Herax Partners – Insights for Investment and M&A – Part 1: Market Overview

Industry Expertise

25/07/2023 by The Red Tree

The onset of economic volatility and uncertainty last year impacted M&A: the average beauty M&A deal
value in 2022 was less than half that of 2019 despite a similar number of deals taking place. Despite
ongoing market uncertainties in early 2023, the beauty industry remains attractive to dealmakers. The
global beauty industry is projected to surpass $580 billion in retail sales by 2027, with an expected
compound annual growth rate (CAGR) of 6 percent, according to McKinsey & Company.

Beauty brands have traditionally concentrated their presence in the two leading countries of the beauty industry, namely China and the US.

These markets are expected to maintain their dominant positions, with China projected to reach around $96 billion and North America approximately $115 billion in retail sales by 2027. But with the increasing competition in these two main markets, other markets are becoming more attractive for new players as well as investors.

The Middle Eastern beauty sector has witnessed significant developments and trends in recent years, attracting both domestic and international investors.

With an anticipated CAGR of 12 percent, the Middle East and Africa's beauty industry is expected to reach a value of $47 billion by 2027.

This growth is attributed to regulatory and structural changes in specific countries, such as the lifting of foreign ownership restrictions, which will facilitate the entry of global brands into the region. As a result, the Middle East is emerging as a hotspot, characterised by a consumer base that is open to both local and foreign brands, presenting untapped potential and opportunities for growth.

Although the combined beauty market of the Middle East and Africa is currently valued at $27 billion, it has yet to fully reflect the increasing affluence of Middle Eastern consumers. Sales in the region are projected to surpass $47 billion by 2027, benefiting from a combination of factors such as government initiatives like Saudi Arabia's Vision 2030, aimed at modernising the economy, and a growing population of high-net-worth consumers, both local and expatriate.

Saudi Arabia is expected to be the fastest-growing global economy in 2023.

Saudi Arabia and the United Arab Emirates (UAE), with the highest household incomes in the region, are driving the growth of the beauty industry in the Middle East. The fashion and beauty blog Business of Fashion (BoF) reveals that beauty ranks as the second most popular shopping category for 30 percent to 40 percent of female shoppers in both countries. Recent regulatory changes, including relaxed requirements for local partnerships and franchises, have also facilitated business operations for foreign beauty brands in the region.

Business of Fashion

The beauty market in the region.

Skin care and fragrance categories in the Middle East are projected to double in size, driven by the expansion of region-specific product ranges by both local and foreign brands. Examples include Dubai-based skin care brand “Shiffa”, which is embracing its Arab roots by incorporating ingredients such as Iranian roses and Egyptian jasmine. International brands like Christian Dior have also recognised the significance of the Middle Eastern market and have launching exclusive fragrances and collaborating with local designers.

The Red Tree has partnered with investment banking firm, Herax Partners, to produce a set of articles providing deep analysis and commentary on beauty investment in the region. Read more here.