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1 Aug

Kering-Valentino Deal Helps Reignite Luxury M&A Market

Dealmakers sleepwalked into 2023 — not able to commit with high inflation, high rates of interest and fears of recession conspiring to muddy the outlook for almost all the things.

KPMG logged just 191 retail deals in the primary quarter, a 40 percent drop from the fourth quarter and a 99 percent plummet in total deal value after the nearly $25 billion supermarket merger between Kroger and Albertsons revealed in October. 

But a funny thing happened because the world waited for recession. 

The wealthy kept spending, the economic worries subsided some and the luxurious deal market woke up this summer — not progressively but . 

The jolt of life got here from Kering, which snatched up the high-end fragrance house Creed for a reported $1.5 billion in late June, after which followed that up last week with a deal to purchase 30 percent of Valentino for 1.7 billion euros, with an choice to buy full control of the tony brand by 2028. 

Kering rival Compagnie Financière Richemont confirmed the brand new trend on Friday, buying a controlling stake in Gianvito Rossi and registering a vote of confidence for stylish heels in a world of sneakers.

Every deal gives the market one other data point to work with — no less than when the costs are made public.  

And the Valentino deal suggests luxe is alive and well. 

Kering is buying into Valentino at a price that equates to 16.3 times earnings before interest, taxes, depreciation and amortization of 350 million euros. That’s according to other valuations in high luxury.

It also reflects the expansion of the brand under its current majority holder, Mayhoola, which bought Valentino in 2012 when it had EBITDA of just 22 million euros annually.

Mayhoola paid about 700 million euros, or 2.2 times revenues — a multiple that has expanded to 4.1 times within the Kering deal.

That’s consistent with the 4.4 times revenues LVMH Moët Hennessy Louis Vuitton paid for Tiffany & Co. in 2021 and the 4.2 times revenues VF Corp. paid for Supreme in 2020.  

To a point, Kering is playing catch-up, attempting to regain the momentum that has been lost as its largest brand, Gucci, has slowed. 

Valentino helps reassert the corporate’s uber-luxe positioning with each Creed and Valentino.

If that seems like loads of moving parts — a fundamental brand that’s trying to get its mojo back, an enormous move in beauty and an enormous stake in Valentino — that just might work to Kering’s advantage. 

Erin Schmidt, an independent retail industry consultant, said, “Perhaps that is an amazing time to do it, while there are loads of moving parts. It is a time of change and evolution. I think at Kering these are exciting changes for them they usually’re also seeing growth of their other brands, like Bottega Veneta and YSL.”

While market observers don’t expect the market to enter overdrive, mergers and acquisitions are clearly back on the table, together with IPOs, with Birkenstock said to be exploring its options and Kim Kardashian’s Skims preparing to make the leap.  

And while the case still must be made for any wheeling and dealing in additional mainstream brands, it appears to be all lights green with regards to brands with deep heritage that sell to the one percent of the one percent. 

“There’s going to be continued activity in the luxurious sector that targets the ultra-high net price individual,” said Cathy Leonhardt, partner and co-head of consumer retail at Solomon Partners. “And also you’re not seeing it only in fashion and luxury goods, but you’re seeing it in fragrance. You’re going to see it in beauty. We’re seeing it in food.

“While you leaf through the earnings releases and what all these luxury houses are saying, the aspirational consumer’s not doing as well,” Leonhardt said.  “So I do think you’re going to see more deal activity across the ultra-high net price individual and the way they’re shopping.”

And so the massive luxury players like Kering, Richemont and LVMH are also going to be shopping.

“They’re at all times going to be looking for that next asset that they will construct and grow,” Leonhardt said. “And there’s huge value creation when these businesses come under an umbrella of the true luxury house. There’s scarcity in true luxury houses. Any authentic brand with a deep heritage, that’s what they’re on the hunt for. There are fewer and fewer of those. They don’t make them day by day. And you’ve to grow them, construct them.”

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