Bankers insist that buyouts, takeovers and mergers are like snowflakes—each deal is unique, supported by its own delicate structure.
This story first appeared in the November 11, 2013 issue of WWD. Subscribe Today.
And that’s true, especially if it’s your job to bring together boards of directors with deep-pocketed investors. Close in on a deal, it’s all about alchemy—a mesh of debt-raising prowess, a finely tuned pitch on how one plus one equals three, the fine art of getting one side to give up their jobs for the greater shareholder good, while convincing the other side to write a check with as many as 10 zeros.
Further out, though, trends do emerge—which categories are hot, who’s doing the buying and why they are after certain companies and not others.
And there are plenty of deals to be divined from tea leaves. Pambianco’s study of mergers and acquisitions in the fashion and luxury sector found 81 deals in the first nine months of the year, up 8 percent from 2012 and nearly 40 percent from 2011.
Here are some of the key themes on the Dealwatcher radar:
BE LIKE MIKE: Michael Kors and his blockbuster 2011 IPO still to hold great psychological sway over the market.
The thinking among other companies with a designer-accessories bent is simple and goes like this: If Michael Kors Holdings Ltd.—which excludes the brand’s business in China—is worth $15 billion, what about me?
Kors’ success has many looking for Tory Burch to make a move to go public sooner or later. In the same vein, Fifth & Pacific Cos. Inc. inked a deal to sell Juicy Couture and is still trying to off-load Lucky Brand so it can fuel Kate Spade.
And now, Marc Jacobs is getting into the game. The designer left Louis Vuitton to pave the way for the public offering of his own brand in the next few years with the help of business partner Robert Duffy and Bernard Arnault, chairman and chief executive officer of LVMH Moët Hennessy Louis Vuitton.
When WWD asked if the Kors’ IPO brought the issue to the fore, all three chimed in.
Jacobs: “Has Michael Kors been successful?”
Duffy: “To be honest, we’ve talked about this for a few years, not knowing that Michael was going to do what he was going to do.”
Arnault: “We have some familiarity with the stock market.”
And the designer market, as well. LVMH is grooming the next generation, investing in J.W. Anderson and Nicholas Kirkwood.
Across the street, Kering is doing the same with investments in Joseph Altuzarra and Christopher Kane.
Experts see more deals in the luxe space.
“I don’t think the designers have come out of their shell yet,” says Mike Moriarty, partner at A.T. Kearney. “For the past couple of years, they’ve just been trying to survive. They need to grow, and to grow you need capital, and to get capital you need either a backer or an acquisition, so something’s got to happen. There’s a lot of women out there who haven’t bought a nice pair of shoes in two years, so the sector itself is going to do just fine.”
PRIVATE EQUITY—FUNDING THE FASHION RISK: The big-time private-equity players are feeling fashion frisky and taking a look at smaller deals than they have in the past—think hundreds of millions and not necessarily billions of dollars.
Giant KKR & Co. took a 65 percent stake in the Sandro, Maje and Claudie Pierlot fashion chains in April for a reported 650 million euros, or $853.4 million. And KKR appears to be steering more of its affections toward fashion. Sources said the investor teamed with Saks Inc. to take make an unsuccessful run at Neiman Marcus Group this summer and also considered buying The Jones Group Inc.’s footwear portfolio, which includes the Stuart Weitzman and Kurt Geiger brands.
“A lot more private-equity firms have gotten comfortable with fashion-related deals, whereas several years ago, more private-equity firms were too concerned about fashion risk,” says William Detwiler, a partner at merchant bank Three Ocean Partners. “People have made successful investments in shoes and accessories, which maybe are viewed as not having the same risk as apparel.”
THE INTEREST IN INTEREST RATES: The Federal Reserve has maintained rock-bottom interest rates since 2008 and has been pumping money into the economy to shore up growth—making it cheaper to borrow money. While no one thinks the go-go days are back, the Fed had indicated that it’s ready to ease off and let interest rates creep up.
So the time to fund a deal of scale might be now. The ease of financing helped Ares Management and the Canada Pension Plan Investment Board ink a $6 billion deal to buy Neiman Marcus Group. And Hudson’s Bay Co.’s Richard Baker turned to the debt markets to help finance his $2.9 billion deal to take over Saks Inc. and put Saks Fifth Avenue, Lord & Taylor and Hudson’s Bay under one corporate roof.
GOING TO THE PUBLIC: Marc Jacobs is just the latest to consider opening his business up to the world.
Chinese e-commerce giant Alibaba is looking to list in the U.S., Kellwood Co. is readying an IPO for Vince, e-commerce player Zulily Inc. has filed its paperwork, Moncler SpA is prepping a listing in Italy and Bonmarché intends to apply for an offering in London.
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Of course, IPOs are a double-edged sword—they help companies raise money to pay back early investors or juice growth, but they also force brands to lay bare their financials and to keep pushing for growth.