MILAN — After three years in the designer business, European private equity firm Permira is looking at cashing in on its investment in Proenza Schouler, and possibly Valentino, too, WWD has learned.

This story first appeared in the March 1, 2010 issue of WWD. Subscribe Today.

Although the company denied it planned to sell its interest in the labels, sources indicated that Permira has started to put out feelers, and several investment funds are said to have looked at the two fashion properties.

“Proenza Schouler is cool, and it would make sense to sell it while it’s so cool,” said one Milan source, cautioning, however, that it “may not be advantageous to sell Valentino now because of the economy and such a sluggish market.”

Another well-placed source here said Permira is “definitely” interested in parting with Proenza Schouler, but that “it is all very agreeable, as they are trying to find a way out and working on a possible deal together with the designers [Jack McCollough and Lazaro Hernandez].”

In addition, the source said the fund “is not really trying to make a gain from the sale. On the other hand, I believe the problem is that the brand is absorbing too much cash: It’s still a small business that requires a lot of investment to grow.”

It is understood Permira also may be willing to part ways with Valentino while retaining its interest in Hugo Boss, a significantly larger business. Valentino has struggled to map out a clear design direction since the retirement of the founder in 2008, although it is seen by various critics as gradually improving under Pier Paolo Piccioli and Maria Grazia Chiuri, who have been the label’s designers for the past two years.

Reached Sunday, a Permira spokeswoman denied Proenza Schouler and Valentino are for sale, but did not elaborate.

In July 2007, Valentino Fashion Group took a 45 percent stake in New York-based Proenza Schouler. McCollough and Hernandez own the remaining 55 percent with Shirley Cook, their firm’s chief executive officer.

Through its U.S. subsidiary, VFG spent $3.7 million for the stake.

At the time, Stefano Sassi, ceo of VFG, said the operation would bring prestige and future growth potential. McCollough and Hernandez launched the label in 2002 and quickly developed it into a hot international brand with their sleek and intricate designs, winning the Council of Fashion Designers of America’s Womenswear Designer of the Year Award in 2007.

A source said former Valentino chairman Matteo Marzotto steered the Proenza Schouler deal. “I believe he meant for McCollough and Hernandez to later become the Valentino designers,” said the source, noting Marzotto planned to expand the group with young and edgy designer labels. “It was a great arrangement — the group managed to secure a jewel brand at a very good price, but, once Marzotto left [two years ago], no effort was made to really grow it. At this point, it no longer makes sense [to keep it],” said the source.

In December, shareholders of Red & Black Lux Sarl, the holding company created by Permira and part of the Marzotto family when they bought VFG, committed to repurchase part of the company’s debt from Citigroup. As a result, VFG’s debt was cut by one-third to about 1.5 billion euros, or $2.09 billion. Another 100 million euros, or $139 million, was then earmarked for Valentino’s future expansion.

Also in December, Red & Black Lux reorganized the group’s structure, separating ownership of VFG, Valentino and its licensing arm from the Hugo Boss business. This step was made to achieve more strategic flexibility, but also “to take advantage of new opportunities or future partnerships,” said Sassi at the time.

Sources also see the separation of the labels as a smoother way to part with the Valentino brand. Valentino’s 2009 revenues are not available yet, but sources said the brand will report sales of 250 million euros, or $347.5 million, compared with 260.3 million euros, or $382.6 million, in 2008. Hugo Boss sales in 2008 rose 3 percent to 1.69 billion euros, or $2.48 billion.

Dollar figures are converted from euros at the average exchange rates for the periods to which they refer.

In 2007, Red & Black Lux bought VFG from the previous owners, another part of the Marzotto family that includes Matteo Marzotto, at the top of the market for an estimated $3.5 billion. Red & Black Lux has a 100 percent stake in Valentino and a 70 percent share in Hugo Boss.

In addition, VFG also controls men’s wear brand Lebole, and holds licensing deals for M Missoni and Marlboro Classics.

In 2008, VFG reported a net loss of 483.1 million euros, or $710.1 million, in 2008 as a result of costs associated with the consolidation of the group and a write-down in the valuation of the company’s brands.

The loss compares with a net profit of 29.4 million euros, or $40.2 million, in 2007. Excluding impairment charges and an asset devaluation of 498.2 million euros, or $732.3 million, the loss would have been 67.1 million euros, or $98.6 million, according to the group’s annual report.

In 2008, group revenues grew 2.8 percent to 2.2 billion euros, or $3.2 billion, compared with 2.1 billion euros, or $2.8 billion, the previous year.

Founded in 1985, Permira has raised funds worth 20 billion euros, or $27.1 billion at current exchange, in sectors ranging from chemicals, technology, media, telecoms and industrial products and services. More than a third of the investments have been in the consumer sector, from British fashion retailer New Look, European frozen food company Birds Eye Iglo and Spanish pizza chain Telepizza to Italian tile maker Marazzi Group.


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