Beauty brand building is about ‘managing this level of complexity’

After 20 years in big beauty, with stints at L’Oréal and Procter & Gamble, Waldencast founder and CEO Michel Brousset set out to start over, with an eye on the future.

“We started with a dream, which was to create this big global company, but you [have to] start as an entrepreneur. I’m an entrepreneur, just like founders are,” said Brousset on the most recent episode of the Glossy Beauty Podcast.

Brousset was most recently group president of L’Oréal’s consumer products division in North America. In 2019, he started Waldencast by investing in and providing operational support for emerging brands. Early investments included refillable cosmetics line Kjaer Weis and Francisco Costa’s beauty debut Costa Brazil, which was recently sold to Amyris. And while that is still one arm of the business, brand incubation is also a focus. It debuted its first foray last week, a travel-inspired line dubbed Whind, and it has three other brands in the works.

With multiple goals and scale as its focus, Waldencast recently announced its special purpose acquisition company (or SPAC), Waldencast Acquisition Corp, with $633 million to invest.

“As we were developing these two areas of how to create this new, next-generation company — in a way, we’re creating it from a blank sheet of paper, the way we want to create it and with the values that we want to create — we started thinking relatively early that we wanted to do larger acquisitions,” he said. “When we started developing and firming up how to do that is where we landed with a SPAC, as an efficient way of building that capability.”

Still, Brousset said the focus for Waldencast is to bet on brands with a similar ethos. “If you look at all the brands in our portfolio, they have certain threads or flows between them, some commonality between them. They are brands that have in their DNA, not just a perspective on beauty, but also a perspective relative to important social values like sustainability, inclusivity, responsibility and conscious entrepreneurship, which happen to be our values,” said Brousset.

Below are additional highlights from the conversation, which have been lightly edited for clarity.

SPACs for the win
“Traditionally, a SPAC has been a vehicle that was — I’m going to generalize here — typically put together by a group of talented finance teams, dealmakers that were looking to help companies go public. So they are relatively a vehicle to help companies in a quiet, expeditious way go public. Now the vehicle has evolved, certainly. What we are trying to do at Waldencast is to build a best-in-class, global beauty and wellness, multi-brand platform to create, nurture and scale these kinds of new generation, conscious, purpose-driven brands. So, we started out with an objective, and then we came back to a SPAC as just one of the vehicles to allow us to achieve that objective. What we are really looking to build is the SPAC and the FPA [forward purchasing agreement]. Potentially the first acquisition we will do is just the first step in what we hope is a series of subsequent acquisitions, as well as the development of our own brands to create a global, best-in-class beauty and wellness operating company. It’s a little bit different than most SPACs, both in terms of the objective of what we’re trying to achieve, as well as that we’re operators. We come from a long background of operating and running businesses at a scale.”

Another exit option for founders
“Maybe it’s in the $100 million to $300 million range, but most brands are starting to hit a wall in terms of growth. And it’s at that time when strategics used to target things for acquisition — more or less in that range, sometimes it’s a bit earlier. If you’re a founder wanting to continue to grow, you need to start creating an operational scale that, as a single brand, is difficult to create. So consequently, you have two or three options. One is to sell to a strategic, which obviously a lot of brands have done. You look at companies like L’Oréal or Estée Lauder, and they have been built on the basis of acquisitions — many of them quite successful, some of them not. As a founder of a brand, that is great, but you’re sacrificing the upside potential. You let the strategic take the upside potential that way, and that’s fine. Another one would be to do an IPO. First of all, there’s not that many and it’s difficult. It’s a bit complicated when you’re a single brand, because beauty overall is a highly resilient industry, but the individual categories fluctuate, as we know. Today, skin care is booming, makeup is a little more difficult — that was the reverse five years ago. It is a business that is cyclical, having a single brand single-positioned, it’s difficult to maintain the stability of earnings, sales, growth, etc. that is required of a public company. And third is to [take in] private equity. There are some successes in private equity investing in the business of beauty, but their records are limited. What we have is a third or fourth alternative [with a SPAC] to offer founders. For some brands, it’s the opportunity to create that operational scale that is needed, while still being part of the upside growth of their brand and being in control of their brand. Over the years and over time, [it’s about] maintaining the brand DNA, while at the same time creating the operational scale that is needed to go beyond where they are today.”

Beauty- and wellness-specific expertise
“Me and my team live and breathe this industry. This is what we do, this is our passion, this is what we are. We spend our time every day [on this]. Many of us have a hobby of visiting the [store] aisle for an hour, just to see brands and see what’s going on… So, yes, we have an ability — or a knowledge — to identify whitespace and where the opportunities are. We also understand quite well what opportunities are attractive, from a structural economics [point of view]. There are places where there are whitespace opportunities, but they’re not as structurally attractive… I can speak about this from a first-person standpoint. I did not spend 25 years in beauty. I came into beauty later in my career; I worked in laundry detergent and health care and coffee, and various other fields. And [I found that] beauty has a number of peculiarities. No. 1, if you look at that the evidence in who’s winning,  if you look at the large conglomerates and who is performing better, they tend to be conglomerates that are pure playing in beauty. Why? Because over time, you develop this expertise. Beauty is part art, part science. A part is understanding: What is happening with consumers with trends? What are the right shades in makeup? And what are the right textures? How do you encapsulate that in a way that is socially relevant, so you have the pulse on things? But, it’s very much a deep science, very much a business of details. Just for perspective, you take the average mass-market makeup brand, and it has, on average, 750 to 1,000 SKUs. So you compare that to, I don’t know, beverages — Coca Cola or laundry detergent like Tide. You’re talking about maybe a few dozen SKUs. It’s about managing this level of complexity.”