Unilever's Dr. Squatch Acquisition: A Bold Bet on Culture-Driven CPG M&A

In a move signaling a strategic pivot toward high-growth, digitally native brands, Unilever has acquired Dr. Squatch, a cult-favorite men's grooming brand valued at an estimated $2.5 billion to $3 billion. The deal, driven by a c.20x EBITDA multiple, marks a stark departure from Unilever's past missteps in direct-to-consumer (DTC) acquisitions, such as its $1 billion purchase of Dollar Shave Club in 2016, which later underperformed and was sold in 2023. This acquisition underscores a broader industry shift toward “culture-driven” M&A in consumer packaged goods (CPG), where brands with viral social media appeal and Gen Z relevance command premium valuations.

The Strategic Realignment: Replacing Declining Legacy Brands

Unilever's personal care division has struggled to keep pace with competitors like Procter & Gamble (P&G), which holds a dominant share of the men's grooming market through brands like Old Spice and Native. Unilever's Axe, once a global phenomenon, now contributes $2 billion in revenue but has seen declining relevance among younger consumers. Dr. Squatch, by contrast, has become a disruptor in the $80 billion men's grooming market, leveraging social-first marketing to attract Gen Z and millennial males. Its $400 million in 2024 revenue and $90 million EBITDA (22.5% margins) reflect strong growth potential, with projections of 20–50% annual revenue expansion.

The acquisition aims to rebalance Unilever's portfolio by divesting underperforming assets (e.g., Unox, Zwan) and investing in brands that align with shifting consumer preferences. Dr. Squatch's “natural, humor-driven” branding—a stark contrast to Axe's increasingly outdated edginess—positions it to capitalize on male wellness trends, including a growing focus on skincare and sustainable, gender-neutral products.

Valuation Multiple and Growth Catalysts

The c.20x EBITDA multiple aligns with recent high-profile CPG deals, such as L'Oréal's $2.5 billion acquisition of Aesop (20x EBITDA) and Church & Dwight's $880 million purchase of Touchland. Analysts note that Dr. Squatch's valuation reflects its scalability via Unilever's global infrastructure, which could expand its U.S.-centric footprint into Asia and Europe. The brand's direct-to-consumer model, which generates first-party data for targeted marketing, further justifies the premium.

However, the deal's success hinges on two critical factors:
1. Maintaining Brand Authenticity: Dr. Squatch's “bro-friendly” ethos—epitomized by its “Smell Like a Man, Man” tagline and collaborations with influencers like Sydney Sweeney—must remain intact under Unilever's corporate structure. Past failures, such as Dollar Shave Club's diluted brand identity post-acquisition, underscore the risk of losing cultural relevance.
2. International Expansion: While Dr. Squatch's revenue has quadrupled since 2021, its current market penetration is limited to North America and Europe. Scaling in Asia, where male grooming is a $20 billion opportunity, will require navigating cultural nuances without compromising the brand's core appeal.

Why This Deal Signals a New CPG M&A Era

The Dr. Squatch acquisition reflects a resurgence in premium DTC brand valuations, driven by investor confidence in brands that marry digital engagement with wellness narratives. Unlike traditional CPG giants, these companies thrive on social media virality, influencer partnerships, and direct consumer relationships—traits that Unilever aims to leverage to combat declining organic growth.

Investors should note three key trends:
1. Culture Over Cost: Unilever is prioritizing brands with strong cultural capital over low-margin, high-volume products. This shift mirrors broader M&A activity in beauty and wellness, where Aesop (L'Oréal) and Medik8 (L'Oréal) have set precedents for high multiples.
2. Gen Z as the New Growth Engine: Men's grooming is no longer about “masculine” bravado but inclusivity, sustainability, and self-care. Dr. Squatch's focus on humor and natural ingredients taps into this shift, aligning with Gen Z's values.
3. Risk of Overvaluation: While Dr. Squatch's growth is undeniable, its $2.5B–$3B valuation assumes flawless execution of global expansion. A misstep could lead to write-downs, as seen with Dollar Shave Club.

Investment Implications

For investors, the Dr. Squatch deal suggests a new playbook for CPG M&A:
- Prioritize Brands with Digital Natives: Look for companies like Dr. Squatch that use social media as a growth lever, not just an advertising channel.
- Beware of Overpaying for Growth: While premium multiples are justified for scalable DTC brands, due diligence on unit economics and cultural fit is critical.
- Watch for Portfolio Rebalancing: Unilever's divestitures of legacy brands signal a sector-wide trend toward pruning underperformers to fuel high-margin acquisitions.

Conclusion

Unilever's acquisition of Dr. Squatch is more than a tactical move—it's a strategic acknowledgment that culture drives CPG value in the digital age. The deal's success will depend on Unilever's ability to preserve Dr. Squatch's edgy identity while leveraging its global reach. For investors, this serves as a roadmap: prioritize brands with strong digital engagement, Gen Z appeal, and scalable wellness narratives. In a market hungry for growth, the winners will be those who marry cultural relevance with operational muscle.