MILAN — Is Roberto Cavalli really going to sell a stake in his business to private equity?
According to sources, the answer will likely arrive before the summer, with the deadline for suitors to submit bids for the Italian fashion house slated for mid-May.
"People are waiting to see what Cavalli wants to do," a person close to the deal told WWD on condition of anonymity.
Merrill Lynch, which is advising on the sale, distributed a formal memorandum to interested parties in April, valuing the company at 1.4 billion euros, or nearly $2.2 billion at current exchange — 14 times Cavalli's projected earnings before interest, taxes, depreciation and amortization for 2008, sources said.
Cavalli has not released official results for 2007, although EBITDA for the year is believed to be around 86 million euros, or $118 million at average exchange, on revenues of 238 million euros, or $326.2 million.
WWD understands that, of some 15 private equity houses contacted, Apax Partners, Blackstone Group Holdings, Candover, The Carlyle Group and Cinven are preparing bids.
Of these, only Carlyle has confirmed its interest. The others and Cavalli declined to comment.
Permira, which acquired the Valentino Fashion Group last year, is also said to be in the mix, although Gianluca Andena, co-chief executive officer of Permira in Italy, told Italian financial daily Il Sole 24 Ore in March any such deal "could be premature."
A person familiar with the matter raised further doubts about Permira's interest, telling WWD, "Even if Cavalli is a fantastic company, it would be difficult [for Permira] to manage [VFG and Cavalli], and designers are often egocentric."
Permira declined to comment on the speculation.
Cavalli has spoken for 18 months of possibly selling a stake in the company he set up more than 40 years ago in order to fund the next phase of growth. His profile has risen higher and higher over the last few years as the designer has expanded his distribution, opened more stores and, in 2007, linked up with H&M for a one-off collection that created mania from Manhattan to Tokyo.According to sources, the asking price is likely to be the sticking point for any prospective deal, with Cavalli originally having slapped a figure of 2 billion euros, or $3.12 billion at current exchange, on his business.
Indeed, Cavalli, who is understood to want to retain a majority holding, has already rejected a couple of offers valuing the business at around half that number, sources said.
In 2006, Saudi Arabian private equity fund SAB Capital submitted a bid for 60 percent of the fashion label, but an agreement was never reached.
However, with the current credit crisis undermining private equity firms' abilities to finance large deals at attractive rates, Cavalli could find it difficult to get what he wants.
"There is very little propensity [at the moment] to risky investments from financial institutions providing the credit part of these deals," said Claudia D'Arpizio, a partner in the luxury goods practice of consulting firm Bain & Co., referring to private equity activity in general.
"But I still see a lot of private equity interest in [the luxury goods] sector because it is still one of the most attractive in terms of market growth and profitability....[Private equity companies] feel they can do a turnaround and increase value in this sector," D'Arpizio told WWD.
Bain expects the luxury market to grow 7 percent in real terms this year and 1 to 2 percent in nominal terms because of the strong euro.
With bids for Cavalli expected to be conservative due to the lack of cheap financing, sources said companies would likely make offers that look good on paper while structuring the deals to require less cash. They could also seek majority control.
Sources also speculated whether the flamboyant Cavalli would be able to work with a private equity company. At least one potential bidder is evaluating whether to oust Cavalli should any deal go through, a person involved said.
A similar move is believed to have been behind Valentino's retirement from his label earlier this year, with his services rumored to be surplus to Permira's requirements post-acquisition. Alessandra Facchinetti has since taken the creative reins.
However, D'Arpizio said private equity companies and fashion entrepreneurs could and should work together, where possible."[Designers] need to find the right chemistry with the new eventual ownership. But I also think the private equity firms need to understand....There are many areas where they can bring value and there are some areas where they need to trust the creative people, the entrepreneurs. [Private equity investors] need to work together [with designers] to supplement where there is a lack of professional competency without touching the product, the creativity or the areas where the current entrepreneurs, and in particular the designers or creative people, are strong," she said.
D'Arpizio added the industry dynamics were difficult to manage, but that if savvy private equity operators could bring in the right management team, "they can really add value to the companies.
"When companies grow, there is value for everyone," D'Arpizio said.
Cavalli is said not to be eager to sell, but does have management issues.
The question, it would seem, therefore, is, as one source put it, "Is Roberto Cavalli willing to take a lower price than he expects if he sees the right management in front of him?"
In his new book “Hollywood Royale,” Andy Warhol’s Protégé Matthew Rolston celebrates the Eighties revival of Hollywood glamour. Featuring more than 100 portraits taken by Rolston from 1977 to 1993, the book contains photos of icons like Michael Jackson, Cyndi Lauper, and @drewbarrymore, pictured here in 1991. “Hollywood Royale,” out today, will be accompanied by an exhibition opening at Los Angeles’ Fahey/Klein Gallery on March 1. #wwdeye
"Nowadays when life is not so happy with everything going on in the world, I think people come to me for a little bit of whimsy and color and fun." - Designer Rebecca De Ravenel on her cult-favorite jewelry line. (📸 : @vsteves) #wwd40
“Everyone is talking about how the retail industry is struggling, but I think it’s an incredible time because brands who are doing something different and innovative are setting themselves up for the future,” said @adamgoldston, who founded the luxury athletic brand @apl with his brother @ryangoldsten. The Goldston’s are part of WWD’s 40 under 40: a group of industry notables. See the rest of the list on WWD.com. (📷: @vsteves) #wwd40
@eyeswoon blogger Athena Calderone debuted her first-ever cookbook, “Cook Beautiful,” which is heavily centered on the presentation and visual expression of food. Pictured here are her miso glazed carrots from the book. Get the recipe on WWD.com. (📷: @johnny_miller_) #wwdeye
“It’s passion that helps get anybody to a certain point and it’s what’s propelled me,” said Kith founder @ronniefieg, one of WWD’s 40 under 40: a group of industry notables who are changing the face of retail, fashion and beauty. Fieg, who opened a Manhattan flagship on October 7, began his career at age 13 as a stock boy and salesman for footwear chain David Z. “I think staying true to [my] beliefs, hard work and passion have gotten me to where [Kith] is today.” See the rest of the 40 at WWD.com. (📷: @vsteves) #wwd40
25-year-old @samweaving is about to break out this fall, starring in Netflix’s horror film “The Babysitter,” fittingly out today on Friday the 13th. That’s not the only place you’ll be seeing her, though — Weaving’s got a role Showtime’s “SMILF” and another alongside Frances McDormand and Woody Harrelson in “Three Billboards Outside Ebbing, Missouri.” Though she’s got a full plate at the moment, there’s one role she’s got her eye on: Marilyn Monroe. “I’m a little too young at the moment, but it’s on my bucket list,” the actress told WWD (📷: @dandoperalski) #wwdeye
BFF's Poppy Jamie and Suki Waterhouse celebrated the launch of their bag line Pop x Suki at Nordstrom last night. "The line is really about our friendship, and how we are so different but complement each other," said Waterhouse. 👯 (📷: Katie Jones) #wwdeye
After designing the new @louisvuitton and @bulgariofficial flagships and a @chanelofficial boutique opening in Japan, @petermarinoarchitect has another project on his plate: The Lobster Club. Located in the Seagram Building, it’s the famed architect’s first restaurant project in New York, serving up modern Japanese brasserie-style cuisine. Bronze hues, bespoke material detailing, blush and chartreuse tones and a heavy emphasis on Picasso can be seen throughout. Mark your calendars for Nov. 1 for the much-anticipated opening. (📷: @clint_spaulding) #wwdeye
Did you know: @carlychaikin of "Mr. Robot" has been painting for about a decade? The actress, who plays Darlene on the show, is a self-taught artist who lists Salvador Dalí and Chuck Close as some of her idols. Chaikin told WWD that painting is a form of meditation for her — A much-needed one given the intensity of "Mr. Robot." See a piece Chaikin is working on at WWD.com (📷: @jilliansollazzo) #wwdeye