Permira’s on the prowl in fashion and using its experience at Hugo Boss as a calling card.
The private equity firm picked up Boss as part of its 2007 purchase of Valentino Group, ultimately investing a combined 1.1 billion euros, or $1.2 billion at current exchange, in the companies. Valentino was sold off five years later and the investment in Boss was finally unwound last week. All told, Permira turned its investment into 2.5 billion euros, netting a profit of 1.4 billion euros, or $1.51 billion a current exchange.
Now the international investment house wants to repeat that trick and is looking at companies valued at as little as $200 million and as much as $2 billion and more. The firm is working off a fund of 5 billion euros, or $5.41 billion, and at the upper end could put about 500 million euros, or $541 million, to work on a fashion company.
Multiple sources said the investor was working hard to buy shoemaker Stuart Weitzman, but ultimately lost out to Coach Inc.
The firm also reportedly was among those chasing a majority stake in Roberto Cavalli.
John Coyle, partner and head of Permira’s New York office, said there are plenty of targets in fashion.
“Our pipeline’s never been better,” he said. “We see a couple of interesting situations at the upper end of the valuation levels and these are public companies. We’re busy.”
Permira’s candidates generally fit into two broad categories:
• Another Boss, or a company with an international presence that isn’t performing as well as it could and is in the midst of a transition (i.e. converting from a wholesale business model to more omnichannel approach).
• A brand that is “considerably bigger than the business” that is closely held and needs capital to get onto a bigger stage.
Many of the possibilities are companies with a European business that might have a store in New York or sell to a few department stores, but have yet to really expand in the U.S.
“We’re focused in on ‘A’ malls, premier locations in the United States,” Coyle said. “So we want somebody playing in that market and the equivalent of that online and in catalogue.
“There are different levels of fashion,” he said. “The very highest levels, haute couture, that’s a hard place to play sometimes because it’s as much about art as it is about commerce. One step down from there, there’s this nice intersection of beauty and art and capitalism and we’ve done well in those situations.”
Permira’s willing to pay up to play in fashion.
“In most scenarios, you’re going to pay a double-digit EBITDA multiple,” he said. “The closer to 10 [times] the better. For the right situation, we’re not shy about paying what’s required.”
He said the investment firm is careful to not load too much debt onto a company while expecting big growth.
When a private equity investment in fashion flops, typically it’s because the investor takes too much money out and leaves the company struggling to pay off debt instead of focusing on expansion.
Boss has fared well under Permira, and since 2007, the company’s earnings more than doubled while sales grew by nearly 1 billion euros to 2.57 billion euros, or $3.42 billion, last year.
Martin Weckwerth, a partner in Permira’s Frankfurt office, said much of that was owed to the brand’s switch to a more balanced distribution. Retail sales have grown from 25 percent of the total, to 51 percent. Boss’ store fleet grew from around 200 to more than 1,000 during the private equity firm’s tenure.
“Fashion retail today is the presentation of looks, it’s the presentation of lifestyle, it’s the presentation of the story behind the product, behind the look,” Weckwerth said. “And in order to make that true for the customer, you have to basically control the presentation of the product.”