j.p. morgan investment bank

Digital disruption. Chameleonlike consumers. Finicky investors.

The reasons to make big changes are many and varied in fashion, where industry giants are buying, selling and even spinning their way off into the future.

When corporate titans are deciding which way to go, they call in the investment bankers, who do everything from drum up financing for a deal to project whether Wall Street will give a multibillion-dollar acquisition the thumbs up or thumbs down.

In the popular consciousness, bankers exist as bean counters of one sort or another — or, in the wake of The Great Recession, rapacious financiers looking to profit off of others woes. But it’s an image that doesn’t really fit the investment banking crowd. They often present as buttoned-up, yes, also as savvy wheelers and dealers who know all the pressure points and are both strategically focused and very articulate — perfectly positioned to sway hearts and minds in the c-suite.

Investment banking is a big-money job generally characterized by long hours, intense pressure, ceaseless travel and — when a deal succeeds — outsized fees.

Where consumer bankers used to flock to retail and apparel, finding brands to serve up to the-then Liz Claiborne Inc., Jones Apparel Group or LVMH Moët Hennessy Louis Vuitton, they have largely moved away from those kinds of deals in favor of hotter sectors, such as beauty, luxury or, in some cases, the disruptors. When there are retail transactions to be had, they are often on the distressed side of the business, like Edward Lampert’s deal to buy Sears Holdings out of bankruptcy, which ranked as the second largest deal in the industry last year, at $5.1 billion.

To see just whose advice is shaping deals that are remaking the industry, WWD teamed with Dealogic, which tallied the top 10 mergers and acquisition advisers last year in global fashion, luxury and cosmetics.

The ranking is based on the overall size of the deal the bank served as an adviser on, lending itself to overlap and some distortion since the largest deals often include advisers from numerous banks, although some play larger roles than others in any particular deal.

Here’s who came out on top.

J.P. Morgan's Erik Oken.

J.P. Morgan’s Erik Oken. 

1. J.P. Morgan

Total Deal Value: $7.9 billion

Deals: 4

Biggest Deal: Puma’s $5.9 billion Spin-Off from Kering

From Puma to Versace to Bally, J.P. Morgan managed to put itself at the center of some of the most fashionable dealmaking last year.

Erik Oken, global head of retail and consumer investment banking at J.P. Morgan, said part of the trick is to work with companies that “either dominate or have the potential to dominate their categories.”

“They’re all very smart companies with very good strategies, very good track records of doing acquisitions and on the margin they need some advice, some capital,” Oken said.

The work has given him an up-close view as fashion’s top names think about the way forward and decide how to put billions of dollars to work as they ready themselves for what’s next.

“There’s an existential question about the younger consumer and will they be interested in buying traditional luxury in the way that preceding generations were,” Oken said. “Luxury means something different to them. They tend to focus on heritage and story, but it doesn’t have to be an ancient story that traditional luxury has to be.

“There is an acknowledgement that there is a transformation going on in luxury and there are many long-time businesses that will likely sell,” he said.

But those transactions for storied brands will come in a trickle, not a deluge. “You’ll see a couple of those deals a year,” Oken said.

Although he declined to give specific examples, Versace was clearly one of those brands and its buyer, Capri Holdings, which also owns Michaels Kors and Jimmy Choo, is one of the industry’s new empire builders. J.P. Morgan advised Capri, then known as Michael Kors Holdings, on the $2.2 billion Versace deal.

But almost every multi-brand company is now reevaluating, which reflects both the opportunities in the market and the natural churn of big business.

“People are saying, do I have the right portfolio?” Oken said. “It’s almost inconceivable that you would have the same portfolio and the same strategy that you would have for 20 years.”

Some brands are dynamic enough to change with the times. “Other situations, you have to scratch your head and say, ‘Has this brand run its course?’” he said. “Maybe it should go into a different channel.”

It’s a thought process that promises to continue opening up opportunity for buyers and sellers (and bankers).

Lazard's Alexandra Soto.

Lazard’s Alexandra Soto. 

2. Lazard

Total Deal Value: $7.2 billion

Deals: 12

Biggest Deal: ELS Investments’ $5.1 billion acquisition of Sears Holdings Corp.

Luxury started out 2018 at a high, with valuations soaring right up until a midsummer reckoning.

The pullback hurt. But now it seems like it could have been part of a broader revaluation of the sector and something of a reversion to the mean.

“There’s definitely been a massive realignment of valuation,” said Alexandra Soto, chief operating officer of financial advisory at Lazard, who added that companies across the soft luxury sector are still trading “three- to five-turns lower” today.

But Soto — who in June will add the title of group executive, human capital and workplace innovation —  said the valuations today are more in keeping with the “midcycle average” over the past 10 to 15 years.

“We’re back to more normal levels today,” she said.

Despite the growth concerns that hit luxury last year, the sector is still on an upward trajectory.

Soto said the Chinese consumer made up just 2 percent of luxury sales in 2000, but has grown to nearly one-third of the market today and could hit 50 percent by 2025.

But the gains from that growth trend have not been shared by all.

Soto pointed to a “polarization of success” and said: “You have the winners and the ones that struggled. The ones that struggled couldn’t get the organic growth.”

That’s because the luxury business model is being disrupted, with “digital” and “experience” becoming the new bywords.

Despite those massive changes, Soto said many luxury players are “cash rich” and need to return money to shareholders or invest in a bigger way.

“The balance sheets are extremely robust across the sector, as are the cash flows,” she said. “On the acquisition side, money is very cheap, balance sheets are very de-levered, multiples are slightly more in-line with expectations.”

Still, good assets that are the right fit remain hard to find.

“There aren’t that many great companies that actually answer a strategic issue for the buyers,” Soto said.

When the stars do align, and a great company does come on the market and makes strategic sense, she said buyers “will pay a very high multiple.”

3. Goldman Sachs

Total Deal Value: $7 billion

Deals: 9

Biggest Deal: Michael Kors Holdings’ $2.2 billion acquisition of Versace

Investment banking powerhouse Goldman Sachs managed to be a little bit of everywhere last year, getting credit in Dealogic’s ranking for working on nine deals with a total value of $7 billion.

That included roles in the acquisition of Versace by what is now Capri Holdings, Differential’s deal to buy Global Brands’ North American licensing business, the sale of Helly Hansen and more.

Goldman Sachs declined to comment.

Moelis & Co.'s Andrew Shore.

Moelis & Co.’s Andrew Shore. 

4. Moelis & Co.

Total Deal Value $5.2 billion

Deals: 6

Biggest Deal: ELS Investment’s $5.1 billion acquisition of Sears Holdings

The red-hot market for beauty brands might be cooling down — for now — but there are still deals to be done in the sector.

Andrew Shore, who is managing director at Moelis & Co. and works in the beauty space, said, “It wouldn’t surprise me if, in the next five years, you see fewer brand sales and more sales of technologies and capabilities.”

That’s because the current crop of brands needs a little more time to mature and because the group of brands that fueled the last few years of dealmaking in the sector was especially strong.

“It was one of the greatest vintages ever,” said Shore, referring to the beauty brands trading hands over the past five years. “Unbelievable brands came to market.

“We’re still going to see some really good brands [arise], but what we need is a little more time for this current crop to grow so buyers see which ones are truly scalable,” he said.

The big strategic buyers that have fueled the market might also take some time to digest.

“Almost all of the companies have their bellies full,” Shore said. “That doesn’t mean that they won’t do things. When you’re hungry, you’ll eat anything. When you’re full, you’ll hunt when it’s opportunistic to hunt because it’s all about eating versus expending energy. That’s where we are today.”

Shore said there are plenty of digitally savvy startups in color cosmetics, skin care and the natural/organic area and that the big players will always have an eye out for the next big thing.

In the immediate future, look for more deals in augmented and artificial reality, which brands have been using to help customers try on new products virtually through their smartphones.

5. Rothschild & Co.

Total Deal Value: $5.2 billion

Deals: 15

Biggest Deal: Puma’s $5.9 billion Spin-off from Kering

Rothschild & Co., the secretive London-based investment bank, was one of several banks to get a piece of the action on the Puma spin-off last year, although it demurred when it came to going on the record with the specifics of its year in dealmaking.

The massive deal transferred Kering’s majority interest of the German sports brand to shareholders and freed the luxury powerhouse, which owns Gucci, to focus in on its core.

“[Kering’s] ambition is to continue to grow and develop its powerful ensemble of houses in couture, leather goods, jewelry and watches, leveraging on its high cash-flow generation and strong financial position,” the French giant said last year.

BNP Paribas' Muriel Petit.

BNP Paribas’ Muriel Petit. 

6. BNP Paribas

Total Deal Value: $4.9 billion  

Deals: 5

Biggest Deal: Puma’s $5.9 billion Spin-Off from Kering

“Skin is back,” said Muriel Petit, vice chairman of consumer, retail and healthcare at BNP Paribas.

After a boom in makeup deals over the past few years, Petit said the M&A market is now turning its focus to skin care, with a lot of eyes on premium products and Asia.

“There are several deals which are likely to happen in 2019,” she said, not divulging any further information as some of them are hers.

In terms of Asia, South Korea’s K-beauty market is the most buzzed about, but Petit said the “J-beauty” trend is also starting to garner more attention, although she noted that doing deals in Japan is more difficult.

“I must confess so far we have not seen deals,” she said. “Deals in Japan remain complicated, so we’ll see where it goes in terms of M&A.”

Petit advised L’Oréal on its 2018 acquisition of Korean lifestyle make-up and fashion company Stylenanda for an undisclosed amount, as well as The Estée Lauder Cos.’ deal to buy a minority stake in Have & Be Co., the Korean company behind skin care brands Dr. Jart+ and Do The Right Thing, in 2015.

Elsewhere, Petit thinks there will be more luxury deals this year and next year than in 2018, as well as spinoffs.

VF Corp. is spinning its jean and outlets businesses into a separate entity called Kontoor, while Gap Inc. is splitting itself into two publicly traded companies. One will be made up of Old Navy, while the other — a yet-to-be-named company — will consist of Gap, Athleta, Banana Republic, Intermix and Hill City.

At the same time, Barington Capital Group, an activist investment firm led by James Mitarotonda, is pushing for L Brands Inc. to separate the long-suffering Victoria’s Secret from Bath & Body Works, which is going from strength to strength.

“I’m a big believer that spin-offs will be a big scene in 2018 and 2019,” said Petit, adding that they take a long time to organize. She was involved in Kering’s spin-off of Puma last year.

“Puma was an easy one because Puma was already listed,” she said.

7. Credit Agricole

Total Deal Value: $4.2 billion     

Deals: 1

Biggest Deal: Puma’s $5.9 billion Spin-Off from Kering

Paris-based investment bank Credit Agricole was one of the banks that worked on Puma’s massive spin off last year.

According to Dealogic, it was the bank’s only deal in the global fashion, luxury and cosmetics sectors last year.

But Credit Agricole made that one deal count. By being on the team, the bank, along with the other bankers, was given credit for working on 12 percent of the total deal value in those markets for 2018.

Credit Agricole declined to comment.

Barclays' Brett Pickett.

Barclays’ Brett Pickett. 

8. Barclays

Total Deal Value: $2.7 billion     

Deals: 2

Biggest Deal: Michael Kors Holdings’ $2.2 billion acquisition of Versace

Versace is used to turning heads, but last year it was the brand’s sale to what is now Capri Holdings that was drawing attention. 

Brett Pickett, chairman of Barclays Global Consumer and Retail Group and one of the  key bankers on the deal, called it an “absolute win-win for both companies.”

“Versace is one of the most iconic fashion houses and families in Europe, accessing all of their partnership options, including the traditional European options, and choosing a heritage American company as its partner for the future,” Pickett told WWD. “That’s the first time that’s happened. I’m certain that every other independently, family-controlled fashion house in Europe took strong notice of the Versace family’s endorsement.

“Traditionally, the assumption might have been that the European luxury conglomerates were their only option,” Pickett said. “Now they know that’s not the case.”

The investment banker said fashion houses buy up brands to respond to an evolving market, gain diversity and to scale.

“Department stores are becoming less central,” Pickett said. “Brick-and-mortar retail is going to play less of a role overtime. The online channel is exploding and becoming habitual for young shoppers. China will continue to become the most important market. All of these trends are in favor of availability and price transparency, which creates a natural tension for luxury brands to navigate. During evolving marketplace periods, you tend to see people react through M&As.”

9. Nomura

Total Deal Value: $2.3 billion

Deals: 7

Biggest Deal: Johnson & Johnson’s $1.1 billion buyout of C:iz Holdings Co.

It’s little wonder that Johnson & Johnson and Shinsegae were on Nomura’s radar last year given the strength of the beauty sector.

“People are still inspired to create beauty brands,” said Simeon Siegel, senior equity analyst at Nomura, whose expertise includes retail. “Whereas the notion of creating the next up-and-coming apparel brand has become much less appealing. From a business perspective, creating new apparel companies got hard and it got boring.

“If you kind of layer on all those different pieces, you see more excitement and venture dollars get pumped into the beauty space,” he added.

In 2018, Nomura was there to assist in a number deals in the beauty and cosmetics space. The bank advised Affinity Equity, one of Asia’s largest private equity firms, when it acquired Shinsegae, the Korean department store franchise that is also one of South Korea’s biggest retailers.

The deal came in the midst of the ongoing global obsession with Korean beauty products and Shinsegae’s plans to amp up its online presence to reach new markets around the world.

Nomura also advised Ci:Z Holdings Co., the Japanese cosmetic and skincare marketing and development company, when Johnson & Johnson consolidated its control of the business.

“Health and beauty consumers are actively seeking science-based innovation to improve their skin,” Jorge Mesquita, worldwide chairman of Johnson & Johnson’s consumer business, said at the time.

Jefferies' Shaun Westfall.

Jefferies’ Shaun Westfall. 

10. Jefferies

Total Deal Value: $1.9 billion     

Deals: 3

Biggest Deal: Platinum Equity’s $1.3 billion acquisition of Jostens Inc.

Jefferies is also getting in on the action in the beauty space.

In 2018, the investment bank worked on deals with Paris Presents, as it became part of the Freeman Beauty portfolio, as well as with skin care and wellness brand Elemis, when L’Occitane International SA bought the company for $900 million.

“Skincare is especially hot,” said Shaun Westfall, managing director at Jefferies in the consumer investment banking group. “We’re in a repeat, repurpose and replenish mode. There’s less of a fashion component there.”

Westfall pointed out that the rise of influencers and social media has helped bring added venture capital money to the wellness and skincare space. Influencers, regardless of what they’re wearing, he said, need to look healthy and fit. Skin care and wellness are at the core of this movement.

“They’re promoting a lifestyle, not makeup,” said Westfall, who leads Jefferies’ efforts in its beauty, personal care and wellness initiatives.

In its March conference call with analysts, Ulta Beauty said it was focusing on “clean beauty.” Moreover, the success of Ulta’s mass cosmetics, the best-selling category in the quarter, was driven by influencer campaigns.

With social media, companies, both big and small, can advertise for virtually nothing and target individual shoppers.

“Online you’re looking for an influencer that says, ‘This is a good product. [The influencer] uses it so so should you.’ That’s your virtual trying on,” Westfall said.

Some recent emergents in the space include Colourpop, Kylie Cosmetics by Kylie Jenner, Fenty Beauty by Rihanna and Nyx Cosmetics. Westfall pointed out that most of these brands are slightly under premium price points, making them competitive so that big groups like L’Oreal and Estee Lauder Cos. Inc. have to take notice.

Overall, Westfall said, “It’s a very healthy climate for companies that have differentiated products and have scale and are digitally driven.”

load comments
blog comments powered by Disqus