In China’s cosmetics world, where foreign brands were historically revered, indigenous startups are increasingly winning over Gen-Z consumers with cheaper, more localized options. One of the rising stars is the direct-to-consumer brand Perfect Diary, which is owned by five-year-old startup Yatsen.
Yatsen impressed the capital market with a $617 million initial public offering on NYSE in November. Its flagship brand Perfect Diary consistently ranks among the top makeup brands by online sales next to giants like L’Oreal and Shiseido. Now the company is plotting another big move as it set out to buy Eve Lom, a 35-year-old skincare brand owned by British private equity firm, Manzanita Capital.
On Wednesday, Yatsen, named after the father of modern China, Sun Yat-sen, announced it has entered into a definitive agreement to acquire Eve Lom, which is known for its cleanser. The deal is expected to close within the next few weeks and Manzanita will retain a minority stake in the business and serve as a strategic partner.
The size of the deal wasn’t disclosed but Bloomberg reported in February that Manzanita was looking to sell Eve Lom for as much as $200 million.
Perfect Diary rose to prominence in China by partnering with influencers who reviewed the brand’s lipsticks, eyeshadow palettes, foundation and other products on Chinese social commerce platforms like Xiaohongshu. It took advantage of its vicinity to China’s abundant cosmetics and packaging suppliers, many of whom also work with top international brands. The strategies have allowed Perfect Diary to offer affordable prices without compromising quality, and earn it the moniker, “Xiaomi for cosmetics.”
Growth has skyrocketed at Yatsen since its founding. Its gross sales more than quadrupled to 3.5 billion yuan ($540 million) in 2019 from 2018, thanks to an effective e-commerce strategy. But losses also ballooned. The company recorded a net loss of 1.16 billion yuan ($170 million) in the nine months ended September 2020, compared to a net income of 29.1 million yuan in the year before.
Yatsen has been on the hunt for potential acquisitions to diversify its product portfolio, as it noted in its prospectus. Through the Eve Lom marriage, the company hopes to “enrich our global brand-building capabilities and product offerings,” said Jinfeng Huang, founder and CEO of Yatsen in the announcement.
Yatsen has already embarked on international expansion, landing in Southeast Asia first where it is selling on e-commerce sites like Shopee. It said in the prospectus that it plans on “selectively cooperating with local partners to accelerate our international expansion and localize our product offerings.” In the competitive and entrenched makeup world, Yatsen’s overseas expedition is definitely a curious one to watch.