Summer 2018 has been a significant season for beauty acquisitions and investments. In May, private equity fund TPG Capital took an undisclosed minority stake in buzzy cosmetic and eyebrow grooming company Anastasia Beverly Hills. In June, L Catterton and Ambienta acquired Pibiplast, a manufacturer of sustainable and innovative packaging solutions, a driving trend for beauty brands.

And naturally, industry incumbents were also in on the action: Unilever acquired a 75 percent stake in Italian personal-care business Equilibra in June, and 34-year-old Markwins Beauty Brands acquired Lorac Cosmetics, the company’s fourth acquisition in the last 15 years.

One of the most talked-about investments was Tengram Capital Partners’ majority stake in cult beauty brand Lime Crime. The digitally native Lime Crime has had negative allegations since its 2008 launch: from repackaged wholesale pigment allegations to blogger lawsuits to FDA complaints and cultural appropriation. Tengram, meanwhile, has had a busy year on the beauty front, buying luxury skin-care brand RéVive from Shiseido in November 2017 and selling DevaCurl to Ares Management in May 2017. Though the aforementioned terms were not disclosed, industry sources estimated RéVive did about $15 million in sales in 2017, and Ares Management acquired DevaCurl for $250 to $300 million.

As legacy companies and private equity shops are reaching for today’s beauty customers, Tengram Capital Partners, which takes a traditional growth and restructuring approach to its investments, has been in the space since before it hit its peak. Tengram Partner Richard Gersten’s first beauty investment was Avalon Organics and Alba Botanica in 2002.

In the wake of its recent investments and divestments, Gersten spoke about the Tengram Capital strategy, the increasing competition in the beauty space and how he continues to differentiate the firm.

What is Tengram Capital Partners’ thesis to beauty investments?
Our approach evolves or changes with the times, but what we like to do is look at founder-led brands, where the founder is seeking a partner to take the business to the next level. There are lots of firms that do significant top-down analysis and identify the trends, and find a deal that benefits that trend. We do less of that. We also aren’t afraid of more complicated deal structures. RéVive was a 20-year-old brand, 10 years orphaned by corporate parents, with no dedicated executive team, and it was dependent on department-store distribution. Despite all of that, the brand was not dead. Lime Crime, too, had all the positive attributes you look for in business today, like being digitally native, but it also had a somewhat negative history and no executive.

The beauty brand sector has become increasingly competitive because of emerging brands. How have you shifted your approach?
The barriers to entry in beauty are lower than they were five or 10 years ago, when brands were forced to build themselves in traditional brick-and-mortar and wholesale channels. Direct-to-consumer and social media has totally changed the space. It’s one of the things that attracted us to Lime Crime. It’s two-thirds direct-to-consumer, and it has 3.4 million Instagram followers, a unique brand personality and unlimited opportunity in wholesale distribution.

When we invested in This Works, which was a little brand in London, we knew it was small, but it was focused on clean, natural [ingredients] and wellness. We made that investment three years ago, and if you look at what’s going on today, that trend is all people talk about now.

How are you responding to legacy beauty companies investing and acquiring in the space for newness?
The good news is this is a large industry, and it’s very fragmented, so there is lots of opportunity for people to play. You can name the corporate buyers on two hands — fortunately, they tend to do larger deals than what we would do and are also starting their own incubators, which means they may go below us in terms of deal size. We keep an eye on them and keep relationships, because maybe we can help. Something like RéVive was interesting to some of those corporate buyers, but it wasn’t [viable] in its old state — now it is, but because we carved it out and created value.

You invested in natural and organic beauty brands Avalon Organics and Alba Botanica 16 years ago. How do you spot the next big trend?
If you can find beauty businesses or brands that have good category tailwind behind them, that’s much more interesting than fighting a bunch of headwind. We will look at NPD data to understand retail sell-through of brands, and we look at certain Tribe Dynamics data to understand what the earned media value growth is for a company. We also spend a lot of time in stores and speak to associates and beauty editors to try to identify brands early. We are immersed.

As packaging, marketing and technology become increasingly relevant, how important is the product?
It ultimately always comes back to product. RéVive should have been dead, and it wasn’t, because people loved the product. That business is now up well north of 30 percent for us. If a product doesn’t deliver, there is no longevity to the brand. Packaging has become important because everyone is talking to the same manufacturers, so having unique or clever packaging helps in open-format retail environments.

Tengram has been instrumental in building and structuring teams at these companies. Why is that important?
It’s an asset that we can build and recruit high-performing teams, and execute the playbooks that need to happen. If you look across our portfolios, you see dramatic changes across the brands’ organizations. It’s not uncommon for us to hire CEOs, and every one of those CEOs’ direct reports, which is what we did at Lime Crime. We are pursuing a much more aggressive retail strategy because of that team, and we’ve had more inbound interest from retailers globally in Lime Crime than in any other brand I’ve ever invested in.

How do you decide to divest from a brand, which you did with DevaCurl and Nest Fragrances last year?
It’s much easier to decide when to buy than when to sell. I assume we are going to own something for five years, and we work to execute that five-year plan. When you look at the three businesses we’ve sold – Laura Geller, which we held for four years; DevaCurl, which we held for over three and a half years; and Nest for just over five years – it came down to the market. With DevaCurl, we received genuine inbound interest, which told us that it was ready. In markets like this, where valuations are high and capital and corporate interest is also high, we may decide to entertain a sale a little bit earlier than we had planned. We have ongoing conversations with corporate buyers, but by definition any brand owned by a private equity firm is for sale at any time — it’s just a matter of price.

What are you looking to invest in next?
All of these beauty categories are crowded and are only getting more crowded. Look at what’s going on in cannabis. I’m interested to see if you have to be a cannabis brand or if you can just be a brand that incorporates cannabis into parts of your product — I’m not sure if the former is better than the latter. We’re looking at that, in terms of product innovation for our portfolio and as a place to invest in. We’re also continually looking at wellness, as we have been for the last three years — we are talking to a few brands there. And brands that have a huge social following and have cracked that code first are always going to be interesting.