05: Credo Acquires Follain
Analyzing what this means for both players, and the current state of green beauty.
Another day, another green beauty deal. Green beauty has been on a roll lately! (Is that a good thing? We’ll get to that.)
We started this week with the announcement that clean beauty retailer, Credo, acquired Follain, another clean beauty retailer and creator of their own namesake skincare brand. Although no deal terms have been revealed on account of both companies being privately-held, here’s our analysis into what this deal might mean and say about the green beauty industry.
The Players
Credo, founded in 2015, and carrying an assortment of over 170 brands, with 11 storefronts in the US, is perhaps the largest dedicated clean beauty retailer in the space. Their mantra is “the Sephora of Clean Beauty,” which is apt considering the founding team came from Sephora.
Credo is venture-backed by NextWorld Evergreen whose portfolio also includes Van Leeuwen Ice Cream, Kusmi Tea, W3LL People, and Peet’s Coffee.
Follain, founded in 2013, is a comparatively smaller player in the same space, but at their height, had a few storefronts primarily along the East Coast (Boston, Washington DC, New York City), and even a location in Dallas, Texas. More recently they’ve been relatively focused on developing their own skincare brand of the same name.
Follain previously raised a round led by Launch Venture Studio.
The Terms: Now this is the sucky part, the terms of the deal have not been disclosed by the two parties. Since they’re both privately-held, it’s unlikely we’ll get much transparency on valuation. What we do know is that Follain founder, Tara Foley, is expected to stay on as an advisor over the coming months to finish up the transition (their website already redirects to Credo, and their lone storefront will also convert into a Credo location in the near future), after which, it sounds like she’ll be working as a consultant in the industry for other beauty and CPG brands. So this appears to be a total buyout with the founder leaving.
Our analysis: Without any indication of numbers of the deal, it’s hard to pinpoint a motivation, or whether this deal might be more favorable for the buyer or seller. However, going off what we know, here are a few thoughts:
This deal itself makes sense as Credo seeks to increase its market share in clean beauty. Given their mission of being the largest clean beauty retailer in the space, acquiring these smaller like-minded businesses is a play that is common (e.g. Google acquiring Youtube, Facebook acquiring Instagram, etc.). We’ve similarly seen The Detox Market, Credo’s closest competitor, make acquisitions in the space as well, including Fresh Faced and Clementine Fields in Canada.
What is Follain’s value-add for Credo? One of the problems that Credo (and similarly, The Detox Market) face is the lack of connectedness and genuine engagement with intimate community building that smaller and earlier players have. While Credo boasts a huge assortment of product, the general consensus seems to be that they’re not really the rainmakers that can make or break a brand. Though smaller, Follain, which has 40 brands, also boasts a sizable community loyal to founder Tara Foley. There is no need to talk about the Follain brand building, because spaces like their stores and online website will be wiped out and replaced with Credo’s branding. But this acquisition basically helps close and convert Follain’s existing customers which is why the transition of loyalty points and rewards programs has been so seamless. Think of it as taking out a smaller, but not insignificant player, and acquiring their customers rather than letting them go elsewhere.
What is the upside for Follain? If you notice, we’ve been using the term ‘green beauty’ to describe much of the space, because that’s the root of where this community grew from. The reason we mention this is that back in the early 2010s, the momentum was on green beauty, and clean was essentially the more scalable, commercial landing point. There was huge promise, but venture capital investment pretty much turned it into an oligopoly as far as multi-brand retail goes: Credo and The Detox Market. From our conversations with industry experts, growth has cooled from initial forecasts since that point on. Being ‘too big to fail,’ the existence of these two players really limits smaller independent multi-brand retailers like Follain, who just don’t have the resources to go toe-to-toe with opening nationwide stores, nor onboarding brands at Credo or The Detox Market’s pace. This is one of the reasons many of the smaller players like Follain, and CAP Beauty have downsized, and shifted focus somewhat to developing their own in-house brands. If we were to guess, we’d place a bet that this deal was more of a graceful exit for Follain rather than a landfall cash out. Think of it as taking the option with the most upside, amongst generally lackluster choices that all point toward the same conclusion of an exit.
What is the value for customers? As a brand, Follain will cease to exist as a retailer, and only live-on as a skincare brand. Credo is apparently screening the Follain curation to onboard brands that fit their criteria, so not all brands will carry over. Those who have only shopped at Follain will see more brands. And those who love the Follain skincare brand should still see new products released, as it will now be one of three in-house brands to the Credo portfolio (alongside Exa makeup and EleVen by Venus Williams).
The question that’s mostly been on our minds is: what do the current spate of green beauty deals say about the state and future of the green beauty industry? We often look at acquisition deals as a success because the ‘dream’ is to get big and sell high. However, working in the finance industry, those deals remain the fabled unicorn we all chase. Given the lower than expected acquisition value of Tata Harper, and similar deals — we’re more inclined to believe the pandemic and quiet-recession have slowed DTC sales. This may have really hit many brands hard, making them prime picking for cash-rich conglomerates and bigger players to absorb at a lower valuation, akin to a real estate developer scooping up houses below market value during a downtown.
A key issue remains for this industry in that they’ve thus far been incapable of convincing buyers of performance. This is made clear as the industry shifts toward clinical over clean, science over farms. With clean beauty’s big players already proving inept at engaging or getting message right, it spells additional falls in valuation.
Do we believe these acquisitions are the right deals? It all depends on numbers, and actual valuation. However, these types of deals primarily cushion the bottom line in the short term via direct customer acquisition, and are not designed to provide significant long-term competitive advantage. To really succeed though, Credo will need to do something it hasn’t been able to do, make a genuine connection. And that is something money can’t buy.
Disclaimer: Analysis, by nature, may be speculative, and should not be taken as fact. Views and opinion expressed are just that, and should not be taken as endorsements, nor advice (financial or otherwise).
Disclosures: Newsletter may use affiliate links. Underneath It All is run by Garçon’s Media, which is not a shareholder of any beauty company, nor vice versa.
Do you think the Follain skincare products quality will change? For better or worse?