Luxury industry mergers & acquisitions up 22% in 2018 according to Deloitte
The luxury industry is more than ever an attractive hunting ground for investors, according to the fourth edition of the ‘Global Fashion & Luxury Private Equity and Investors Survey 2019’ published by Deloitte. Last year, a record number of mergers and acquisitions, 265, were carried out in the luxury sector, 47 more than in 2017, equivalent to a 22% increase.
In fashion in particular, 2018 was marked by the resounding €1.83 billion acquisition of Italian label Versace by US group Michael Kors, which then changed its name to Capri Holdings. It is worth noting that 2017 was quite a flat year in terms of merger operations: only six extra deals were recorded compared to 2016, which instead produced 70 more deals than 2015.
Top of the ranking for 2018 was the luxury hotel sector, which recorded 75 operations, 29 deals more than in the previous year. In the luxury goods segment, 145 operations were carried out last year, as opposed to 134 in 2017, of which 73 in apparel & accessories (-4), and 28 in watches & jewellery (-1). Only the cosmetics & fragrances category recorded a marked increase in the number of deals (+16), rising from 28 in 2017 to 44 in 2018.
“Cosmetics & fragrances and the hotel sector turned out to be the two most attractive segments for investors in 2018. Moreover, cosmetics & fragrances is one of the sectors on which the interest of investors is increasingly focusing this year, as is apparel & accessories, confirming the importance of the luxury goods segment for investment funds,” stated in a press release Elio Milantoni, a partner at Deloitte Financial Advisory & Corporate Finance.
Approximately 43% of the private equity firms surveyed plan to sell an asset in the fashion and luxury sector in 2019. Conversely, 70% of them are keen to invest in the same sector: 79% of them in apparel & accessories and in cosmetics & fragrances, 36% in watches & jewellery, and 29% in selective distribution.
According to the forecasts collected by Deloitte, “in the course of the next three years, investors estimate that the fashion and luxury industry will continue to grow at a rate between 5 and 10% per year. Digital luxury products, cosmetics & fragrances and furniture are expected to perform very strongly, growing in excess of 10% per year. Apparel & accessories, hotels and restaurants are going through a consolidation phase, with an annual growth rate expected to range between 5 and 10% per year. Cars and private jets are forecast to slump, while sales of yachts, jewellery and the selective distribution sector in general are expected to remain stable.”
A new, interesting element revealed by the survey is the growing appeal for investors of new technologies and digital innovation applied to the fashion industry. Nearly 43% of the survey’s interviewees stated that in 2019 they are likely to invest in disruptive technologies, in order to benefit from the potential synergies deriving from their application. Innovations linked to the web, big data and analytics, artificial intelligence, robotics and blockchain applications will have the greatest impact on investors’ portfolios this year, according to the survey.
“The interest for digital luxury products is waning, despite the market’s growth forecasts. Existing and newly arrived investors are more attracted by established sectors such as catering and fashion, while new investors are more interested in experiential luxury,” noted the report.
From a geographic perspective, Europe was the only region which recorded a significant rise in the number of fashion & luxury mergers and acquisitions in 2018, with 41 extra deals, driven by growth in the hotel sector. Other regions were stable compared to 2017: North America and the Middle East recorded just one less deal, Asia-Pacific two more, Japan four more. On the other hand, for the next three years investors are relying on Asia and the Middle East to galvanise the luxury industry, expecting growth rates of 10% per annum on average there.
The average worth of a merger and acquisition operation in the fashion & luxury sector continued to decrease, losing 12% between 2017 and 2018, down to $233 million, as investors increasingly favour deals involving small-sized companies. Brands generating a revenue from 0 to $50 million were involved in 65% of deals in 2018, compared to 55% in 2017. The number of operations involving medium-sized companies (with a revenue between $50 and $250 million) greatly decreased (-25%), and so did the number of deals involving larger companies (-22%). This trend is expected to intensify this year.
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