E.L.F. Beauty Bets Big 💰

GM and Happy Thursday, folks. It’s been an exciting few days in CPG. Fundraising announcements have no doubt slowed but thankfully M&A remains strong:

• E.L.F. Beauty scoops up Naturium 💰

• Gallo makes yet another acquisition 🍷

• Some confectionery M&A in Germany 🍫

• LoveShackFancy launches their fragrance line 🎀

• BeyondSKU unveils latest cohort 🆕

• Zab’s goes nationwide at Sprouts 🌶️

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The Big Story 📰

E.L.F. Beauty has made its largest acquisition in the firm’s 19-year history. The Oakland-based beauty brand, known for its affordable yet effective makeup products that retail at Target, Ulta, and Walmart, paid $355m in cash and stock to acquire Naturium, a clean and clinically-effective skincare brand.

Naturium is the brainchild of The Center, a West Hollywood-based brand incubator that also created body and hair care brand Saltair, as well as fine fragrance brand Phlur. The Center, founded by Ben Bennett, first launched Naturium in 2019 before bringing on beauty influencer Susan Yara as co-founder in 2020, and securing growth funding from Prelude Growth Partners in late 2021. Since then, Naturium has scaled quickly and expects to close out 2023 with net sales of $90m.

This is an exciting deal for E.L.F. Beauty for a number of reasons. First, though there might be some initial sticker shock, E.L.F. is only paying 4x net sales or 21x adjusted EBITDA for a fast-growing brand. In the larger scheme of things, this is cheap, and in a few years paying 4x net sales for Naturium will look like highway robbery.

Second, Naturium has a lot of runway left for growth. Naturium is currently only sold via Amazon, Target, and their website. If E.L.F. Beauty simply plugs Naturium into their existing distribution network and launches the brand internationally, it will be a success. Walmart and Ulta accounted for 35% of E.L.F. Beauty’s $578.8m in revenue last fiscal year, so getting Naturium into both chains will move the needle considerably.

Third, since the average E.L.F. Beauty product retails for $9 while the average Naturium product retails for $18, E.L.F. Beauty is partially graduating from mass beauty to “masstige” beauty. Masstige is a business school neologism combining “mass” and “prestige” that basically means low COGS, high retail price, and very strong gross margins.

The Naturium acquisition marks a strategic departure from what turned E.L.F. Beauty into a thriving business with a $7.5B market cap. E.L.F found success selling effective beauty products that are manufactured very cheaply in China and retail at very affordable prices. One of their products, the extremely popular Camo Color Corrector, retails for a shockingly low price of $4.

Now E.L.F. Beauty is shifting focus from low-cost color cosmetics to masstige skincare products with Naturium. Why they’re shifting strategy now is unclear — E.L.F. has delivered 18 straight quarters of net sales growth, and annual revenue surged 48% year-over-year in fiscal 2023 — but Naturium does provide revenue diversification, insurance, and some degree of peace of mind. Though they don’t necessarily need Naturium right this instant, perhaps E.L.F. Beauty will in five years.

All in all, I reckon this acquisition is a major win for E.L.F. Beauty.

Deals 💰

Mergers & Acquisitions 

• Wine & spirits giant E. & J. Gallo has acquired Napa Valley powerhouse Rombauer Vineyards for an undisclosed sum. Rombauer was founded in 1980 and produces 340,000 cases of wine per year. They currently own 13 vineyards and 700 acres of vines. Gallo has been particularly acquisitive this year. In addition to Rombauer, they’ve also purchased Bev, Hahn Family Wines, Denner Vineyards, and Fishers Island Lemonade. VinePair

• Some candy consolidation in Germany. Katjes, the colorful candy brand known for their vegan gummies, purchased 50% of fair trade chocolate brand JOKOLADE. JOKOLADE was founded in 2020 by actor and TV personality Joko Winterscheidt. You might’ve encountered their packaging before, it’s pretty stunning. Terms of the deal were not disclosed. Just Food

Fundraising

• ALTR, a tech startup focused on using nanotechnology to remove alcohol from wine and spirits with minimal impact on flavor, secured an undisclosed amount of pre-seed funding led by FTW Ventures. Additional investors include Bluestein Ventures, Tet Ventures, Joyance Partners, and others. BevNET

• Children’s footwear brand jbrds closed a $500K seed round at a $5m valuation. The company designed their shoes to anatomically support foot structure and activity requirements at four distinct stages of physical development. More importantly, the shoes are pretty swaggy. jbrds was founded by leading podiatrist Dr. Jay LeBow. PR Newswire

What’s New 🤩

Apparel, Cosmetics, and Wellness

• La Bouche Rouge, the French beauty brand known for its clean, eco-friendly approach to luxury cosmetics, has filed for bankruptcy protection. LBR was launched in 2017 by L’Oréal alum Nicolas Gerlier. Last February the eco-luxury brand raised 10m EUR from the likes of Mirabaud Asset Management and BPI. I’m curious if Mirabaud, which has nearly $44B assets under management, steps in and saves the brand from bankruptcy. After all, it’s a good brand that they could own outright. WWD

• Per Vogue Business, African beauty brands are taking ancient ingredients global. Fun read. Vogue Business

• Popular fashion label LoveShackFancy officially launched their new line of fragrances. The packaging is fun and extremely on-brand for LoveShackFancy. Heading to Sephora soon. Instagram

• Swedish outdoor apparel brand Fjällräven, a subsidiary of Fenix Outdoor International, opened a new store in Palo Alto, CA. Fjällräven has slowly been opening stores in key U.S. markets like New York, San Francisco, Chicago, and Los Angeles. PR Newswire

Food, Beverage, and Alcohol

• Spirits giant Diageo has introduced a non-alcoholic version of Captain Morgan called Captain Morgan Spiced Gold 0.0. The non-alcoholic rum will be available in Great Britain starting next month and will retail for £15. My only real question is…why? Captain Morgan has built a lot of brand equity over decades around being fun and irreverent. This move just seems to undermine that. Trend Hunter

• Canned cocktail & hard kombucha brand JuneShine launched a new flavor that sounds pretty incredible — Watermelon Mezcal Margarita. Another beautiful can from the JuneShine team, too. Instagram

• PepsiCo plans on phasing out plastic ring packaging on its beverage multipacks in the future. The recyclable paper packaging actually looks quite good, IMO. BevNET

• New York-based food & beverage accelerator BeyondSKU has announced the five startups in its latest cohort. They include Dam Good English Muffins, Down to Earth, Gourmend Foods, Kekoa Foods, and Pinsa Love. Strong cohort. Food Business News

Data 🖥️

• Canadian beverage brand Yerbaé had a great Q2 with sales up 122% year-over-year to $4.1m. H1 revenue for 2023 sits at $7.6m. Business Wire

Distribution News 🚚

• Zab’s Hot Sauce is now available nationwide at Sprouts Farmers Market.

• Per Beauty Independent, supplements brand BodyHealth launched at Erewhon.

• VMC, the canned tequila cocktail brand from Mexican professional boxer Canelo Alvarez, made its debut in the United States.

• Better-for-you pasta brand ZENB launched nationwide at Sprouts Farmers Market.