The headline heard around the beauty world — that E.l.f. Beauty had acquired Rhode in a $1 billion deal — quickly flooded social media feeds with predictions about the three-year-old buzzy brand’s future and declarations that Hailey Bieber is the newest member of the billionaire club.

It quickly became clear that the general public (and some journalists) are a bit murky on how, exactly, acquisitions work from a financial perspective. Just because a founder created a company doesn’t mean they own 100% of it, and there’s a whole lot of nuance that’s unique to each M&A deal. The Rhode acquisition, for example, includes $600 million in cash, $200 million in newly issued shares and a potential earnout (more on this later!) of $200 million in a transaction set to close in the second quarter of fiscal 2026. Translation: Bieber herself is not a billionaire — at least, not as far as we, or anyone without direct access to her bank statements, could know.

So, how does a brand acquisition actually impact a founder’s net worth? For starters, it mainly comes down to the founder’s ownership percentage in the company.

Ownership

“Typically at the time a company’s being sold for a billion dollars, the founders of the business will not own a huge amount of the company,” Steve Reed, a clinical professor of law at Northwestern University specializing in business law, tells Fashionista. “So the people who own the biggest chunk of the company, by the time you grow to the place where you’re going to be acquired for a large amount of money, are going to be whoever put the money in to really grow the company. That’s the investors.”

For example, if a founder owns 10% of the company and then sells the business for $100 million, the founder would walk away with $10 million (not the full nine-figure payout). The overall acquisition price would be split between any co-founders and investors, thus dividing up the boost to their individual net worths.

In Bieber’s case, it’s unclear exactly how much of Rhode she owns, but Vogue Business previously reported that the model-turned-entrepreneur “funded the bulk of Rhode with her own money” and entered a partnership with investment firm One Luxury Group. Rhode’s co-founders Michael D. Ratner and Lauren Ratner (the latter of whom also serves as the company’s president and chief brand officer) have also been involved in the brand since its inception.

Pursuing an acquisition

When it comes to the art of an acquisition, the actual process demands a lot of time (and secrecy). Long before acquisition negotiations even begin, Reed notes that companies need to become “in play,” or signal to the market that they’re looking to sell. To do this, some companies tap a financial advisor to quietly shop the brand around and discreetly meet with potential buyers. Other times, interested buyers may directly reach out to the company and present an opportunity for an acquisition. Regardless, the entire sale process is often strictly kept under wraps among a brand’s higher-ups.

Sometimes the process halts in the shopping stage: Selena Gomez’s Rare Beauty was reportedly seeking to sell the brand (which is valued at $2 billion) last year, but paused its search last fall. However, for the M&A situationships that make it out of the talking stage, negotiations are up next.

Valuation

Multi-million-dollar deals (or the rare multi-billion-dollar agreement) may feel like a lot of intangible zeroes, but many components factor into that final price tag. Behind-the-scenes negotiations typically consider how much cash the buyer has on hand, how much the brand has previously earned in sales as well as how the incoming owner plans to improve upon the brand’s existing strategy when determining the deal.

“When you’re figuring out how much to spend on another company you’re going to buy, you’re only going to do it in a way that’s economically rational,” Reed explains. “You’re not going to overpay for something you buy. It might turn out you overpaid if your predictions were wrong, but you’re not going to try to overpay for something. You’re going to pay what you think it’s worth.”

As for the aforementioned “earnout” negotiated into Rhode’s acquisition, Reed notes this can occur when “there’s a disagreement over the value of the company.” For example, if a brand claims to be worth $3 billion, but the buyer calculates a lower value of $2.5 billion, then the “potential earnout” will be based on whether or not the brand can deliver certain performance goals. If the brand meets its projections, then the buyer will pay $3 billion, but if the brand falls short, the buyer will instead pay $2.5 billion to avoid overpaying.

“Earnouts, I think, are a pretty fair way to handle a disagreement over purchase price because this way it really is tied to whether the two parties are right about the future of the business,” Reed explains.

Of course, valuation takes sales and product performance into account, but celebrity-founded brands can offer additional worth to the company as beloved stars can serve as a potential sales booster. Some of the industry’s buzziest celebrity-backed brands have devoted fanbases helping drive sales: Gomez’s Rare Beauty has Selenators, Beyoncé’s Cécred has the Beyhive, Rihanna’s Fenty Beauty (and her subsequent Fenty empire) has the Navy, Ariana Grande’s R.e.m. Beauty has Arianators, and so on and so forth. Not every celebrity-backed venture is going to go the distance (there’s only so many tequila brands we can keep track of), but when they hit that sweet spot of virality and efficacy, brand valuations — and net worths — soar.

What’s in it for the founder?

But why would any founder want to sell their brand in the first place? There’s plenty of individual explanations for why founders might be ready to take a step back, but some common reasons include reaching a roadblock in terms of scalability, pursuing another entrepreneurial opportunity or exiting a time-consuming environment.

“One reason would be, ‘I’ve taken this as far as I can take it,'” Reed expands. “What I need now is to be part of a larger company that has better distribution in stores, more money to spend on marketing, professional leadership who know how to run a large company because it’s actually a separate set of skills to run a startup, fast-growing business.”

The million-dollar (billion-dollar?) question still remains: How can a brand founder’s net worth actually climb into the billions? “Selling the company for more or owning a higher percentage of the company are key ways that they can get billionaire status,” he shares.

“As I said before, maybe you’re not getting to keep the whole billion-dollar purchase price because you didn’t own the whole business,” Reed says. “You’re having to share it with all the investors, but still you’re getting a nice chunk of change. Anytime you sell a business for this kind of money, you’re getting a nice little boost to your personal finances.”

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