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Fashion & Luxury Private Equity and Investors Survey 2019 Summary

Core Content

The Fashion & Luxury (F&L) Private Equity and Investors Survey 2019 provides a comprehensive overview of market trends, M&A activities, and investor strategies in the F&L sector. It highlights the growing interest in the industry, despite challenges such as disruptive technologies and evolving competition. The report is based on primary data collected through Computer Assisted Web Interviewing (CAWI) and includes insights from both current and potential investors.

Main Points

M&A Deal Monitor 2018

• Total M&A deals in 2018: 265, a 47 deal increase from 2017.
• Sector-wise performance:
  • Apparel & Accessories: 73 deals, down by 4 from 2017.
  • Hotels: 75 deals, up by 29.
  • Watches & Jewellery: 28 deals, down by 1.
  • Cosmetics & Fragrances: 44 deals, up by 16.
  • Furniture: 14 deals, down by 3.
  • Private Jets: 9 deals, down by 1.
  • Yachts: 8 deals, up by 1.
  • Cars (including Electric Cars): 6 deals, up by 4.
  • Cruises: 4 deals, up by 3.
  • Restaurants: 4 deals, up by 3.
• Average deal value: $233m in 2018, with a slight increase from 2017.
• Regional performance:
  • Europe: Strongest growth with 41 more deals.
  • North America and Asia-Pacific: Flat.
• Top deals in 2018:
  • Beijing Electric Vehicle Ltd. by BAIC BluePark New Energy Technology Ltd. ($3.6B for 100%)
  • Belmond Ltd. by LVMH Group ($3.3B for 100%)
  • Gianni Versace SpA by Michael Kors Holdings Limited ($2.1B for 100%)
  • Silversea Cruises Ltd. by Royal Caribbean Cruises Ltd. ($1.5B for 67%)
  • Boat Holdings, LLC by Polaris Industries Inc. ($717M for 100%)
  • Ekornes ASA by Qumei Investment AS ($700M for 100%)

Private Equity and Investors Survey 2019

• Market Outlook (2018-2021):
  • PLG (Personal Luxury Goods) top players are projected to achieve 1.1 times 2018 sales index (~+4% CAGR).
  • Other luxury sectors are expected to grow to 1.2 times 2018 value (~+6% CAGR).
• Sector Growth Forecasts:
  • Cosmetics & Fragrances, Furniture, and Digital Luxury Goods are expected to grow by more than 10% annually.
  • Apparel & Accessories, Hotels, and Restaurants are expected to grow between 5-10%.
  • Cars and Private Jets are forecast to decline.
  • Yachts, Watches & Jewellery, and Selective Retailing are expected to remain stable.
• Geographical Outlook:
  • Asia and Middle East are expected to drive growth.
  • North America has a positive outlook but with reduced investor sentiment.
  • Europe, Latin America, and Japan are forecast to remain stable.

Investor Strategy

• Exit Strategy:
  • 43% of funds plan to divest at least one F&L asset in 2019, an increase of 8.2 percentage points from 2018.
  • Main drivers: high returns and market trend mismatches.
  • 63% of exits are through trade sales, with a decreasing proportion of EBITDA multiples above 10x.
• Investment Strategy:
  • 70% of funds plan to invest in F&L assets in 2019.
  • Apparel & Accessories and Cosmetics & Fragrances are the most attractive sectors (79% interest each).
  • Furniture (57%) and Watches & Jewellery (36%) also show significant interest.
  • Digital Luxury Goods interest decreased (7%), despite positive growth expectations.
• Investor Profiles:
  • Strategic investors (51%) were the main bidders in 2018.
  • Financial investors (44%) and Private Equity/Venture Capital (44%) were also significant.
• Deal Strategies:
  • Management Buyout (MBO), Expansion Capital, and Leveraged Buyout (LBO) are the main strategies.
  • Senior debt is still the primary funding source (44%), though Shareholders' loan usage increased (28%).
  • Majority stakes remain the focus, though minority stakes increased (from 19% to 25%).

Investment Trends

• Investment in Small and Medium-sized Companies:
  • 62% of investors target small companies (<$50m), and 23% target medium-sized ones.
  • Interest in small companies increased by 10 percentage points compared to 2018.
• Expected Returns:
  • Average IRR expected from new investments: 21-30%.
  • 11% of investors expect returns over 30%.
  • Apparel & Accessories and Selective Retailing are expected to offer the highest IRR.
• Digital Influence:
  • Digital strategies are gaining prominence, with 36% of investors focusing on digital strategy design.
  • Digital technologies like AI, Robotics, and Big Data & Analytics are expected to have a significant impact on investor portfolios.

Key Findings

• The F&L industry remains attractive to investors, with a focus on consolidated sectors like Apparel & Accessories and Cosmetics & Fragrances.
• There is a growing interest in smaller-sized companies, especially in the PLG category.
• Strategic investors are driving the majority of M&A activity, with a notable increase in deal numbers.
• The average deal value has remained relatively flat, but the number of deals has increased.
• Asia and the Middle East are key growth regions for the F&L industry in the next three years.
• Digitalization is becoming a critical strategy for growth and performance improvement.
• Exit strategies are increasingly influenced by market trends and the pursuit of high returns.
• The expected IRR for new investments ranges from 21% to 30%, with higher returns expected in Apparel & Accessories and Selective Retailing.