K-Beauty Companies Shift M&A Focus from 'Brand Shopping' to 'Strategic Portfolios' [M&A All That Matters]

Global Companies Bundle K-Beauty Indie Brands
OEM and ODM: The Growth Engine for Marketing-Driven Indie Brands
Targeting the Global Market... Evolution Toward Performance-Linked M&A

10.2 billion dollars (approximately 14 trillion won). This was Korea’s cosmetics export volume last year. This figure represents a 20.3% increase from 8.5 billion dollars in 2023, surpassing the 10 billion dollar mark for the first time in history. With the rising popularity of K-beauty, Korea’s export ranking also climbed to third place globally, overtaking Germany. As a result, major beauty companies both in Korea and abroad are competing to acquire Korean cosmetics brands through mergers and acquisitions (M&A).

In particular, the value of emerging indie brands is soaring. Goodai Global has acquired TirTir, Laka, and Seorin Company all at once, while L’Oreal, after acquiring Style Nanda, has also taken over Dr.G. This is seen not just as simple “brand hunting,” but as a strategic strengthening of portfolios. On October 8, M&A All About will explore the latest M&A trends and outlook in the K-beauty industry.

Portfolio Diversification Strategy through ‘Brand Collection’

Recently, cases of brand M&A have been continuously increasing in the K-beauty ecosystem. The moves of L’Oreal, the world’s largest comprehensive cosmetics company from France, stand out. Having entered K-beauty in 2018 by acquiring Style Nanda (3CE), L’Oreal reached out to a Korean brand again after seven years-this time, the skincare brand Dr.G.

Jung Ji-yoon, a researcher at NH Investment & Securities, predicted, “In the past, the Korean market was considered a bridgehead for entering the Chinese or Japanese markets, but now global brands are increasingly participating in the Korean beauty market ecosystem, and the influence of K-beauty is expected to expand.” As Korean beauty trends lead the global market and the discerning taste of Korean consumers serves as a testbed for product quality, global companies like L’Oreal have no choice but to invest in ‘Made in Korea’ brands.

Goodai Global, which aspires to become the ‘L’Oreal of Korea,’ is also drawing attention for its active moves. Last year, it acquired a 50% stake in TirTir and an 88% stake in Laka Cosmetics (which it sold a year later), and this year, it purchased 100% of Seorin Company. What is interesting is the positioning of each brand. Although they are all in the beauty category, each targets different consumers and conveys a unique brand sentiment.

Researcher Jung Ji-yoon analyzed, “This is seen as a strategy to target segmented consumer groups in the global market by bundling multiple brands, going beyond simply securing brands. In particular, it is notable that the diversification focuses on skincare brands and that each brand carries different implications for consumers.”

A Signal of Structural Change in the Domestic Beauty Industry

The wave of indie brand acquisitions signals changes in the structure of the domestic beauty industry. Shim Yang-kyu, a partner at Samil PwC, focused on the value chain structure of Korea’s cosmetics industry. In the traditional structure-planning and development, raw materials and components, product manufacturing, and distribution and sales-OEM (original equipment manufacturer) and ODM (original design manufacturer) companies like Kolmar Korea and Cosmax have supported explosive growth by establishing world-class production technologies and flexible supply systems.

Partner Shim Yang-kyu explained, “The growth of the OEM and ODM business is closely linked to the expansion of indie brands. Brands that have grown rapidly through marketing based on social networking services (SNS) and short-form content are actively utilizing the OEM and ODM structure, which allows for flexible product launches without their own production facilities.”

The problem arises when a brand grows beyond a certain scale-it becomes difficult to move to the next stage. For global expansion, brands need distribution networks, large-scale marketing funds, and new product development capabilities, but small brands face limitations in solving these issues on their own. This is where the necessity of M&A emerges. Indie brands gain capital and infrastructure from large companies, while acquirers secure proven brand assets and a loyal customer base, creating a win-win structure.

Evolution of Deal Structure Seen Through ‘Earn-out’ Clauses

Changes are also appearing in deal structures. There is a growing trend of ‘performance-linked M&A,’ where large companies initially invest in only a portion of shares and gradually acquire the remaining shares based on future performance. If 100% of the shares or full management rights are transferred immediately, there is a risk of diluting the brand’s unique sentiment and creativity-especially for indie brands favored by Millennials & Gen Z.

This structure is rational, as it reduces risk for the acquirer and offers additional rewards to the acquired party if the brand value increases. Most importantly, it encourages the brand founder to remain involved in management for a certain period, helping to preserve brand identity. Researcher Jung Ji-yoon analyzed, “The investment approaches of Amorepacific and LG Household & Health Care are examples of this, highlighting the importance of identity for indie brands.”

A similar trend is observed overseas. In June, Elf Beauty in the United States acquired the ‘Rhode’ brand, founded by supermodel Hailey Bieber, for 1 billion dollars (about 1.3 trillion won). Of this, 800 million dollars was paid upfront, and the remaining 200 million dollars is an earn-out payment (a clause that distributes profits occurring after the contract) to be paid if the brand achieves its expected sales growth over the next three years.

Ultimately, the core of recent K-beauty M&A is ‘global scalability.’ The Korean market is sensitive to trends, consumer feedback is quick, and it has established itself as a ‘beauty laboratory’ where various experiments are possible. Partner Shim Yang-kyu stated, “Domestic health & beauty (H&B) channels centered on Olive Young are being reorganized, and global platform companies such as Silicon Two are leading the overseas expansion of K-beauty brands. The K-beauty value chain is gradually expanding, with manufacturing, branding, and distribution sectors creating synergies with adjacent areas. Along with strengthening the competitiveness of each sector, active M&A centered on strategic integration between value chains is expected to continue.”