In July 2015, Becca Cosmetics collaborated with vlogger Jaclyn Hill on a limited edition highlighter called Champagne Pop. It sparked a social media frenzy that saw it sell out in four hours and the company was acquired soon after by Estée Lauder for $200m. Lauder’s acquisition of playful makeup line Too Faced promptly followed, hot on the heels of L’Oréal’s own acquistion of IT Cosmetics that year.

It has been clear for some time that the beauty and personal care market is going through serious consolidation; in fact, market growth in recent years has largely been driven by M&A activity rather than by organic growth, with over 200 transactions occurring globally between 2010 and 2016.

The predominant factor behind this is that smaller, independent brands are taking share from larger, more established players such as Mac and Lancôme.

They do this through:

Specialisation: consumers are looking for more specialised, niche brands rather than maintaining the traditional belief that one brand is the answer to all their problems.

Authenticity: with the advent of Instagram Stories, brands are engaging with consumers in increasingly innovative yet authentic ways, inviting consumers to be a part of their story.

Purpose: brands capture consumers’ emotions by addressing wider causes such as animal cruelty or environmental impact.

Channel: barriers to entry have lowered, making it easier to launch a brand. Businesses can bypass traditional routes to market, taking advantage of specialty sales channels such as Sephora and Ulta or own-brand e-commerce platforms.

Agility: many large players have heavy institutional structures which lead to sluggish decision-making and hence longer lead times to get a product to market. Smaller brands such as Kiko and Colourpop are able to have a more agile R&D model, which allows them to introduce trend-led products in a matter of weeks whilst keeping prices low.

The natural response to this is to follow the age old investor adage: diversify your assets. In order to compensate for the lower growth of their established brands, larger companies fill ‘holes’ in the mix by acquiring what’s missing – younger, edgier, or more innovative brands. After all, it is often safer to acquire a brand than to launch one.

Looking ahead, growth in the market is set to continue through acquisition, and shows no sign of slowing down. In January alone, Coty announced a $600m partnership with Younique, Main Post Partners invested in Milk Makeup, and L’Oréal acquired three pharmacy skincare brands from Valeant Pharmaceuticals. Watch this space in 2017 – it promises to be an exciting one.

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Kat Yeh