Fashion dealmakers came into 2018 licking their chops — and for the first time in a long while, they aren’t ending the year still hungry.
Versace found a new home at Michael Kors Holdings; Stella McCartney decided to go it alone and cut ties with Kering; Thom Browne linked with Ermenegildo Zegna Group; Asian backers invested in Western fashion with deals for Lanvin and Mary Katrantzou; Tory Burch bought out its longtime backer Tresalia Capital, and struggling designer brands such as Proenza Schouler found new backers for another go at it.
Others, including Repetto and Sonia Rykiel, have been said to be exploring the idea of bringing in new backers but still have to connect.
Mergers and acquisitions are always on the menu in fashion, but the table was set for a feast this year as a confluence of factors conspired to bring both buyers and sellers to the table.
For starters, the stock market hit new highs in January and then immediately fell back only to test those highs in October and fall again.
The prices for both public and private deals are dictated in large part by the public market, with sellers looking to get the best possible valuation by waiting for the top of the cycle. (Long-term investors and owners caring for family businesses tend to have a well-developed sense of their own company’s value and sometimes need some jitters on Wall Street to truly reevaluate.)
On the other side, buyers have been egged on by easy financing with relatively low-interest rates and by strategic need. With Gucci’s rocket-like growth at Kering showing just what can be done when a strong luxury brand is supported by the right infrastructure, many independently minded brands have finally agreed to team up.
There’s also a fair amount of competition for hot brands as the big look to get bigger. (Michael Kors Holdings and Tapestry Inc., in particular, are vying to become the next multibrand powerhouse.) And the really big ones are looking to trim unneeded businesses so they can double down on the growth machines. (Kering and VF Corp. are cutting back their portfolios to focus on big ideas.)
It’s the empire builders right now that are most aggressively seizing the moment.
Just over a year after inking a deal to buy Jimmy Choo for $1.2 billion, John Idol, Kors’ chief executive officer, agreed to plunk down $2.1 billion to buy Versace. And when the deal closes, Kors will signal the shift in its outlook by renaming itself Capri Holdings — taking a page from the playbook of Coach, which became Tapestry Inc. after buying Kate Spade.
Kors paid 22-times EBITDA, or 2.5-times sales, for Versace — a pretty penny considering Kors itself was valued at nine-times EBITDA when the deal was struck in September.
Versace is on track to post revenues of $850 million this year, but Idol is aiming to use his company’s infrastructure and expertise to send it much higher — and fast.
“We have the goal of $1.2 billion in the next three years; it’s a pretty rapid growth in a very short period of time and we will focus on doing that first,” Idol said. “We’ll let the consumer speak to us on when we get to the $2 billion [level]. It’s very within our reach, we know that, we see it and you can measure that [against] other luxury and heritage brands from Italy.”
Teaming up can be smart.
“Having several brands in the same group means you have a mirror,” noted HSBC in a report. “If one brand excels at a particular topic, e.g. digital, retail, training, [customer relationship management], others can learn from it. If a specific brand has exceptional managers, some may step up to run others in the portfolio. In other words, the presence of ‘sounding boards’ can be very powerful.”
While Idol sees supercharged growth, Donatella Versace and family saw a chance to both buttress the brand with more corporate infrastructure and to cash in.
Other fashion families are making the same calculation and at least trying to make a move.
After a lot of back and forth, George Feldenkreis prevailed over rivals and took Perry Ellis International Inc. private in a $437 million deal that came 51 years after he founded the company. The Nordstroms weren’t so lucky. They tried to take Nordstrom Inc. private, but fell short in March.
Others are looking at the public markets and trying to go the other way.
The Haas family is said to be preparing to take Levi Strauss & Co. public again early next year, providing a way for stockholders to cash out.
And for a brief moment, Farfetch made the public markets look appealing with a September initial public offering that soared — and left the luxury platform with a valuation of more than $6 billion.
But with the stock market now reeling — finally — over the U.S. trade war with China and worries over how long the economic growth will keep up, any future offerings are being seen as unsure propositions.
Just after Farfetch charged onto the stage, Revolve revealed its own offering. Astute observers are treating Revolve as a bellwether. If it’s able to follow through on its quest to go public, other techy fashion companies might follow suit. If not, they will have to sit on the sidelines a little longer and raise more private money, if possible.
Regardless, tech as well as luxury is expected to continue to drive the deal market.
In Europe and Asia, activity this past year was powered by the luxury giants’ desire to clean up and re-focus their portfolios — and by smaller investors spotting opportunities in the fashion space.
Both Kering and Compagnie Financière Richemont shed smaller, non-strategic brands and put the emphasis on scale.
Kering spun off its stake in Puma and agreed to sell its holdings in Stella McCartney and Christopher Kane back to their founder-designers. It also shuttered the Tomas Maier brand after that designer exited Bottega Veneta and put action sports brand Volcom on the block.
With Gucci’s robust momentum behind it, Kering is now looking for marquee brands that can potentially deliver big top- and bottom-line growth. Of late, industry and financial sources have said it is eyeing Valentino, which is owned by Qatar-backed Mayhoola for Investments.
Asked earlier this year about Kering’s strategy switch, Luca Solca of Exane BNP Paribas said the French giant “is very seriously and very diligently streamlining its brand portfolio,” concentrating on its core brands and building a pure play luxury goods conglomerate.
“Smaller brands demand a lot of attention and may not provide sufficient upside to justify committing precious senior management resources. I see it also likely that these moves may be a preamble to more meaningful luxury focused M&A down the road,” he added.
Richemont has been taking a similar tack, selling the leather goods brand Lancel to Piquadro and buying Watchfinder.co.uk, a pre-owned premium watch specialist.
The Watchfinder purchase signaled Richemont’s big ambitions in the digital space and came on the heels of the Swiss giant’s purchase of the remaining 49 percent of Yoox Net-a-porter Group that it didn’t already own.
In October, Richemont also revealed plans to team with Alibaba on a joint venture aimed at pushing Net-a-porter and Mr Porter further into the Chinese market.
“In a luxury industry that has been slow to embrace digital [or] e-commerce, we believe Richemont could emerge two to three years from now with one of the best platforms in the market, combining its own brands’ e-commerce capabilities with those of YNAP and Alibaba,” wrote Antoine Belge, global cohead of consumer and retail research at HSBC in a report this month.
Chanel, which owns a host of smaller companies including Eres, Holland & Holland and Barrie, bulked up its own digital credentials with the acquisition of men’s swimwear label Orlebar Brown in September.
“As a digital native brand, Orlebar Brown will enable Eres to strengthen its digital expertise and optimize its omnichannel distribution strategy. Orlebar Brown, on the other hand, will benefit from the retail experience and expertise of a long-standing player in high-quality beachwear,” the company said.
As Europe’s big names pivoted on strategy, Chinese acquirers swooped in to pick up brands.
Fosun International in February acquired a majority stake in beleaguered French fashion label Lanvin.
“Lanvin will leverage its strong fashion legacy and coupled with Fosun’s global resources will enter a new phase of expansion,” the two parties said in a joint statement.
Guo Guangchang, chairman of Fosun, added: “Not all brands can go through more than a century’s time and still shine and be admired like Lanvin. We feel honored to become its new partner and believe this globally renowned brand and its rich history has tremendous growth potential.”
Also expanding in Europe, China’s Shandong Ruyi has been building a new stable of luxury and fashion brands. Earlier this year, it added Bally to a bulging portfolio that includes SMCP, which is quoted on the Paris Stock Exchange; Aquascutum, and the Hong Kong-based Trinity Group, parent of men’s tailored clothing brands such as Gieves & Hawkes and Kent & Curwen.
Shandong is also a joint owner of The Carloway Mill in Scotland, one of the few remaining makers of Harris Tweed. It has close to 5,000 points of sale across six continents.
But the rush of buying and selling this year wasn’t limited to the big groups — or to fashion and luxury in particular. Smaller investors and companies were also on the prowl for investments.
Investor Wendy Yu made her first high-end fashion play earlier this year, taking a stake in the London brand Mary Katrantzou. Later in 2018, she also put her money behind Samantha Cameron’s new clothing label Cefinn.
“I not only see myself as an investor, but as an entrepreneur, adding creative values to special projects, offering advice and making introductions,” Yu said.
And Vaultier7, a specialist firm that launched last year, aims to invest in “challenger brands” and companies with revenues of between 3 million pounds and 15 million pounds. So far this year, it has taken stakes in cult sneaker label Axel Arigato, fashion web site The Modist and in the freshly made baby food brand Little Spoon.
As smaller companies like these take root and new partnerships mature and turn potential into results, these companies and others could find themselves seeding deals on the next level up and — maybe — someday growing into the powerhouses and dealmakers of tomorrow.