The groundbreaking announcement that E.l.f. Beauty has successfully acquired the rapidly growing brand Rhode for an astonishing $1 billion has taken the beauty industry by storm. Social media platforms erupted with speculation about the future trajectory of this three-year-old brand, while many celebrated Hailey Bieber as the latest entrant to the exclusive billionaire circle. This acquisition has sparked a wave of discussions about the implications of such a significant financial move, highlighting the intrigue surrounding celebrity-owned businesses and their valuation.
However, the intricacies of business acquisitions often remain unclear to the general public, including some members of the press. It’s essential to understand that being a founder does not automatically equate to owning 100% of a company. Each merger and acquisition deal carries its own unique complexities. For instance, the Rhode acquisition involves a combination of $600 million in cash, $200 million in newly issued shares, and a potential earnout of $200 million, with the transaction expected to finalize in the second quarter of fiscal 2026. Hence, while Hailey Bieber is making headlines, her billionaire status is not as straightforward as it appears based on public information.
So, how does an acquisition genuinely affect a founder’s personal net worth? Primarily, it hinges on the founder’s ownership stake in the company, which can significantly influence the financial outcome of the sale.
Understanding Founder Ownership in Business Acquisitions
“In most cases, when a company is valued at a billion dollars, the founders usually hold a relatively small portion of the ownership,” explains Steve Reed, a clinical professor of law at Northwestern University with expertise in business law. “Typically, the individuals who command the largest shares of the company are those who invested significant capital to help grow the business. These investors play a crucial role in the company’s success leading up to an acquisition.” This means that while founders may be celebrated, the financial gain from such acquisitions is often shared with a broader group of stakeholders, including investors who contributed to the company’s growth.
For instance, if a founder retains a 10% share of a company sold for $100 million, they would receive $10 million, rather than the entire sale amount. The acquisition proceeds are thus distributed among co-founders and investors, which can dilute the overall impact on any individual’s net worth.
In the case of Hailey Bieber, the exact percentage of her ownership in Rhode remains ambiguous. However, Vogue Business has reported that she financed a significant portion of Rhode through personal investments and established a partnership with One Luxury Group, an investment firm. Additionally, Rhode’s co-founders, Michael D. Ratner and Lauren Ratner (who is also the company’s president and chief brand officer), have been integral to the brand’s journey since its start.
Strategizing the Acquisition Process for Maximum Impact
The pathway to a successful acquisition is intricate and often shrouded in confidentiality. Before negotiations take place, it’s vital for companies to signal their readiness to sell, a process known as becoming “in play.” To facilitate this, many companies enlist the help of a financial advisor to discreetly market the brand and engage with potential buyers without drawing public attention. In some instances, interested buyers might proactively approach the company with acquisition offers. Regardless of the method, the entire negotiation process is typically closely guarded among the company’s leadership.
Occasionally, the acquisition process may stall during the exploration phase. For example, Selena Gomez’s Rare Beauty, valued at $2 billion, reportedly considered a sale last year but decided to pause the search. However, for the mergers and acquisitions that progress beyond this preliminary stage, the next step involves detailed negotiations.
Determining Business Valuation for Strategic Sales
When it comes to multi-million or even multi-billion-dollar transactions, the valuation process incorporates several factors that contribute to the final price. Behind closed doors, negotiations factor in the buyer’s available cash, the brand’s historical sales performance, and the new owner’s vision for enhancing the existing business strategy. “Determining the appropriate amount to invest in another company is always approached with economic rationale,” Reed clarifies. “While there’s a risk of overpaying based on miscalculations, buyers typically do not intend to pay more than what they believe the business is worth.”
The previously mentioned earnout included in the Rhode acquisition serves as a tool for addressing valuation disagreements. For instance, if a brand claims a worth of $3 billion but the buyer’s assessment is $2.5 billion, the earnout structure enables payments based on whether the brand achieves specific performance targets. Meeting these targets allows the buyer to pay the higher price, while falling short would mean paying the lower assessed value, thus protecting them from overpaying.
“Employing earnouts is an equitable method to resolve valuation differences, as it ties the outcome to the future performance of the business,” Reed explains further. Additionally, while sales figures and product success are crucial, celebrity-founded brands often carry added value due to the fan engagement of beloved stars. For instance, Gomez’s Rare Beauty enjoys support from the Selenators, Beyoncé’s Cécred benefits from the Beyhive, Rihanna’s Fenty Beauty has the Navy, and Ariana Grande’s R.e.m. Beauty counts the Arianators among its followers. Though not every celebrity venture achieves lasting success, those that resonate widely can significantly elevate brand valuations and personal net worth.
The Motivations Behind Founders Selling Their Brands
But what drives a founder to sell their brand in the first place? Various personal factors may motivate this decision, including hitting a growth plateau, pursuing new entrepreneurial ventures, or stepping away from a demanding operational role. “One common reason for selling is simply, ‘I’ve taken this as far as I can go,'” Reed elaborates. “At this point, many founders see the advantage of aligning with a larger corporation that offers superior distribution channels, enhanced marketing budgets, and seasoned leadership experienced in managing large organizations—skills distinct from those required to run a startup or rapidly growing business.”
The pivotal question remains: how can a founder’s net worth reach billionaire status? “Selling the company at a high valuation or owning a larger share of the business are critical paths to achieving billionaire status,” he explains further.
“As previously mentioned, even if you don’t retain the entire billion-dollar selling price due to sharing ownership with investors, the financial benefits are still substantial. Selling a business for such amounts typically results in a significant financial uplift,” Reed concludes.
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