Fashion M&A Is Back in Style – WWD

The most common impulse in fashion right now?

An itch for change. 

After the sheer terror of the pandemic and the boom and bust of its aftermath, fashion’s biggest players are finally ready to get out their checkbooks to shore up their current businesses, betting big on the future. 

It is suddenly a dealmaker’s market — and it could just be the beginning of the buying. 

Tapestry Inc.’s $8.5 billion deal to acquire Capri Holdings and create a $12 billion American fashion giant solidified a trend that Kering started earlier in the summer. 

Kering — which has been struggling with weakness at Gucci — agreed to buy high-end fragrance house Creed in a deal said to be valued at 3.5 billion euros, and also cut a deal to snatch up 30 percent of Valentino for 1.7 billion euros. And Compagnie Financière Richemont picked up a controlling stake in Gianvito Rossi.

This is quite a bit more than most market observers were expecting for 2023, when the industry was expected to be mired in recession and trying to keep up in a mixed-up market. 

But as the recession never came and higher-end consumers held it together, chief executive officers surveying the landscape and looking for growth started feeling more comfortable buying. 

“For the last 12 months, there’s been this real fear that the next shoe was going to drop,” said David Bassuk, global leader of the retail practice at AlixPartners. “We’ve weathered that storm long enough. It’s been really slow from an M&A standpoint. That only lasts so long. There’s no question things are going to heat up.

“Companies are feeling like they can be creative with their capital because there’s a bit more easing of fears around what’s happening with the consumer,” he said.

Buying a competitor — if everything works out — can be a good way to grow. 

Bassuk said Tapestry has “real opportunity with global reach, global scale, they have opportunities with leveraging stores versus online. There’s many different approaches to acquire and then strategically determine how to drive value.”

But forging multibillion-dollar empires can be a delicate matter, partially when it comes to cutting costs. Tapestry, for instance, plans to save $200 million in annual cost synergies within three years as Capri joins the fold. 

The trick is to not make changes that are going to impact what is special about the brands, while also being able to access those savings to power the enterprise forward. 

“The world changes fast,” Bassuk said. “With the luxury brands, you need to pump a ton of money in to maintain brand recognition and celebrity collaborations and the things that keep them relevant. This is where the synergies really matter. You need to get that value out of these types of deals in order to rapidly fund growth.” 

Joanne Crevoiserat, Tapestry’s CEO and the dealmaker in the spotlight at the moment, touted many of the deal’s virtues to analysts on a conference call.

“We’re broadening and diversifying our customer base through highly differentiated brands that deepen our access to luxury consumers and market segments, which are attractive and resilient,” Crevoiserat said. “We enhanced our global footprint and geographic diversification with our complementary positions in Asia and Europe.”

That sounds like a place everybody is trying to get to.

And money has a way of burning a hole in the pockets of fashion’s wheeler and dealers. 

“There’s been equity sitting on the sidelines that’s been waiting to get deployed,” said Michael Prendergast, managing director of Alvarez & Marsal’s consumer retail group. “We’ve been waiting for this ‘water over the dam’ moment.”

There’s already been some movement in other areas of dealmaking. L Catterton-backed Oddity recently went public and the private equity giant’s Birkenstock is said to be preparing an offering for as soon as next month that some see as valuing the business at more than $8 billion. Kim Kardashian’s Skims also just raised money at a $4 billion valuation, setting the company the shapewear brand up for its own IPO.

“I view [Tapestry’s deal with Capri] as an early mover,” Prendergast said. “I do think we could potentially be at the beginning of a cycle. There’s a lot of companies sitting on the sidelines. Smart companies see that although the economics are better than what the general wisdom thought it would be, it’s still not easy. It’s not as easy to continue growth as it had been. It’s a very complicated retail environment to be successful in.” 

Tapestry is on track to post revenues of $6.7 billion this fiscal year and is looking at a $12 billion topline once Capri is folded in — going forward, the company will be pushing toward $15 billion or even $20 billion. 

That’s some very simple, very important math for the company’s competitors vying for the best real estate, the biggest celebrities and investor mindshare. 

Tapestry is now set to leapfrog VF Corp. with its sales of $11.6 billion and PVH Corp. with revenues of $9 billion. The company was already larger than Ralph Lauren Corp., which stands at $6.4 billion. 

“It’s a complex retail environment and there is strength in a bigger number,” Prendergast said. 

“Who will be next? These CEOs will say, ‘I’m an $8 billion company. I have a five-year plan to grow to $10 billion or $12 billion. Should I get the backing of my board and shareholders, buy another $8 billion company, have immediate growth to $16 billion and set myself on a path to being a $20 billion company?’ Which of the CEOs will be next to say, ‘We need to do the same thing’?”

Investment banker Elsa Berry, managing director and founder of Vendôme Global Partners, said: “Companies need acquisitions to keep growing and diversifying. Scale matters more than ever, in luxury especially. The investments, which are needed to be made in people/talent/designers, retail, marketing, events, PR, technology, are increasing dramatically and driving the need to get bigger to stay in the competition. Only the nimble ones will make it. There are fewer of the great targets and there’s a need to be the first mover or lose some great opportunities.”

It’s the kind of thinking that can clearly be contagious. 

Frank Petraglia, KPMG consumer and retail deal advisory leader, said, “We often see deals beget deals, and expect the flurry of recently announced deals in this space to likely drive further consolidation. Winners in the space will be those that can land the right portfolio of luxury brands, and support top-line growth and margin accretion via synergy achievement. Given the relative size of the top luxury players, deals that move the needle will need to have scale — so I expect we will see a desire to pursue larger transactions.”

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