is such a fascinating category because it’s now one of the fastest-growing elements of prestige [beauty]. Customers used to think they washed their hair and then [the product] washed down the drain — there was no efficacy — and customers are now realizing the opposite. Olaplex has been a huge deal for the entire industry because you realize there is such a thing as technology and efficacy in hair. That has changed the whole lens about how people look at hair deals now.”

That the hair category is now also deeply connected to wellness — see: the positioning of Briogeo or Curlsmith — allows brands to dive into multiple storylines, especially as consumers not only want products that work but also products that are better for them.

“Hair is here to stay, and technology-driven hair care is absolutely here to stay,” said Melisse Shaban, founder and CEO of Virtue Labs.

Suveen Sahib, CEO and co-founder of K18, agreed. “The hair vertical is seeing incredible growth because of the ‘skinification’ opportunity in hair care as we gather a better understanding of our hair and scalp needs, and the interdependencies between them,” he said. Sahib compared the shift occurring in hair to what previously happened in skin care: The beauty industry moved away from covering up imperfections with cosmetics to instead tackling problems at the skin level so that shoppers needed less makeup to cover up. Within technology, hair bonding remains an especially big opportunity.

Nine-year-old Madison Reed is one hair-color brand that has been toying the line between efficacious and better-for-you products. CEO and founder Amy Errett underscores the brand’s natural and non-toxic offering by pointing to its long-lasting results. In April, Madison Reed raised $33 million to expand its owned brick-and-mortar locations and retail distribution. To date, the company has raised a significant amount of capital – $220 million – which seems to suggest that an exit is on the horizon, but Reed said otherwise.

“We’re not done, and we have capital. Why would we sell the company for any price today that, in a couple of years, could be doubled?” said Errett, who noted the company is close to profitability. “We are working out the kinks on execution, and we don’t want to discount ourselves when we have a ways to go. It’s not a question of if we have a market.” Errett declined to disclose current financial figures.

Though Madison Reed was built as a DTC business, owned stores have become a key part of its growth strategy. Previously, Errett was focused on a franchise model, but she abandoned those plans in 2020. Reed said that she plans to increase her 62-store fleet to 80 by year-end. Madison Reed can also be found in Ulta Beauty and Target.

That three-pronged business model of direct-to-consumer, professional sales and retail is also central to K18, the buzzy hair brand that routinely comes up in conversations where Olaplex is mentioned. K18 only came to market in 2020, with just one consumer product, the Leave-in Molecular Repair Hair Mask that sells for $75. In January, K18 secured $25 million in funding from VMG. Its previous investors include True Beauty Ventures.

“We were not actively seeking growth capital, as K18 drove both scale and profitability in its first year of launch,” said Sahib. “Following significant inbound interest, we choose to take growth capital to accelerate our global pro salon activation strategy, deepen our investments into fueling long-term innovation and also hedge ourselves against a harsh and unpredictable supply chain environment.”

K18 is a brand that many industry sources have their eye on. Sahib confirmed that the brand was a target in a recent conversation. “We had the continuous attention of the strategics within a few months of launching and we’ll make those decisions when the timing is right,” he said. “For now, we’re focused on growth and delivering exceptional science-backed products that can delight pro and consumer communities with simplicity and speed.”

Last year, the brand hit $75 million in retail sales, and that’s expected to grow by 50-100% this year. It’s launching two peptide prep shampoos in early August. Efficacy and conscious formulations are at the crux of K18’s proposition, and Sahib confirmed that “consumers are willing to pay for the results.”

“I believe the emerging interest in biotech as a problem solver across all beauty verticals is allowing the hair industry to transform further by offering more efficacious products that can unlock simpler routines,” he said.

Of course, K18 is not the only beauty brand to consider itself a biotech company. Luxury skin-care brand Augustinus Bader, developed by Professor Augustinus Bader, prides itself on its biotech research that led to its Trigger Factor Complex (TFC8®) finding. That technology helped fuel the brand’s recent expansion into hair care. And fellow hair-care brand Virtue Labs discovered its proprietary protein, Alpha Keratin 60ku®, which is central to all of its products.

Shaban still considers Virtue Labs, which launched in 2017, a growth business, not a mature business. She too isn’t ready for a brand exit. Though Shaban is open to multiple possibilities — including an IPO à la Olaplex— in her mind, Virtue Labs still has a large opportunity to grow, based on the fact that it’s Alpha Keratin 60ku® technology can fuel both product and category expansion. Moreover, 60% of Virtue Labs’s $60 million in annual sales come from its website, meaning that the brand isn’t solely reliant on retailers and also hasn’t tapped out its retail levers.

Rather than creating products for product’s sake as the hair category has been known to do, Shaban said Virtue Labs is charting out its expansion plans with a focus. Since its launch in April 2021, its female hair loss line, Flourish, has accounted for a substantial chunk of its business. The line is on track to generate $17 million in sales this year, or about 24% of Virtue’s total revenue. Virtue’s 18-month plan for Flourish is to reach $30 million in sales and for it to continue to be about 25% of the business.

“We don’t want growth [to come] from proliferating products or opening too many doors, especially since sales channels continue to evolve,” said Shaban. And while Virtue Labs’s technology can be used in skin care and nail care, Shaban knows her work in hair is not done.

Despite the interest in the above hair-care brands and others, some beauty insiders expect the impending recession to slow M&A deals. And while 2023 might be a more realistic timeframe for brands looking for an exit, Ho offered some assuring news for those on the cusp, “We believe this trend will continue because there are so many great brands and technologies. And people are taking their hair far more seriously and want more from their products.”

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