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2021: a year of luxury M&A

2021: a year of luxury M&A

Monday, 11 January 2021
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Christophe Roulet
Editor-in-chief, HH Journal

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4 min read

Several major transactions involving luxury companies took place in the last quarter 2020, with analysts forecasting more mergers and acquisitions activity in the months to come. Luxury titans, private equity investors and Chinese conglomerates are leading the fray.

While 2020 will go down as the year of Covid-19 with its retinue of shuttered retailers, empty production lines and housebound tourists, the final quarter saw a number of major transactions take place in the luxury sector. And this is probably only the beginning. According to Francesca Di Pasquantonio, a luxury goods analyst at Deutsche Bank, “The global pandemic has added to the pressure from demand going to a very concentrated number of winning brands. This creates the conditions that are favourable to mergers and acquisitions to be able to scale, but also to leverage expertise or talent.”

LVMH’s acquisition of Tiffany for $15.8 billion is the largest to date in the luxury sphere.

After a long-running “will they, won’t they” saga, LVMH last week completed the deal to buy the American jeweller Tiffany after shareholders approved the $15.8 billion price tag. Even after the $400 million discount negotiated by the French conglomerate, this is the largest acquisition ever in the luxury sphere. Bernard Arnault, LVMH chairman and chief executive, can be happy with his purchase: Tiffany has announced record holiday sales, gaining 2% for November and December 2020 from a year earlier. Online sales soared by 80% and sales to China were up by 50%. And LVMH isn’t alone. VF Corporation, which already owns Timberland, Vans and The North Face, helped itself to streetwear brand Supreme for $2.1 billion in November then, in December, Moncler, an Italian brand known for its high-end parkas and down jackets, pocketed menswear brand Stone Island for $1.4 billion. Not forgetting the one billion dollars that Richemont, Alibaba and Kering are investing in Farfetch.

The right conditions

Conditions are ripe for this flurry of mergers and acquisitions to crescendo in the coming months. Even as central banks and governments try to shore up the economy, recession means that borrowing costs are at a historic low. Luxury’s big names are also sitting on a war chest which they can use to finance ambitious raids. The latest half-year reports show that Richemont has a net cash position of €2.1 billion, €3.7 billion at Hermès and just under CHF 1 billion at Swatch Group. Private equity firms – the likes of CVC Capital which took a controlling stake of Breitling or the Carlyle Group, new owner of watch industry and medtech supplier Acrotec which employs 1,200 people – are also in an enviable position. According to Bloomberg, investment companies have $1.6 trillion to spend and high margins make luxury brands a prime target.

Chinese conglomerates will want their slice of the M&A cake.

The bulk of the mergers and acquisitions action in 2021 is forecast to be in vertical integration (such as the takeover in June last year of precision-turning specialist Helios by movement-maker Sellita), consolidation with a focus on exposure to Asia and younger generations, and acquisition of expertise in the increasingly strategic digital realm. An example of the latter is the acquisition last November of Parklu, a Chinese analytics platform, by Launchmetrics, a brand performance cloud whose clients include Patek Philippe and which published, on its French language blog, an analysis of the impact of Watches & Wonders Shanghai. The deal will give Launchmetrics, which is present in eight markets, access to Parklu’s 100,000 Chinese influencers and KOLs. Not that Chinese companies are systematically on the receiving end of acquisitions. Far from it, particularly as China is probably the only economy that can boast growth these days. They also want their share of the M&A cake, and not just big names such as Hong Kong-based private equity firm LionRock Capital, which acquired a majority stake in British shoe chain Clarks for $140 million at end 2020, or Shandong Ruyi whose acquisition of Swiss shoemaker Bally fell through due to debt burden. While it’s true that not all Chinese ventures in the watch industry have been as successful as anticipated (think Corum-Eterna under Haidian), as we say goodbye to 2020, major changeover is on the cards.

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