e.l.f. Beauty's $1 Billion Acquisition of Rhode
Acquirer company: e.l.f. Beauty
Target company: Rhode
Total transaction size: $1 billion
Closed date: August 5, 2025
Executive Summary
On 28 May 2025, e.l.f. Beauty, the Oakland-based cosmetics company, announced a definitive agreement to acquire Rhode, the skincare and beauty brand founded by Hailey Bieber, in a deal valued at up to $1 billion. The acquisition represents e.l.f.'s largest deal to date and marks a significant expansion into the prestige skincare market. Rhode's September 2025 launch into Sephora stores across North America became the largest skincare brand launch in Sephora's history, demonstrating early post-acquisition success. The deal also resolved lingering questions about Rhode's intellectual property position following a high-profile trademark dispute that had shadowed the brand since its 2022 launch.
Company Details: Acquirer
e.l.f. Beauty was founded in 2004 by Joseph Shamah and Scott Vincent Borba in New York City with a disruptive mission to democratise access to quality cosmetics. The brand name (an acronym for "eyes, lips, face") reflects its core product focus. Operating from Oakland, California, the company built its early success through direct-to-consumer e-commerce before expanding into major retailers.
e.l.f. operates primarily in the mass-market cosmetics segment, positioning itself as a value-driven alternative to prestige brands. The company has achieved remarkable growth, reporting $1.3 billion in net sales for fiscal year 2025 (a 28% year-over-year increase) making it the fastest-growing major beauty company in the market. This represented the company's 25th consecutive quarter of net sales growth and market share gains. According to Piper Sandler's spring 2025 survey, e.l.f. ranks as the top cosmetics brand among American teenagers, underscoring its strong appeal to Gen Z consumers.
Company Details: Target
Rhode was founded in June 2022 by Hailey Rhode Bieber alongside co-founders Michael D. Ratner and Lauren Ratner. Named after Bieber's middle name, the brand launched with a minimalist philosophy of "one of everything really good," focusing on efficacious skincare products that deliver visible results.
Operating exclusively as a direct-to-consumer brand through its website rhodeskin.com, Rhode achieved extraordinary growth. In the 12 months ending 31 March 2025, the brand generated $212 million in net sales from just 10 products (including hero items like the Peptide Lip Treatment and Glazing Milk toner). This performance made Rhode the youngest beauty brand ever to achieve a $1 billion valuation at sale.
Rhode's success stems from its powerful digital marketing strategy, leveraging Bieber's substantial social media following of 55 million Instagram followers and 15 million TikTok followers. In 2024, Rhode became the number one skincare brand in Earned Media Value, achieving 367% year-over-year growth. The brand's pop-up events routinely saw consumers queuing for 14 hours, demonstrating exceptional customer loyalty.
The Acquisition and Points of Contention
Transaction Structure
The transaction is structured as an all-cash and stock acquisition with performance-based earnout provisions. At closing, e.l.f. paid $600 million in cash, supported by committed debt financing, and issued approximately 2.6 million shares of common stock valued at $200 million to Rhode's existing equity holders. The purchase price represents approximately 3.8x Rhode's trailing twelve-month net sales, which is a premium multiple reflecting the brand's growth trajectory.
The transaction’s $200 million earnout, contingent on Rhode's performance over a three-year period, exemplifies a common M&A mechanism for bridging valuation gaps between buyers and sellers. Earnout provisions allocate risk by tying additional consideration to post-acquisition performance, typically measured by EBITDA or revenue targets. In celebrity-founded beauty brands, earnouts serve the additional function of incentivising founder engagement during the critical post-acquisition integration period. A portion of the e.l.f. shares issued to founders and key employees are subject to lock-up agreements, releasing over a one-year period to ensure continued alignment of interests.
Debt financing
The $600 million cash component was financed entirely through new committed debt facilities, representing a significant shift in e.l.f.'s capital structure. On 5 August 2025, e.l.f. established a new $600 million Term Facility maturing on 3 March 2030 to fund the acquisition and pay off Rhode's existing credit facility.
This leveraged approach carries both strategic benefits and risks. On the positive side, debt financing allows e.l.f. to preserve equity value for existing shareholders while acquiring a high-growth asset. However, the timing raises concerns: e.l.f. took on substantial debt during a period of elevated interest rates and significant tariff exposure, with approximately 75% of its products manufactured in China. In its first fiscal quarter following the acquisition, e.l.f. reported a 30% decline in net income, with gross margins compressed by 215 basis points due to tariff impacts. The company's ability to service the new debt while navigating tariff headwinds will be closely monitored by investors.
The Rhode Trademark Dispute and its Enabling Effect
The acquisition also resolved a significant legal uncertainty that had shadowed Rhode since its launch. In June 2022, clothing brand Rhode-NYC, LLC filed a trademark infringement lawsuit in the Southern District of New York, alleging that Bieber's use of the "Rhode" mark caused "reverse confusion" by overwhelming their pre-existing fashion brand through superior marketing resources. In July 2022, the court denied Rhode-NYC's motion for a preliminary injunction, finding the plaintiffs failed to demonstrate a likelihood of success on the merits. The parties reached a confidential settlement in July 2024, likely involving a co-existence agreement permitting both parties to operate in their respective product categories.
The resolution of the Rhode trademark dispute through a settlement rather than protracted litigation demonstrates how intellectual property disputes can be managed to facilitate M&A activity. The case highlighted the complexities surrounding personal name marks in an increasingly crowded consumer marketplace. For acquirers conducting due diligence on celebrity-founded brands, the Rhode litigation serves as a reminder that trademark clearance and freedom-to-operate analyses remain essential.
Impact and Precedents Set
Implications for Celebrity Beauty Brand Valuations
The Rhode acquisition carries significant implications for the broader beauty industry's approach to celebrity-founded brands. Throughout 2024, major conglomerates like L'Oréal and Estée Lauder largely remained on the sidelines, hesitant to acquire brands perceived as dependent on social media buzz or celebrity attachment. Brands including Rare Beauty (Selena Gomez), Makeup by Mario, and Kosas struggled to find strategic buyers despite strong revenues and consumer loyalty.
Rhode's billion-dollar exit to e.l.f. may recalibrate market expectations. As one investment banker noted, Rhode "ticked several boxes" that strategic acquirers seek: $200 million in revenue achieved primarily through direct-to-consumer sales, profitability, a disciplined product assortment, and a community that demonstrated genuine loyalty rather than mere celebrity curiosity. The deal suggests that influencer-founded brands can command premium valuations if they demonstrate authentic product-market fit beyond their founders' fame.
Earnout Structures in Celebrity Brand M&A
The Rhode transaction's earnout structure may establish a template for future celebrity brand acquisitions. Only 14% of private-target acquisitions include earnouts, but the mechanism is particularly valuable where information asymmetries exist regarding a brand's sustainability beyond its founder's personal involvement. The three-year earnout period allows e.l.f. to verify that Rhode's growth trajectory continues post-acquisition, while incentivising Bieber's continued creative engagement.
Leveraged Acquisition Strategy
E.l.f.'s decision to finance the acquisition primarily through debt represents a notable strategic choice. While preserving equity value, it increases financial risk during an uncertain macroeconomic environment. This approach may influence how other mid-sized beauty companies structure future acquisitions.
The Future
The transaction closed amid broader challenges in the beauty industry, including tariff pressures on China-sourced products and questions about the sustainability of celebrity-brand valuations. E.l.f., which sources approximately 75% of its products from China, has implemented portfolio-wide price increases to offset tariff impacts.
Looking ahead, success will depend on e.l.f.'s ability to scale Rhode's distribution while preserving its exclusive brand identity. The company's track record with Naturium (which has expanded into Ulta Beauty, Shoppers Drug Mart, and Boots since its 2023 acquisition) provides a positive precedent for nurturing acquired brands without over-integration.
For the broader industry, the Rhode deal may reshape how investors and strategics value founder-led, digitally native beauty brands. Buyers have historically been cautious about brands relying heavily on celebrity founders. Rhode's successful exit could encourage more investment in this category, provided brands demonstrate genuine product-market fit. The question remains whether other celebrity brands will be able to replicate Rhode's combination of viral marketing, disciplined product development, authentic community engagement, and clean intellectual property position.
References
e.l.f. Beauty, SEC Form 8-K Filing (28 May 2025), SEC EDGAR
Business Wire, 'e.l.f. Beauty Announces Definitive Agreement to Acquire rhode in $1 Billion Deal' (28 May 2025)
CNBC, 'E.l.f. Beauty to acquire Hailey Bieber skincare brand Rhode in deal valued up to $1 billion' (28-29 May 2025)
CNBC, 'How E.l.f. pulled off its $1 billion Rhode deal' (12 August 2025)
WWD, 'E.l.f. Beauty to Acquire Hailey Bieber's Rhode in $1 Billion Deal' (28 May 2025)
The Business of Fashion, 'E.l.f. Beauty Acquires Hailey Bieber's Rhode for $1 Billion' (29 May 2025)
Retail Dive, 'E.l.f. Beauty to acquire Hailey Bieber's Rhode for $1B' (29 May 2025)
Business Wire, 'rhode Launches in Sephora' (4 September 2025)
The Fashion Law, 'Hailey Bieber's Rhode Reaches Settlement in Trademark Dispute' (10 July 2024)
BeautyMatter, 'Demystifying Acquisitions in a Post-Rhode Era' (23 June 2025)