VAL’S BIG DEAL
Byline: Samantha Conti
MILAN — Industry insiders agree on one point in the wake of news that Valentino is in talks to sell his business to GFT’s cash-rich industrial holding company, HPI.
In today’s global market, size matters.
“Critical mass is crucial, and if you’re a small company, it’s hard to gain it,” said Francesco Trapani, chief executive officer of Bulgari, the Rome-based jewelry and fragrance house.
Trapani should know. Earlier this year, in a bid to carve out a bigger slice of the world’s fragrance market, Bulgari signed an agreement with Ferragamo to set up two firms that will develop and market fragrance and bath lines under the Ferragamo and Ungaro labels. Bulgari was also a suitor for the Valentino business a few months ago, but the asking price was too high.
As reported, Valentino and HPI are in the first stages of talks regarding the sale of all or part of the Rome-based fashion house. HPI, which controls the designer apparel giant GFT SpA and sportswear maker Fila SpA, has signed a letter of intent to acquire the business for a reported $280 million.
The move is seen as an attempt by Valentino and partner Giancarlo Giammetti to cash out — while keeping their hands in the business. They’ll also get a small stake in HPI.
Neither Valentino, Giammetti nor HPI officials would comment on specifics of the deal, but HPI is expected to settle for nothing short of a controlling interest.
Whatever the motive of the designer and Giammetti for selling, the production and financial clout of HPI should enable the Valentino business to grow more rapidly.
Carlo Pambianco, a luxury goods consultant based here, said that in fashion, bigger is always better. “The market is bigger than it has ever been, so communication is more important than ever. Today, fashion houses need huge financial resources to compete. If Valentino were to open just one new boutique, it would cost 5 billion to 10 billion lire ($2.9 million to $5.7 million). The financial and physical resources required are enormous. Why not make a deal with a big partner?”
And industry experts agree the path that the 65-year-old Valentino has taken will be trod by more Italian designers in the future.
“Italy doesn’t have an LVMH or Vendome yet because design houses are still run by the first generation — a fiercely independent first generation whose members prefer to stand alone right now,” Bulgari’s Trapani said.
A rare exception is Ferragamo’s purchase last year of the Paris-based house of Ungaro. Ferragamo ceo Ferruccio Ferragamo said at the time it was a strategic move; his company’s strength in the leather accessories business would complement Ungaro’s talent and power in the women’s wear business.
The future lies in big or medium-sized conglomerates, industry insiders say.
“It’s a natural evolution. Fashion is not as interesting or as exciting as it once was, and it no longer runs on its own momentum. It’s become a business like any other, and it needs a good, solid organization behind it,” said Simona Segre, a luxury goods consultant for GPF & Associates here.
Both the stock market and analysts gave a thumbs up to news of the letter of intent between Valentino and HPI. On Tuesday, after the news broke, HPI stock jumped almost 6 percent, and on Wednesday the stock rose 1.5 percent to 925 lire (52 cents).
Paul Gordon, an equities analyst for IMI Sigeco, an investment bank here, said the deal will be good for both sides — but especially for HPI. As reported, HPI was a partner in a failed merger earlier this year with the apparel and textile giant Marzotto. The merger would have created a clothing colossus, Gruppo Industriale Marzotto (GIM), with combined revenues of $3 billion.
When that deal fell apart last spring, HPI shareholders anxiously asked themselves what the company would do with the cash pile of $561 million (1 trillion lire) that it planned to bring to the merger.
“I think shareholders were concerned that HPI would end up using the money to buy a ragbag of companies from all different sectors. Acquiring Valentino is right for HPI; it makes sense,” Gordon said.
“Now the challenge will be to marry the financial culture of HPI and the fashion culture of Valentino. It’s a delicate balance — and always a bit of a risk,” he added.
A London-based analyst said that Valentino, too, will profit from the sale. “This is a good deal for both sides. Valentino and Giammetti have no direct heirs, and they’re not getting any younger. With this deal they know the company will remain in Italian hands,” she said. “Plus, the brand-name is excellent and still has potential.”
Pietro Marzotto, chairman of his family’s company, speaking on the sidelines of an Italian industrialists’ conference in Rome, told news agencies: “This kind of integration makes sense for fashion houses that were born and grew under the guidance and talent of one man. These houses will certainly benefit from alliances with large, financial institutions…like in France.”
Others say they’re suspending judgment on the Valentino deal until they see some figures.
“I’m happy for them, but it’s impossible to judge a deal like that unless you have all the numbers,” said Domenico De Sole, president and ceo of Gucci.
The house of Valentino, founded in 1959, is owned by the designer, who holds 65 percent of the Luxembourg-based Valentino Garavani Group SAH, and by company ceo Giammetti, who owns 35 percent.
The company reported total 1996 sales of $752 million (1.380 trillion lire) and expects 1997 sales to reach $834 million (1.485 trillion lire). Valentino contends these are wholesale figures, but analysts say they are too high and likely include retail sales of various licensees and Valentino stores.
The company said in a statement that 65 percent of its business is in women’s wear and 35 percent is in men’s wear, with 86 percent of sales coming from clothing and 14 percent from accessories.
Valentino and Giammetti had been hunting for at least a year for a solution to the problem of insuring the company’s future. Options include a public stock offering or outright sale of the company. Last summer, they were in talks with Bulgari, which was, and still is, looking for a prestigious luxury goods company to acquire and expand.
Bulgari’s Trapani said talks with Valentino broke down simply because of the price — believed by sources to be $300 million. “We thought it was excessive. Our goal is to generate equity for our shareholders, and this was not the way to do it,” he said.
One industry source confirmed that Investcorp, the company that helped turn Gucci around, took a look at Valentino several months ago, but rejected the idea of buying it.
As for GFT, it is reportedly about to seal an agreement with designer Antonio Fusco for the licensing and distribution of his top women’s line. GFT already manufactures and distributes men’s and women’s lines for Valentino, Armani, Calvin Klein and Emanuel Ungaro, among others.
In Paris, executives see an HPI acquisition of Valentino as a positive move.
Ralph Toledano, president of Guy Laroche, told WWD, “I think that it is a good strategic move for both sides. The parent company of GFT, HPI, wins because it is securing the long-term position of Valentino. When dealing with a design house, there is always a risk that something could happen to the designer; with the acquisition, Valentino’s future business is secure.
“Both Mr. Valentino and Mr. Giammetti have something to gain because they know that GFT is no longer just interested in milking the cow; it is interested in making the company grow. GFT is looking at the business long term rather than short term. Bearing all this in mind, it should also be good for the shareholders’ accounts. Regarding any possible restrictions made on Valentino by HPI, whether creative or financial, you can’t have your cake and eat it too.”
Nicola Trussardi, president and owner of the fashion house, said, “It makes sense for Valentino and HPI. Of course Valentino is in good health, but he and Mr. Giammetti do not have family involved in the business. These days, all companies need to consider how they can develop. The world requires quick expansion, lots of advertising and it takes a big investment to carry this out. If you wait to create the cash flow necessary, it takes too long and you risk being forgotten.
“Personally, I don’t know that Valentino had the structure that could have allowed it to go public quickly. Also, Valentino is built on the old licensing system and did not really have control of its production and therefore equity beyond its name. For HPI, it is a big opportunity to have its own brand because before it only had private label or licensing.”
At Thierry Mugler, Didier Grumbach, president, said, “It is logical for GFT to acquire some of the companies it is working with. Putting the IPO issue aside, the move is logical. It seems to be very clever.”