Private Equity

4 min
Oct 27 2021

When the COVID-19 pandemic shocked the global beauty industry, Petiole seized the opportunity to enter the historically resilient and continuously growing market.


As Doors to Salons and Stores Closed, Another Door to Opportunities Opens

Before the pandemic, the global beauty market was growing steadily with generations of loyal customers. It was a resilient market, growing constantly for more than a decade.Source: McKinsey & Company

COVID-19 forced the closure of many hair salons and stores in Q1 2020. The hard-hit beauty market responded quickly as many manufacturers switched production to hand sanitizers and cleaning agents, while do-it-yourself (DIY) beauty products such as hair coloring and nail care grew rapidly. Innovative companies adopted digital platforms to increase online sales with some product brands and retailers doubling their e-commerce revenues compared to pre-COVID-19 levels.

With balance sheets under stress after the initial blow of the pandemic, many companies began rethinking their business models for new sources of cash flow that led to increased mergers and acquisitions (M&A) and divestment.

Coty Announces the Sale of Wella

In November 2020, Coty, a major global beauty company, announced the sale of the Professional Hair and Retail division of Wella. Coty had originally intended to sell all its equity in Wella, but decided to hold a minority stake to benefit from its recovery. The carve-out of Wella from its parent company presented an opportunity to invest in the resilient growth of the beauty market.

Despite underperformance during its ownership by Procter & Gamble (P&G), Wella held up well with the strength of its brands, products, sales force, and customer relationships. After its acquisition by Coty in 2015, product innovation at Wella was low and the company's complexity led to integration issues. During the pandemic, the haircare segment was among the best performing categories as consumers sought DIY hair-styling solutions during the lockdown. The rapidly changing consumer habits required innovation and product development in the highly fragmented and competitive market. COVID-19 forced beauty brands to reach customers online through third parties, paving the way for the digital transformation of the sector.

Unlocking Value from the Wella Carve-out

In the last three years, Petiole co-invested in several undervalued carve-outs where value can be added by shedding incompatible assets. Wella had an attractive growth potential with well-known brands and a strong market position.

Wella is the market leader in professional hair care, styling and colorants in Europe and has a solid second place in the US market. Its core brands Wella, System, Sebastian, Clairol and Nioxin are sold to 270,000 salons and hairdressers worldwide with a full-time direct sales force of 1,500 employees. Wella's professional nail brand, OPI, is the global market leader in its category used by half a million professionals in over 100,000 salons worldwide with a robust market share in nail polish and gel. OPI has 66% usage across US salons. Its hair appliance brand, ghd, has a majority market share in the UK and 40% e-commerce penetration with substantial digital capabilities. The brand includes hair-styling appliances, such as hairdryers, straighteners, and brushes that are sold to over 50,000 salons around the globe through a sales force of 216 full-time employees.

Although the brand relies on direct sales to salons and hairdressers that were not operational during the pandemic, recovery is underway.

A consumer survey showed that almost half the customers await salons to reopen after unpleasant DIY experiences. More than 70% of salon customers are expected to return within two to three months when they reopen.

Beyond Covid-19, surveys show that more than 95% of consumers will return to salons. In summary, hairdressers do not anticipate a long-term negative impact.

Long-term Growth Trends in Beauty

The prospects remain attractive for the beauty industry and COVID-19 has accelerated e-commerce trends among the rising middle class that are unlikely to change. Wella is well-positioned to benefit from the growing popularity of business-to-consumer e-commerce brands, websites, social media platforms and marketplaces, as customers are more likely to spend online on a diversified, innovative product mix.

KKR has been monitoring Wella for several years, particularly its retail hair care assets. It has invested $18.4 billion in consumer-facing private equity transactions, including 55 carve-outs over the past 43 years. Corporate carve-outs, such as the case for Wella, have risen exponentially especially in cross-border settings where the pandemic has made onsite due diligence difficult, if not impossible. Petiole works only with the most capable and experienced partners, like KKR, that have a proven track record in carve-out investments.

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