William John Market Report 30-12-21
William John looks at the success of dealmaking in the luxury fashion retail vertical over the past two years.
Fashion, Equities, Markets, Acquisitions, Takeovers, SPACs, Richemont, Kering, WilliamJohn

William John Market Report 30-12-21

William John Market Report 30-12-21

Category: Reports

The Italian luxury fashion company Zegna became the first Italian luxury fashion brand to list public equity on the New York Stock exchange this month. The brand, a third-generation family-owned luxury fashion retailer, combined with a European Special Purpose Acquisition Company (SPAC) called Investindustrial, ran by former UBS chief executive Sergio Ermotti. With an enterprise value of approximately $3.1 billion, the deal will inject proceeds of $761 million into Zegna and Thom Browne, another brand owned by Zegna. The market reaction to the SPAC combination (now trading as ZGN on the New York Stock Exchange) has been markedly positive in early trading, up 5.92% since its launch on 20/12 as of 21/12. 

The deal will give the Zegna family a 66% stake in the combined company as well as financial security for the company in what has been an unprecedented and colossally challenging time for retailers, regardless of industry vertical. The company’s global revenues dropped 23% year on year from 2019 to 2020 and saw a net profit of $38 million erode to a net loss of $45 million with the outbreak of the COVID-19 pandemic and lockdowns across the world. 

The luxury fashion sector has experienced a wave of consolidation over the past two years or so. Kering, a French based luxury fashion conglomerate that owns brands such as Balenciaga, Gucci, Alexander McQueen Yves Saint Laurent, and many others, recently acquired the luxury Danish eyewear brand LINDBERG in July 2021. The company has a public equity market capitalisation of €86.9 billion and its share price is up 22.45% in the past year, according to Yahoo Finance as of 21/12. Additionally, Richemont (a Swiss based luxury fashion conglomerate) recently acquired Belgian leather goods label Delvaux in July 2021 for an undisclosed amount (rumoured to be close to €250 million according to Bloomberg). Again, Richemont has experienced positive gains on the stock market following its recent acquisitions, with its share price up 67.11% in the year to date. 

The largest player in the acquisitions arena in recent years has been Bernard Arnault’s famed LVMH company, which has completed deals for Off-White (the iconic streetwear brand founded by the late Virgil Abloh who was also the Men’s Creative Director for Louis Vuitton), Tiffany & Co in early 2020, and Etro through its private equity company L Catterton. Looking at the stock price of LVMH over the past 24 months:

Source: William John Analytics, Yahoo Finance

The share price of the company has more than doubled in the time period observed. Along with its rivals Richemont and Kering, markets clearly approve of the deal making of these large luxury fashion companies in 2020 and 2021. It will be interesting to see if these companies, amongst other large retailers and financial institutions, will continue their acquisitions and spending splurge on luxury fashion in 2022 amidst surrounding uncertainty around monetary policy in the West and the ongoing variant risk which could prompt further sales of struggling fashion retailers if more lockdowns and economic restrictions are implemented in the coming months. 

Any opinions expressed in these documents are those of William John and are provided for information only. E&OE.