Celebrity beauty is back. Elf Beauty has agreed to buy Hailey Bieber’s Rhode, with its trademark look of glossy, dewy skin, for US$1 billion ($1.2 billion).
The fast-growing US cosmetics company is paying a punchy price for its donut glaze. It must continue Rhode’s pace of expansion, against a difficult economic backdrop and waning enthusiasm for products fronted by famous faces, to prove that Bieber’s business isn’t just another influencer-led fad.
A decade ago, Kardashian clan member Kylie Jenner and pop star Rihanna ushered in an era of celebrity-backed beauty. Amplified by social media, they connected with millions of mostly young customers.
Rihanna, whose business is backed by LVMH, was also genuinely disruptive, debuting Fenty Beauty in 2017 with 40 different shades of foundation. A more diverse colour palette has now become the norm across the industry.
But as more and more household names, as well as influencers and makeup artists, joined them, shopper fatigue set in. As incomes were crimped by inflation, buyers became more discerning. They also turned to skincare, haircare and niche fragrance, rather than the colour cosmetics that had propelled early viral trends, such as using different shades of foundation to contour the face.
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Consequently, the market has been upended. Even some of those who like Bieber struck gold began exploring exits last year. Yet, so far, neither Selena Gomez’s Rare Beauty nor Makeup by Mario, founded in 2020 by celebrity makeup artist Mario Dedivanovic, best known for his work with Kim Kardashian, have reached a deal.
Elf’s swoop on Rhode, founded three years ago, ends the drought and could breathe fresh life into personality-driven businesses once more.
In Rhode, Elf is betting on a premium range, containing just 10 main or “hero” products, including Pocket Blush and Glazing Milk, which blur the boundaries between skincare and makeup.
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This looks like a good fit with Elf’s selection, which is more focused on cosmetics and is cheaper. For example, Elf’s average price point is about US$6.50, compared with almost US$9.50 for mass-market cosmetics brands, whereas Rhode’s average is about US$29.
But Elf is paying a pretty polished price for Rhode, also known for its sleek, minimal packaging.
The US$800 million in cash and stock payable at the close of the deal, expected before September, equates to 3.8 times Rhode’s sales of US$212 million in the year to March 31, 2025. Including the additional US$200 million payable based on Rhode’s performance over the next three years, the multiple is 4.7 times. The latter is in line with the lush deal multiple on L’Oreal’s purchase of natural beauty label Aesop two years ago.
To justify the price tag, Elf must ensure that its new addition doesn’t run out of, well, Rhode.
The narrow product range is the obvious starting point for expansion. Elf has rolled out a raft of innovations, appealing to its Gen Z buyers and turbo-charging sales, so this avenue looks promising.
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There is also scope for Rhode to reach a wider range of customers. The brand is already due to launch in Sephora in the US, Canada and the UK this fall, a major milestone. In the longer term, Elf could leverage its partnerships with other retailers — it is available in Ulta Beauty in the US, for example, in Douglas in Italy and Boots in the UK — to maintain the momentum.
Assuming Elf doubles sales over the next three to five years — which looks feasible — then the acquisition multiple would fall to a more reasonable level of about two times.
But there are risks to this trajectory, the most significant of which is Bieber herself. So far, she has bucked the broader boredom with celebrity-led brands. But her relevance must be sustained.
Six years ago, Coty made a big bet on the Kardashians, paying US$600 million for a majority stake in Kylie Cosmetics, founded by Kylie Jenner. A year later, it spent US$200 million on a 20% stake in Kim Kardashian’s beauty business.
The results have been mixed. While Kylie Cosmetics has increased sales by 1.5 times over the past two years, helped by launches of skincare and fragrance, Kardashian’s underwear label Skims recently acquired Coty’s shareholding, resulting in a US$71 million loss for the US-listed company.
Bieber will join Elf as Rhode’s chief creative officer and head of innovation. The new owner also has a strong track record of connecting with Gen Z via social media, through viral moments such as its tie-up with Chipotle Mexican Grill.
And it has some experience managing celebrity and influencer involvement. It acquired Naturium, the skincare line created by influencer Susan Yara and beauty-brand accelerator The Center for US$355 million two years ago. It also developed Alicia Keys’ brand.
Even so, Rhode being so closely associated with its founder is a risk that must be managed.
This isn’t the only challenge. Lindsay Dutch, analyst at Bloomberg Intelligence, expects Elf’s sales growth to slow this financial year following a frenetic pace of revenue expansion. The beauty boom is also fading, although Ulta said on May 29 that many consumers were turning to fragrance and body lotion as a comfort and escape from economic uncertainty.
Then there’s the pressure from US President Donald Trump’s tariffs. Elf makes about 75% of its products in China and will add US$1 to all of its products globally on Aug 1 to reflect the levies.
With so much to grapple with already, taking a big bet on a celebrity-backed brand looks a surprising diversion. But as any beauty enthusiast knows, there is always room for one more lipstick, particularly if it’s a peptide-infused pout enhancer.
