What M&A Deal Could Be Next in Italy’s Fashion Industry?

MILAN — What summer doldrums? Italy’s M&A activity is as brisk as can be.

Two days in a row, two major deals were revealed last week as Etro agreed to sell a majority stake to L Catterton and the Ermenegildo Zegna Group said it plans to go public on the New York Stock Exchange by the end of the year through a deal with Special Purpose Acquisition Corporation, or SPAC, Investindustrial Acquisition Corp. According to the most recent Milan-based consultancy Pambianco Strategie di Impresa study published in December on companies with the most potential to publicly list, Zegna ranked third after Stone Island in second position and Golden Goose in the top spot. (Stone Island was acquired by Moncler in early December 2020, while Golden Goose is now owned by Permira.)

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David Pambianco, chief executive officer of Pambianco Strategie di Impresa, said being part of the list means certifying the companies’ “ability to produce value.”

According to sources, more deals are in the pipeline, and some rumors are more persistent than others. The hottest one at the moment, which has banks and advisers chomping at the bit, may easily be the possible tie-up between Giorgio Armani and the Agnelli family’s holding Exor, which owns Ferrari. Despite reiterated denials from both sides, Milan-based sources contend that the last word has not been said yet.

One luxury goods analyst, who requested anonymity, claims that Exor chairman and CEO John Elkann approached Armani “with an open mind, allowing the designer to choose timing and circumstances” of a deal. However, the source said the Italian designer, who turned 87 on July 11, feels he is “not ready yet.” That may change after the holidays, contended the source, who believes Armani has often taken important decisions during his summer holidays, sailing on the Mediterranean and spending time at his home on the island of Pantelleria.

“This is a deal waiting to happen,” said Andrea Morante, chairman of independent asset management company QuattroR, which in 2019 took a majority stake in Trussardi. He believes the Agnellis represent for Giorgio Armani “Italian capitalism in the most advanced form, and an example he has always aspired to,” and that Armani would rather not sell to anyone else.

“Sure, the denials have been issued, and rightly so, because these are delicate moments, the mechanism is very complex and it’s true, there’s no ink on the paper yet, but they are setting the bases for a sale of a minority stake at first, which is necessary as a first step,” claimed Morante, who was previously CEO of Pomellato, president of Sergio Rossi and an investment banker at Credit Suisse and Morgan Stanley, and at Gucci, where he helped restructure the luxury goods house under Investcorp, later becoming chief operating officer. “I don’t see any other obvious deal for Armani.”

There is a link between the designer and the Agnelli family, as Andrea Camerana, a counselor and former licensing director at the Armani fashion house, is the son of Armani’s sister Rosanna and Carlo Camerana, a cousin of the late Gianni and Umberto Agnelli.

Also, in March, Armani signed a multiyear sponsorship of the Scuderia Ferrari racing team to supply formal attire and travel wear to the Ferrari team’s management, drivers and technicians to be worn at official events and during transfers linked to Formula One’s Grand Prix international races.

“Today, more than ever, we need to pull together as a system to promote Italian excellence, creating a synergistic dialogue among different disciplines,” Armani said at the time. “Ferrari is a world-renowned symbol of Italy, and I am proud of this collaboration.”

In turn, Elkann, who is also chairman of Ferrari, underscored that Armani “is synonymous with Italian style and elegance: We share the same pride in representing our country around the world. From today, Scuderia Ferrari and Giorgio Armani are joining one another to be stronger together, on motor racing circuits and beyond.”

Armani in 2016 established a namesake foundation, at the time when independence was a priority for the designer. Observers believe that if the designer did eventually accept Exor’s offer, it would not be a problem to change the bylaws of the foundation. As per the latest information available, the designer, who is also chairman of his fashion group, in 2017 channeled 0.1 percent of the capital, with a nominal value of 10 million euros, or $10.5 million, into the foundation.

“The existence of a foundation does not necessarily preclude a sale of the company or of a stake in it, unless the statute of the foundation or of the company include a veto to this end,” according to Riccardo Molesti, fiscal consultant and tax adviser.

Morante said it is only natural for Armani to now open up to the idea of a partner, given the current scenario, as the Italian fashion industry faces a transition due to the generational shift at many family-owned companies in a market that is changing at a much faster pace than in the past. “These are two forces pushing in different directions, and exploding after the COVID-19 impact and the emerging gender-unification trend. This will lead to an increased number of new merger and acquisition deals,” he said.

Exor has been extremely active of late. In June it expanded its reach, investing in consumer goods by taking a stake in Ludovico Martelli SpA, a personal care products company known for its storied brands including Marvis, Sapone del Mugello, Valobra and Proraso. The holding has also invested in Hermès International’s China project Shang Xia, and has acquired a minority stake in Christian Louboutin.

The acquisitions in Italy have been evolving into nuanced partnerships and platforms meant to support a manufacturing pipeline that is increasingly relevant, yet more at risk in the wake of the COVID-19 pandemic, and signaling a teamwork approach that is steadily emerging in the Italian fashion industry. For example, CEO Gildo Zegna paired with Prada chief Patrizio Bertelli on the acquisition of cashmere firm Filati Biagioli Modesto SpA last month, and has been steadily growing the men’s wear giant’s supply chain, hinting at additional deals in the pipeline — while waving away the idea of a fashion conglomerate.

Bertelli and his wife Miuccia Prada have been passing on increasing responsibilities to their son Lorenzo, who has been group marketing director since 2019 and head of corporate social responsibility since 2020. Prada has been publicly listed on the Hong Kong Stock Exchange since 2011 and rumors about a possible delisting or a partnership with a major fashion group emerge from time to time, but no deal has materialized.

Patrizio Bertelli has long denied any intention to sell but, in early 2020, sources pointed to Kering and Compagnie Financière Richemont as being interested parties. Bertelli and his wife flew to Paris in December 2019 to meet with Kering chief François-Henri Pinault, according to a source familiar with the company.

As reported, sources said LVMH Moët Hennessy Louis Vuitton took a serious look at Prada in 2019, but discussions about a possible deal broke down over the summer due to price, and no deal ever took place.

Given how many Italian companies are owned by foreign investors or groups, Made in Italy supporters champion a potential launch of an Italian luxury conglomerate.

Renzo Rosso is one of the few Italian entrepreneurs who has openly spoken of building a fashion conglomerate through his OTB group. After acquiring Jil Sander from Onward Holdings Co. Ltd. in March, Rosso told WWD he is also eyeing the acquisition of specialized manufacturers, a strategy that allows a company to “become more solid and build know-how,” he explained, while protecting Italy’s unique supply chain. He is looking at different areas — handbags and footwear producers, as well as firms specialized in washes and treatments. Rosso was set on taking over the Roberto Cavalli brand, but in the summer of 2019 that company also passed into foreign hands, to Vision Investment Co. LLC, controlled by the founder and chairman of Dubai-based developer Damac Properties Group, Hussain Sajwani.

Armando Branchini, deputy chairman of Milan-based consultancy, said Rosso is succeeding in the development of a fashion pole and a step forward to this end as he “knows how to choose his managers and, in turn, how to manage them.”

Branchini, who is also strategic adviser at Parthenon EY, Fashion, Luxury and Retail Practice, cited 34 out of many Italian brands acquired by foreign groups, from Fendi to Gucci in fashion but also in lifestyle, from the Bauer and Splendido hotels to San Pellegrino and Ferretti Yachts.

He believes the acceleration in M&A activity is not only caused by the impact of the pandemic, but also by the changes in the market, which include an increase in the demand for “coolness,” which generally is concentrated in the “superbrands” in every product category. “This means that niche brands, very much present in the Italian system, are penalized,” which will “surely lead to more foreign investments in the country in the short term in a natural way.”

Branchini hopes entrepreneurs and family companies will revisit their traditional approach and innovate — and go public, rather than pass the baton. It is a must to boost management, invest in innovation, put the consumer at the center of the strategies, he continued, “because the strategic goal is to create value and coolness, personalization and speed. The world that has changed and most probably will continue to change, cannot be tackled with schemes coming from the past.”

Conversely to Rosso, Moncler chairman and CEO Remo Ruffini, denied any interest in forming a conglomerate when the company he leads took control of Stone Island brand last year.

Alessandro Maria Ferreri, CEO and owner of The Style Gate consulting firm, lamented the lack of an Italian conglomerate, with only a handful of companies remaining fully Italian, from Giorgio Armani to Dolce & Gabbana. In any case, he does not attribute this wave of consolidation to the COVID-19 pandemic, believing it was planned ahead of the health emergency, which at times pushed it back. “Many entrepreneurs are slowly realizing that to change pace, they need to take action and that it is difficult to face the current challenges by remaining independent,” said Ferreri.

“Issues such as size and the generational shift are increasingly relevant to be competitive today in the fashion industry,” concurred Giovanna Brambilla, partner at Milan-based executive search firm Value Search. “Single brands are having a harder time coping with this scenario. Partnering with an important group helps to have critical mass and a relevant presence. Also, governance is increasingly key and at times an issue for smaller-sized firms — a clear governance that can inspire the company and its top management on future evolution, on what path to take, what initiatives and strategies to pursue to be aligned with the times now that there are such radical and fast changes and to attract resources that can maximize the value of the board of directors.”

Footwear remains a hot category, as exemplified by Investindustrial’s sale of the Sergio Rossi brand to Fosun Fashion Group last month, and rumors about a possible sale of the Gianvito Rossi label as well as that of Aquazzura have been circulating among financial sources for quite some time now. Florence-based retailer LuisaViaRoma, which has a strong online business, is also said to be an interesting business for investors.

Another group being watched by analysts is Tod’s SpA. In April, LVMH increased its stake in the Italian company to 10 percent. Analysts have long speculated on a possible sale of the group, which — in addition to the Tod’s SpA brand — includes Hogan, Fay and Roger Vivier, pointing to Bernard Arnault as a possible buyer. Tod’s chairman and CEO Diego Della Valle has repeatedly denied the company is for sale and has over time bought back shares with his brother Andrea.

In May, Della Valle chimed in, saying, “this operation consolidates the friendship” between himself, his family and Arnault and his family, which has spanned over more 20 years. “We share the values of luxury, quality and products appeal. This may represent an excellent reason to consider further opportunities to be taken together in the future.” This did nothing to dispel rumors about a possible change in ownership, which one luxury goods analyst in Milan continues to champion. A potential Tod’s delisting has also been flagged by some observers.

Rumors about a possible sale of the Salvatore Ferragamo company have cooled as analysts expect the arrival of a new CEO to help turn the company around, thus pushing back a change of ownership. The Ferragamo family has repeatedly denied the intention of selling the company, which is publicly listed in Milan. The company is in the midst of a transition, as CEO Micaela le Divelec Lemmi will resign on Sept. 7, and from that date, all executive powers will be exercised by vice chairman Michele Norsa until the arrival of new CEO Marco Gobbetti from Burberry. The Florence-based company is still operating without a creative director following the exit of Paul Andrew last spring.

Morante said the Ferragamo family now “has to fully trust the outside management, seen as crucial at this moment, and managers coming from Kering or LVMH, as is Gobbetti, are considered among the best. The family is now ready to do all it takes — and pay whatever it takes — to bring in new talent.”

Morante also believes a fashion conglomerate is hard to come by in Italy because Italians are not really team players — except when soccer is involved, he quipped. “Entrepreneurs love their brands so much, maybe too much. Arnault and [Kering chief François-Henri] Pinault do not have the same background and have succeeded.”

One Milan-based source also contended Mayhoola may be eyeing another fashion acquisition to build its stable, which includes Valentino and Balmain, and this despite the impact the pandemic is having on men’s wear brand Pal Zileri, which is controlled by the Qatar-based fund.

Luxury veteran Francesco Trapani has been spearheading as chairman the new luxury production pole Gruppo Florence, established by VAM Investments, Fondo Italiano d’Investimento and Italmobiliare, whose goal is to develop a platform to supply high-quality Made in Italy products to major luxury fashion brands, while safeguarding the technical and cultural know-how of small and medium-sized family-owned Italian companies. Since its launch last October, Gruppo Florence has acquired five storied Italian manufacturers, the latest last week being Emmegi, a Lombardy-based firm founded in 1880 that produces men’s and women’s informal outerwear.

Gruppo Florence is eyeing the acquisition of another six to eight more firms at the moment, and is not looking to buy companies that are financially troubled. On the contrary, these are all solid and technically advanced firms, which “are starting to understand it’s good to be part of a bigger group” but whose size can represent a risk for big brands that need to feel safe, Trapani explained..

According to the Global Fashion and Luxury Private Equity and Investors Survey 2021 conducted by Deloitte, the appetite for luxury companies in the personal goods, and experiential luxury sectors — the latter including luxury cars, hospitality and furniture, among others — showed no signs of abating in 2020.

The report surveyed 277 deals last year, up 6 percent compared to 2019, particularly in the personal luxury goods arena and Elio Milantoni, partner at Deloitte, noted that the size of the deals has significantly increased, with 68 percent of the 277 deals based on company valuations at an earnings before interest, taxes, depreciation and amortization multiple of 11-times and more.

“Despite the crisis and the difficulty in picking the right deals, the M&A activity is healthy and the deals are big, sometimes with the valuations at an EBITDA multiple of 18- to 20-times,” believes Massimiliano Caraffa, managing director, sector head consumer and retail Europe at private equity fund The Carlyle Group, with “a lot of investors chasing few assets. The fashion and luxury sector is an interesting one but it’s not always easy to decipher and invest in it.”

Investors are attracted by companies with solid online operations, an exposure to the Chinese and U.S. markets and innovative distribution models. But since there are not that many fitting with this description deal prices skyrocketed, he said, noting that value proposition remains key for desirability.

In the 2020 to 2025 period, Deloitte expects sales of personal luxury goods will post a compound annual growth rate of between 5 and 6 percent. This would translate in revenues of between 265 billion euros and 295 billion euros in 2022, in line with the latest Bain & Co. Luxury Study 2021 Spring Update released in collaboration with Fondazione Altagamma, as reported.