MILAN — Surprise, surprise.
This story first appeared in the July 9, 2008 issue of WWD. Subscribe Today.
Roberto Cavalli has called off the sale of his namesake fashion label because of market conditions.
In an interview with an Italian financial daily, published Tuesday, the designer said valuations of his business based on current earnings multiples fell short of his expectations, and he would not revisit a possible sale before 2009.
“I’m not selling the company,” Cavalli told Il Sole 24 Ore. “The timing is not ripe yet for such a step. What’s more, as I have already said a thousand times, we don’t need [to sell].”
A spokeswoman for Cavalli declined to comment Tuesday.
Merrill Lynch, which was advising on the sale, had valued the company at 1.4 billion euros, or $2.19 billion at current exchange — almost 17 times earnings before interest, taxes, depreciation and amortization of around 84 million euros, or $115 million at average exchange, in 2007, sources said.
Luxury and fashion companies listed in Europe are currently trading on average on an EV/EBITDA multiple of 8.9.
Industry sources said Cavalli’s decision to terminate the auction was precipitated by Lazard withdrawing from the process. They said Lazard’s asset management arm was in advanced discussions with the designer about acquiring a stake but that these had broken down over the asking price. Lazard declined to comment.
Private equity funds Candover Investments, The Carlyle Group, Doughty Hanson & Co., Lion Capital Investments Group and Texas Pacific Group also were among those expected to make binding bids in the second round of the auction next week. All but Carlyle — which did not return calls seeking comment — declined to discuss the matter Tuesday.
“A year ago, [the banks] spoke to me about certain numbers, which today have vanished with the stock market crisis,” Cavalli told Il Sole. “I’m not selling for 800 to 900 million [euros].”
Cavalli also told the newspaper that to get an offer commensurate with his valuation, he could once again court Arab investors, who were not reliant on the debt markets. (In 2006, Saudi Arabian private equity fund SAB Capital Management Inc. submitted a bid for 60 percent of the fashion label, but an agreement was never reached.)
“Why not?” Cavalli asked. “They have lots and lots of money and would like to put my brand everywhere, from hotels to nightclubs.”
Cavalli has for some time voiced his interest in possibly selling a stake in the company he set up more than 40 years ago in order to fund the next phase of growth and to bring in new management. His profile has grown significantly over the last few years, after expanding distribution, opening more stores, and, in 2007, linking up with H&M for a one-off collection, which created mania from Manhattan to Tokyo.
Cavalli told WWD last month he wanted to dedicate his time “just to designing” because he had “too many things to do.”
A person close to the deal said Tuesday the investment community was not surprised the flamboyant designer had called off the auction.
“He has high price expectations, which, in the current climate, are difficult for any private equity firm to match,” the source told WWD on condition of anonymity. “Also, family companies tend to adjust valuations [down] more slowly than corporate[s] as [their business] has been their life.”
Other sources also speculated that Cavalli would do a deal sooner rather than later to finance international expansion, given his dependence on the Italian market, which is suffering in general.
Indeed, HSBC downgraded luxury shoe and leather goods group Tod’s SpA to neutral last week, partly on the assumption of weaker sales in Italy.
“The retail market is notoriously difficult to call in a recession,” one source said. “The luxury market is the same, with perhaps the exception at the very top end.”
Cavalli’s decision to pull out of negotiations until next year could also preface similar moves by Salvatore Ferragamo SpA and Prada SpA regarding their initial public offerings, which are penciled in for November.
“We’re dealing with two different things — a sale and an IPO — but I don’t believe [Ferragamo and Prada] will list this year,” one source said, citing stock market volatility. “That said, they’ll keep their muscles warm and be ready when conditions pick up.”