“What’s in a name? That which we call a rose by any other name would smell as sweet.” — Romeo and Juliet (II, ii, 1-2)
In one of Shakespeare’s most famous lines, Juliet maintains that a name is an artificial construct, a meaningless convention. I suppose Juliet would have no problem selling her name to the highest bidder.
For the vast majority of fashion designers, this prospect is met with trepidation and anxiety. Moreover, in my experience, investors often have their own particular concerns when it comes to acquiring eponymous fashion and lifestyle brands. In the context of M&A transactions, this can present a challenge for lawyers and bankers.
Examples of designers who have sold or lost control of namesake brands are far from uncommon: Joseph Abboud, Jimmy Choo, Emanuel Ungaro, Hervé Léger, Helmut Lang, Doo-Ri Chung, Jil Sander, to mention just a few. For some pretty obvious reasons, a namesake brand is difficult for a founder to part with. When the very business and trademark being sold are tied inexorably to the individual selling them, there is a fear over loss of control, not only of the company itself, but of the designer’s personal image management. The brand’s story, the experience of it and its overall narrative, which have been based on a designer’s own life, are now in the hands of an acquirer.
In my experience, for the owner of a namesake brand, the prospect of selling one’s legacy, the family name, is a difficult choice. Add to that the fact that the business bearing the brand often amounts to a designer’s life’s work, and it can be a difficult sell. To many strong-willed designers it may feel like a Faustian pact. As Simon Spurr aptly put it when ruminating on his dealings with his company’s investors in a recent Esquire article: “It is like I gave birth to a beautiful baby…and then it was ripped from me.”
From an investor perspective, as well, a namesake brand presents challenges. Consider the risk that the designer — through his tastes, age, words or actions — may go seriously off-brand. The investor cannot control the designer. In fact, the investor cannot even demand that the designer continue to work for the namesake brand (forced servitude is not legal). Jil Sander walked away (the first of three times) from her brand a mere four months after it was acquired by Patrizio Bertelli, chief executive officer of Prada. I’m quite certain that was not in Bertelli’s business plan at the time of the acquisition.
By way of recent example, juxtapose the negligible damage John Galliano’s recorded anti-Jewish tirade did to the house of Christian Dior (where he was creative director at the time of the incident) with what has happened to the John Galliano brand, which LVMH, to its undoubted consternation, still owns. In June, the Galliano brand announced it will overhaul its Gothic logo to coincide with its transition into a “premium-contemporary” line following a licensee deal. Good luck with that.
Even for a more compliant designer, the evolving brand message — post-investment, now driven by financial returns — may be difficult to keep up with. Geographic expansion, product extensions and even faster marketing and social media campaigns can take their toll. The designer may not be able to live up to the sexy, youthful or glamorous hallmarks the brand is supposed to symbolize. Most investors have an expectation that the designer will continue to epitomize the brand, to “be” the brand, but eventually the designer ages out of the relevant consumer demographic. You can only take a namesake brand with a living figurehead so far.
So how do you quantify all of these risks in a way that an investor can appropriately — read: mathematically — evaluate or that an investing public, if an IPO is the endgame, understands? Actuarial tables aside, it’s very, very difficult. That’s why valuations can reflect not just financial fundamentals, but inherently vague intangibles related to the designer and his or her emotional stability, family situation and internal drive.
Advisers who practice in the fashion industry must take these diverse elements into consideration not only when considering eponymous brand valuation, but also throughout the process of structuring and negotiating M&A transactions. Elements such as a right-of-first offer on the brand’s trademarks — giving the designer an ability to reacquire his name if a sale is proposed; a practical employment agreement and non-compete provisions, and deadlock mechanisms to deal sensibly with disagreements — all are potentially on the table in a well-negotiated deal. Moreover, properly walking the client through the risks associated with the transaction is vital. Real-world examples — both good and bad — are important to allow the designer to make an informed decision.
The most important component of any successful M&A transaction for a namesake brand is the fit and trust between investor and designer. That is hopefully established well before any negotiation begins and can aid in its process and successful conclusion. But the other practical alternative for a designer upon conception of his or her brand is to think long and hard about using their own name. If the design style and the provenance of the brand message are associated with the product, by any other name it will sell as well.
Douglas Hand is an accomplished corporate and transactional lawyer and a founding member of the law firm Hand Baldachin Amburgey LLP, which specializes in the representation of fashion and lifestyle companies such as Rag & Bone, 3.1 Phillip Lim, Elie Saab, Public School and Mansur Gavriel — to name just a few.