Accessories, footwear and beauty are where the money wants to be in the fashion world — literally.
While activity on the mergers and acquisitions front has been fairly robust this year throughout the industry, it’s been particularly active in those categories as investors prowl to find the next Coach, Tory Burch or Michael Kors. In fact, Kors has added greater interest to the accessories space since going public in December, particularly because the once-struggling brand that, after a turnaround by its owners, now has a market capitalization of more than $11 billion.
That’s because many strategic firms of a certain size won’t buy a middle-market firm that’s $100 million or less in volume since it isn’t big enough to impact the overall operations of the larger company, according to Peter Comisar, vice chairman and head of West Coast Investment Banking for Guggenheim Partners.
For buyers looking for high-growth opportunities, it’s smaller, younger firms with a lifestyle approach that have presented the most intriguing possibilities. These are the firms that seem better able to ramp up quickly by expanding to other categories, as well as roll out their own freestanding stores.
Cathy Leonhardt, managing director at investment banking firm Peter J. Solomon Co., said, “There have been a few big deals, a few medium ones, and a lot of smaller deals. The smaller- to medium-sized deals have been private-equity driven.
“Private equity firms can be a great developer of brands, especially in the beauty space. Many of these firms want to diversify into more categories and as the funds have gotten bigger, they have to do more deals,” she said.
Leonhardt said many financial sponsors add professionalism to the management team and help direct the business to achieve its growth potential, which sets the stage for it to be acquired by a larger strategic buyer. That’s the typical exit strategy for private equity firms in the beauty space.
As for the attraction of accessories and footwear brands, Colin Welch, president and chief operating officer of Financo Inc., said, “Accessories firms can go into other categories and, generally speaking, can command premium valuations. A brand that has global appeal has the potential to become truly a lifestyle brand, and that tends to translate into product category proliferation. The obvious revenue opportunity is exponential.”
Tomaso Galli, luxury goods consultant and founder of Jtg Consulting, said, “Brands make money with accessories and accessories seem easier to manage. Not that many companies generate volumes with ready-to-wear. In an effort to cash in, it makes sense for investors to zoom in on accessories brands.”
The three sectors have continued to see robust activity this year. More recently on the beauty front, Physicians Formula was sold to private-equity firm Swander Pace Capital for $65 million, and Urban Decay is said to be working with Deutsche Bank in finding a buyer.
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