Donatella Versace’s Latest Gaudy Fashion
The value of smaller luxury goods companies is soaring. But should they cash in now or wait for even greater riches?
(Bloomberg Opinion) -- Donatella Versace is known for her gaudy catwalk creations. But now she’s turning heads for a different reason: the opulent price she snagged for the eponymous fashion label that she’s steered for the past 20 years.
For Gianni Versace SpA and its minority shareholder Blackstone Group LP, the timing looks perfect. Luxury sales are soaring, as Chinese shoppers come back with a vengeance. Meanwhile, U.S. tax cuts have boosted the spending power of rich Americans. That combination has driven up company valuations across the industry. The boom is underlined by the $2.1 billion that Michael Kors Holdings Ltd is paying for Versace.
The price is equivalent to 22 times forward earnings, according to Kors. That’s way more than the 15 times multiple that it paid for Jimmy Choo Plc last year and the roughly 9 times that Tapestry Inc., formerly Coach, paid for Kate Spade.
So for other smaller luxury groups, there’s a strong argument for following in Donatella Versace's stilettoed footsteps. Italy’s Salvatore Ferragamo SpA may be the next likeliest, after dealReporter said it was approached by several private equity firms. Family-controlled Prada SpA and Tod’s SpA might also want to rethink if their nascent turnarounds don’t keep delivering.
Two years of strong sales mean the industry titans have pocket books stuffed with cash. France’s Kering SA is a pure luxury group, after spinning off most of Puma. While Bernard Arnault, chairman of LVMH Moet Hennessy Louis Vuitton SE, bemoans the heady prices of potential targets, some of the smaller brands might fit well with a bigger group’s portfolio.
Still, the French giants have to contend with the newly confident Americans at Kors and Tapestry, who are prepared to pay up as they try to turn themselves into top-rank fashion powers to match their Paris rivals. While Kors is busy with Versace right now, Tapestry has had time to digest last year’s Kate Spade purchase. It’s not hard to imagine either swooping for more targets.
Ferragamo, with a market capitalization of about 3.5 billion euros, will be watching Versace’s decision with interest. It’s a heritage brand, and although its turnaround has faltered, it hasn’t been devalued by overexposure. With the right creative direction and management expertise, its sales and profit could be turbocharged, proving an incentive for a buyer to pay for the potential.
The smaller brands are having to invest in infrastructure — to keep the hottest products on shelves — and their digital presence. That may better handled by a deep-pocketed owner.
The only question is whether this is truly the top of the cycle in luxury valuations. If the turnarounds of these smaller companies do bear fruit, then the family owners might command even higher prices in the future. Ferragamo boosted its chances recently with Micaela le Divelec Lemmi’s appointment as chief executive. She spent 20 years at Kering, so knows what she’s doing.
The risk of waiting is that the industry’s opulent party grinds to a halt. The U.S.-China trade war is certainly a worry, as are tensions in the Middle East. Wait too long to sell, and you might end up like last year’s haute couture hit: beautiful at the time, but unwanted now.
To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.
Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.
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