Can Hailey Bieber Break Beauty’s M&A Slowdown?

Can Hailey Bieber break the beauty M&A curse?

Sources have confirmed to WWD that her beauty brand Rhode has hired J.P. Morgan and Moelis to jointly explore deal options at a valuation of $1 billion, after a bevy of brands entered the market in the last year that never culminated in deals. Rhode’s sales are understood to be around $200 million.

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Neither Rhode, J.P. Morgan nor Moelis could be reached for comment by press time.

News of the deal raised eyebrows among industry sources with knowledge of the brand’s financials.

One industry source said that while the target would be a strategic buyer, that could be difficult given that the business is currently all online, despite speculation that it is gearing up to go with a retailer.

“They’re too risk-averse, particularly in this environment,” another source said of potential strategic buyers. “The market is just too uncertain to write that big of a check.”

Even if Rhode does soon reveal an exclusive partnership with a major retailer, investors are jittery about acquiring brands tied to one celebrity and one retailer, as it is often believed to be a risky strategy, multiple sources said.

The news comes at a time when significant transactions have been few and far between. Among the brands that reportedly came to market in the last 12 months but are yet to score a deal are Rare Beauty, Makeup by Mario, Merit, Kosas, Byoma and Jane Iredale, among others.

“Nobody paid $1 billion for Rare Beauty, nobody paid $1 billion for Makeup by Mario,” said one source, citing the lagging M&A market and broader economic pressures. “Why would they pay that for Rhode? It doesn’t even have distribution.”

While one source posited that it would make sense for acquirers to snap up the brand before it enters retail — and then reap the rewards as owners — broader market trends point away from that scenario.

“The brand has approached the scale where the universe of potential buyers is getting smaller and smaller,” said the source. “And [Makeup by Mario, Rare Beauty and Rhode] are too young, too big, too dependent on their founders — there’s too much risk. The buyers that are relevant are exactly the buyers that wouldn’t touch this.”

Skin care, which Rhode launched with before expanding into color cosmetics and accessories, is also seeing a slowdown in the U.S., though Rhode falls in the “masstige” price range that is still growing, as reported.

And though Rhode is understood to be lining up specialty retail partnerships in key markets globally (speculation has swirled for months about an impending deal with Sephora in North America), the logistics alone could hamper brand leadership.

“It’s not just shipping products to Sephora or flying Hailey around. People think getting into Sephora is a big win, but can they support that?” one source said.

Despite the marketing prowess of Rhode’s founder, both potential buyers and retail partners are beginning to see social media savvy as a con, not a pro.

“Brands are being told to dial that back,” said a source. “Don’t get hooked on virality, because you can’t anniversary those sales numbers. That’s not viewed favorably. It drives traffic, sure, but you don’t want massive spikes.”

Rhode also pumps money into marketing beyond the fame of Bieber, tapping talent for campaigns ranging from Claudia Schiffer and Paloma Elsesser to Matilda Djerf.

Despite that, the business is assumed to be profitable, with one source estimating the cost of goods at around 15 percent and referencing the brand’s ownership of its own margins, since it sells directly.

“That would give Hailey about $170 million to spend on marketing, people and logistics,” the source hypothesized. “It’s a lot of dollars to play with. My guess is she’s profitable and, by the way, if she’s not, then they’re definitely not getting this deal done.”

On the bright side, the market has begun to thaw for smaller deals. Skims, Kim Kardashian’s shapewear and apparel company, has acquired Skkn by Kim from Kim Kardashian and Coty Inc.

Coty acquired 20 percent of KKW Beauty for $200 million in 2021. Now that stake will belong to Skims, while Kardashian’s 80 percent holding will also be transferred to Skims.

Unilever also acquired British sustainable deodorant brand Wild. While it did not reveal the price paid, it has been reported that it sold for 230 million pounds.

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