No Attractive Deals, But... "Are K-Beauty Valuations Justified?" [PE Now]

APR Effect Drives K-Beauty Valuations Higher
"Risks Outweigh Technical Moats"?Caution Over Market Overheating
Industry Structure Diversifies... "Need to Maximize Growth Narrative"

On the 13th, customers, mostly foreigners, are selecting cosmetics at a cosmetics shopping mall in Myeongdong, Seoul. Photo by Heo Younghan younghan@

'K-Beauty,' which has gained worldwide popularity, is also drawing attention in the mergers and acquisitions (M&A) market. There are divided opinions regarding the soaring valuations of beauty companies. Some criticize that the prices are excessively inflated compared to the industry's technological barriers, while others argue that such overheating is a natural phase that will eventually correct itself as the market matures.

K-Beauty on the Rise... APR Stock Soars, Unlisted Valuations Also Up

With variables such as a change in government, economic slowdown, and external uncertainties overlapping, domestic private equity firms (PEs) are acting cautiously and keeping a low profile. Nevertheless, the 'K-Beauty' market remains vibrant. In particular, foreign PEs are actively participating in deals. Recently, U.S.-based KKR decided to acquire Samhwa, a Korean cosmetics packaging manufacturer, for 733 billion won (approximately 528 million dollars). Earlier last month, Blackstone, the world's largest PE, valued Juno Hair, Korea's top hair salon franchise, at 800 billion won and acquired it. Both domestic and international PEs are now adding not only cosmetics and beauty device companies but also hair salon businesses to their portfolios for the first time, riding the 'K-Beauty' wave.

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It is widely analyzed that the surge in the share price of APR, a listed company, has fueled the rise in K-Beauty valuations. APR, which gained attention for its AI-based skincare, quickly grew its market capitalization to several trillion won after its listing, raising valuation expectations across the market. As of October 2, APR's market cap stood at 9.5448 trillion won, far surpassing Amorepacific (7.1303 trillion won), which had long been the leading cosmetics stock in Korea.

Subsequently, owners of mid-sized and indie brands in the beauty industry have also adopted the mindset that "we can't sell at a low price." A private equity fund (PEF) manager commented, "Compared to just a few years ago, the EV/EBITDA multiples being asked are much higher," adding, "The gap between sellers and buyers is so wide that it feels like we might be at the peak."

"Low Technological Barriers, Rapid Overheating" - Calls for Caution

Major domestic PEs such as MBK Partners and IMM Private Equity are already hesitant to invest in the beauty sector. A representative from a leading firm stated, "We don't even consider the beauty sector at all. While we acknowledge the market potential, the technological entry barriers are low and competition overheats rapidly."

In fact, the cosmetics industry is highly developed around OEM (Original Equipment Manufacturing) and ODM (Original Design Manufacturing), making it easy to copy products once the raw materials and formulation technologies are disclosed. The industry is also highly sensitive to consumer trends and has short product cycles, making it burdensome for PEs whose investment periods typically last 5 to 10 years.

Such risks have been evident in past cases. Amorepacific once dominated the Chinese market but struggled as sales plummeted due to the 'Guochao' (national trend) patriotic consumption boom in China. Although the industry is expanding beyond simple cosmetics to include brands, beauty devices, and beauty-based healthcare, domestic PEs remain cautious.

"Maximizing Growth Narrative in Sync with K-Content Boom"

K-Beauty's external growth is accelerating in tandem with the K-Content boom. According to the Ministry of Food and Drug Safety, Korea's cosmetics exports for the first to third quarters of this year reached a provisional total of 8.5 billion dollars (approximately 11.9944 trillion won). This marks a 14.9% increase year-on-year and is the largest cumulative figure for the third quarter ever. After surpassing 10 billion dollars for the first time last year with 10.2 billion dollars, another record-breaking year is likely.

Analysts say that further maximizing this growth narrative is essential for stable profit generation. The traditional value chain of 'planning → manufacturing → distribution → brand' must evolve into a single life-cycle industry.

K-Beauty Structural Changes. Samil PricewaterhouseCoopers

Signs of this shift are already emerging. In particular, as 'Korean-style beauty care' gains attention, the beauty device market-used alongside skincare products-is also growing rapidly. Inner beauty, hair care, aesthetics, and customized beauty solutions are being absorbed into the K-Beauty domain, and the industry's overall portfolio is expected to diversify further.

Shim Yangkyu, a partner at Samil PricewaterhouseCoopers, explained, "The K-Beauty value chain is gradually expanding as the competitiveness of manufacturing, brand, and distribution sectors based on the cosmetics industry creates synergies with adjacent fields. These changes will become important benchmarks for future investment decisions."