If fashion were a casino — as it is for at least some deep-pocketed players — it’s come time to think about making bigger bets.
The deal machine is unusually well primed.
• Business is good with brands enjoying pricing power and shoppers still keen to buy as the pandemic shifts into a new phase.
• Stock prices are still near their all-time highs, giving sellers the confidence that if they cash out now, they’re getting a good deal.
• Interest rates are set to move higher as central banks tamp down inflation, making it more expensive to borrow billions to complete that big deal.
For the connoisseur of fine brands, interest rates might not be their first thought when it comes to dealmaking — but certainly cheaper money doesn’t hurt.
François-Henri Pinault, chairman and chief executive officer of Kering, told analysts last week that: “Even if interest rates are going up, the real interest rates, if you take off inflation, will remain, in my opinion, very attractive going forward. And in our rationale for M&A, it’s not based on interest rates. It’s more based on what we’re capable to do with the acquisition in the future that makes the decision of buying or not buying.”
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And the luxury titan made clear that there was room for his company — which owns Gucci, Saint Laurent and a host of others — to do a deal.
“We are always very active at looking at opportunity,” Pinault said. “Our portfolio is not yet perfect. We could reinforce our portfolio going forward. So we will very actively look at a potential acquisition if they make sense in terms of our portfolio strategy.…In M&A, there are three key values. It’s patience. It’s about being very opportunistic and most importantly, being very lucid.”
At a press briefing, Pinault elaborated that he sees jewelry as an expansion opportunity, and it “could be with existing brands or acquisitions.”
During the pandemic, Pinault’s chief rival, LVMH Moët Hennessy Louis Vuitton chief Bernard Arnault, made his biggest deal ever in jewelry, buying Tiffany & Co. in a start and stop process that ultimately saw the iconic American brand acquired for $15.8 billion.
Pinault isn’t alone in the hunt, though — there are plenty of others keeping a close eye on the market.
John Idol, chairman and CEO of Versace, Michael Kors and Jimmy Choo parent Capri Holdings Ltd., has been open about his search for a fourth brand.
“If something becomes available, we will absolutely be involved in those dialogues and conversations,” Idol said this month. “We’re interested in expanding our luxury portfolio. That will typically mean that it’s basically only European brands that we’ll be looking at.”
Michael Kliger, CEO of luxury website Mytheresa, may have said further growth would come from full-price sales instead of acquisitions, but he left the door open, noting the company was “very well-placed” to buy another company if the right opportunity arose.
Luxury is on the prowl, for sure. But it’s not just the well-heeled taking in the market and sensing it’s time — some of that interest is coming from outside buyers looking to make a big move.
Kohl’s Corp., beset by activist investors, has tapped Wall Street heavyweight Goldman Sachs to field interest from would-be buyers.
The dealmaking potential is so deep in fashion right now because, in addition to the macroeconomic incentives to sign on the dotted line, companies are still racing to keep up with a consumer world changing at light speed.
Bryan Eshelman, a managing director in AlixPartners’ retail practice, said: “We’re at a moment — a COVID[-19]-accelerated moment — where we’ve hit a tipping point. E-commerce used to be of service to the stores and for many retailers, it’s the opposite now.”
(AlixPartners is on the front line of this, having been tapped by Macy’s Inc. to help it explore options, including possibly splitting macys.com away from its brick-and-mortar operations).
The same trend toward digitization is also feeding the need for branded companies to flesh out their portfolios.
“Brands matter even more in an e-commerce world,” Eshelman said. “You don’t have the shopper physically comparing products in your store, so having the brands that drive traffic and drive conversion is super important. It’s wise of anyone who’s an owner of brands to continue to acquire that aspect of the business.
“The other shoe that’s going to drop here with inflation and cost pressure is just the need to drive efficiency in the back end of the business,” Eshelman said. “Having scale and taking advantage of that scale…is a strategy retailers may now just be tuning into.”
That doesn’t mean buying to get bigger is easy, particularly when it comes to acquiring businesses from a founder who may, or may not, be ready to let go.
“It’s an interesting and tricky mixture of business and ego and brand essence, that tends to be the founder in a lot of these cases,” Eshelman said.
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