MILAN — There was “a boom” of M&A deals in 2018, with Europe leading in terms of sheer numbers, according to the Deloitte Global Fashion & Luxury Private Equity and Investors Survey 2019.
“This year the luxury industry continues to be a fertile ground for investors, with a significant increase of deals compared with 2018,” said Elio Milantoni, partner of Deloitte Financial Advisory & Corporate Finance. “In particular, the two sectors that have shown an important increase in M&A volumes are cosmetics and fragrances, and hotels, confirmed as the most interesting areas for investors in 2018.” Milantoni said investments next year are also focused on the cosmetics and fragrances sector, together with the apparel and accessories businesses, underscoring the importance of personal luxury for private equity funds.
M&A deals last year totaled 265, a 22 percent increase compared with the previous year. Globally, the luxury hotel sector was the main driver, registering an increase of 29 deals when compared with the year prior for a total of 75.
Investments in personal luxury goods increased, led by cosmetics and fragrances, representing 17 percent of the total, and with 44 deals last year, up 57 percent.
Some examples last year include TPG Capital making a minority investment in makeup brand Anastasia Beverly Hills, buying 38 percent of the business for what sources indicated was around $1.3 billion or Jessica Alba’s Honest Co. getting a $200 million investment from L Catterton, and Procter & Gamble’s acquisition of First Aid Beauty for an estimated $250 million, as well as L’Oréal’s buying ModiFace.
Apparel and accessories M&A’s totaled 73 last year, accounting for 28 percent of the total and decreasing by four units, while watches and jewelry, representing 11 percent of total, were down by one. Last year saw Michael Kors Holdings acquire Versace and change its name to Capri Holdings and Fosun taking a majority stake in Lanvin, for example.
The study pointed to an unstable political scenario, increasingly protectionist governments and “the more and more pervasive use of advanced and digital technologies” that all impact the business models in the luxury segment.
Geographically, Europe led the way with 41 additional M&A deals, “the only area that has seen a significant increase in fashion and luxury operations in 2018,” while North America and the Asia-Pacific regions were stable, although “future expectations are positive also in Asia, the Middle East and North America,” contended Deloitte. Japan and the Asia-Pacific market registered two additional deals, respectively.
Investors expect that the growth of the industry in the next three years will be stimulated by the Asian and Middle Eastern markets, with growth rates that could surpass 10 percent on a yearly basis. Growth in North America is expected to be “contained,” while investments in Europe, Latin America and Japan are forecast to be stable.
“In 2018, strategic investors led M&A’s with an increase of 42 deals compared with 2017 and operations, focused especially on apparel and accessories and hotels,” Milantoni said. “Financial investors, with five additional operations compared with the previous year, represented 44 percent of bidders, of which the majority comprised private equities and venture capitalists.”
Investors continue to be optimistic, believing the luxury market will grow between 5 and 10 percent per year.
Main operators in the personal luxury goods area are seeking to reach a compound annual growth rate of about 4 percent in the full years 2018-21. The other luxury sectors are expected to reach a compound annual growth rate of about 6 percent in the same period.
In the next three years, said Milantoni, cosmetics and fragrances, furniture and digital luxury goods “could be the sectors to register the highest performances with a growth of more than 10 percent.” Apparel and accessories and “experiences outside one’s home,” which include hotels and restaurants, are expected to log in a slower yet still positive performance, with a growth of between 5 and 10 percent. On the other hand, watches and jewelry, yachts and selective retailing are expected to remain stable and investors expect a slowdown in the growth of the cars and private jet markets, stated the study.
According to the survey, 70 percent of the investment fund managers that were interviewed, are mulling investments in the luxury market in the next few years. Also this year, 79 percent of investors intend to invest in both the apparel and accessories and cosmetics and fragrances sectors, followed by furniture (57 percent), watches and jewelry (36 percent ) and selective retailing (29 percent).
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