Luxury Investments: Key mergers and acquisitions

Any industry growing at a fast pace triggers a spate of acquisitions and mergers. The growth opportunities open up possibilities and an acquisition not only becomes viable but lucrative. It becomes strategically important for certain markets to increase share or for penetration in that market. With the luxury industry declaring very healthy financial results and even stronger forecasts the pace of luxury mergers and acquisitions has more than doubled this year. As against a total M&A worth $2.9 billion in the full year 2010 the figure has already touched $6 billion by May 20 this year. There are several deals in the pipeline that might fructify this year. However, acquisitions are becoming tougher as the companies which are potential targets are also feeling confident of achieving their own targets under the improved business environment and are not willing to listen to offers.

1) Puig bolsters portfolio with Jean Paul Gaultier acquisition

The Spanish group Puig has bolstered its portfolio with the acquisition of Jean Paul Gaultier. Hermès confirmed that it has sold its entire 45% stake in the house to Puig. Puig reported net sales of €1.2 billion in 2010, while net profit was €150 million which is an increase of 57% on the previous year. The new acquisition will give the group greater critical mass in the world of fashion and fragrance. However, Gaultier’s fragrance licensing agreement with BPI which runs till 2016 will not be disturbed.

2) Jimmy choo

Jimmy Choo is another high profile brand that has been acquired after being in the sales mode for over a year. Luxury group Labelux is the new owner of the iconic shoe brand for which they reportedly paid ₤500-550 million (approximately $850 million). The addition of Jimmy Choo to their portfolio gives them a wider range and access to a newer segment of the market. Labelux already owns well known brands such as Bally, Derek Lam and Solange Azagury-Partridge among others.

3) Bulgari/LVMH

Bulgari is the 127 year old Italian luxurious jeweler which was till recently controlled by the Bulgari family. In a strategic decision the family has ceded control to the French luxury conglomerate LVMH. It was a no cash deal as the Bulgari family handed over 51% stake of their company in exchange for LVMH stocks. More importantly they will be entitled to a seat on the LVMH board. In order to make Bulgari a wholly owned subsidiary LVMH has made an open offer for the balance share of the company.

4) Trinity bought Italian fashion house Cerruti for $70 million

Hong Kong based Trinity which is a sister concern of consumer goods exporter and logistics consultant Li & Fung acquired Italian fashion house Cerruti in December for $70 million. It already has in its bag the upscale British clothing brand Kent & Curwen through a long term licensing arrangement. Subsequent to the Cerruti acquisition Trinity has raised another $95 million for more acquisitions. Their preference is for high end menswear that matches and extends their existing portfolio. Since their focus market is China their preference is for European brands which are preferred by the Chinese over the American brands.

5) PPR to buy U.S. sports clothing brand Volcom

PPR has been rearranging its portfolio of brands and increasing its focus on sports and lifestyle brands. They already control German sports brand Puma and they have announced their offer to buy all outstanding Volcom shares at a substantial premium. Volcom is known for its surfing-inspired clothing. Francois-Henri Pinault, CEO of PPR had raised 2.4 billion euros by disposing off the African distribution business CFAO and French furniture retailer Conforama. He is using that fund to realign their product and brand portfolio and offerings.

6) Oscar de La Renta, GF Capital Management & Advisors

Alex Bolen, the CEO of Oscar de la Renta took a strategic decision to fund his expansion plans. He sold a stake which is estimated to be around 20% to GF Capital Management & Advisors, who also have investments in Jonathan Adler. The amount paid was not disclosed either but it must have been sufficient to fund Oscar de la Renta’s plans to open more stores in areas where their presence is insufficient and add new categories that will make their range of offering more comprehensive.

7) Paris Group plans expansion for Gianfranco Ferré

Gianfranco Ferre has been sold to Dubai-based Paris Group. Exact figures were neither disclosed nor confirmed but estimates put the value of the deal at £8 million. Since February 2009 Ferre has been in negotiation with different companies to strike a deal but nothing had worked out so far. What seems to have swung the deal in favor of the Paris group is their offer to help the Italian label develop its signature brand in-house in Bologna.

8) L Capital Asia to Invest $100 Million in Gitanjali Group the largest Jewelry Retailer in India

LVMH has created a dedicated fund for Asia through its private equity arm L Capital Asia. The fund has a corpus of $650 million and the focus is primarily on the Chinese and the Indian market. Their first major investment in India is going to be the Gitanjali Group, a premium jewelry and diamond brand which they are expected to acquire for $100 million. They are also in advanced negotiation for Genesis Color a major luxury retailer with 125 stores to have a strong distribution and retail network in place to take advantage of the expected growth in the luxury market in India.

9) Flash Sales Website HauteLook Sold For $270 Million To Nordstrom

Flash sales sites have become the most popular concept in the luxury industry with even the big guns of the industry trying to replicate the Gilt Groupe model with minor variations. Nordstrom, the renowned retail chain, decided to take the acquisition route to get into this business. They recently acquired the flash sales website HauteLook. The valuation was done at a staggering $180 million which they paid in Nordstrom stock. In addition to the valuation a three-year earn-out amounting to about $90 million was also part of the high profile deal.

10) Hong Kong’s Peter Woo takes 8% of Ferragamo

The Ferragamo group has a long association with their first store in Hong Kong dating back to 1986 and their first mainland China store opening in 1994. The Woo family has been their partner in Greater China for over 20 years now. To further consolidate the fruitful relationship the Ferragamo group has sold eight percent of the luxury clothing brand Salvatore Ferragamo to Hong Kong businessman Peter Woo and his family. This has been done to facilitate the ongoing expansion activity in the Greater China markets to fully tap the growing demand for luxury goods.

There are several other M&A plans in the pipeline which are at different stages of negotiations. Looking at the conditions of the market it is likely that most of the negotiations will result in an acquisition. The companies are flush with funds and markets are offering innumerable opportunities. The companies are looking for best buys and the targeted companies are also looking for the best buyers who can give a boost to their sales but maintain their individual identity.

1)Italy’s Yoox open to tech sector buy

Federico Marchetti, the CEO of Yoox, the online fashion retailer had recently told the Reuters luxury summit that they are not looking for a particular acquisition but are open to the idea if a suitable and attractive opportunity becomes available in the field of technology. A technology provider will add to their strength and efficiency. In these times of fast evolving technology, it is important to stay ahead of the others and harness the latest technology innovatively.

2) L Capital Plans To Invest In Genesis Colors

LVMH, the French luxury conglomerate is scouting the Indian market for strategic buys through their private equity arm L Capital. They have zeroed in on Genesis Colors who are a fashion and lifestyle goods retailer with 125 stores in place. More importantly, in a highly regulated market like India they have the exclusive distribution rights for luxury brands such as Just Cavalli, Canali, Kenzo, Paul Smith, Jimmy Choo and more. This is expected to be the first investment of LVMH in India.

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