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Luxury fashion has been snubbed by buyout groups in recent years but now it’s back in vogue.
The acquisition of Escada, the German fashion house, by Beverly Hills-based buyout group Regent marks the latest deal in a sector which had fallen out of favor with private-equity firms in recent years.
The deal came just weeks after Mandarin Capital Partners snapped up a 70% stake in Italian fashion accessories specialist Eurmoda Group.
“This is actually a really good time for people who know the space to “make good deals,” said Massimiliano Caraffa, a managing director at U.S. buyout group Carlyle Group.
For private equity, such volatility can be an opportunity. “It is getting tougher for the mid-market player to persist against the omnipotent super winners of the fashion industry. To cope with challenges like digitization, customers’ demand and sustainability, brands need to focus and to undertake capital investments required to execute on their strategy,” said Dr. Achim Berg, global leader of the apparel, fashion and luxury group at McKinsey in a report on the fashion industry.
Carlyle CG, +0.11% has several luxury brands in its current investment portfolio, including Italian sneaker brand Golden Goose, lingerie business Hunkemoller and womenswear company TwinSet.
Since buying Golden Goose in 2017, Carlyle has boosted headcount at the company from 100 to 300. It has also reshuffled management, promoting the company’s sales manager Silvia Campera into the role of chief executive and recruiting former Gucci President Patrizio di Marco as chairman. It has grown the business from seven stores with approximately €100 million ($110 million in sales and €32 million earnings before interest, taxes, depreciation and amortization (Ebitda) to 90 stores generating around €260 million in sales with Ebitda of €80 million.
The firm could now be put up for sale with a price tag of as much as €1 billion, according to people close to the situation. Carlyle declined to comment.
Rival buyout group Blackstone BX, -0.77% is also on the prowl for more opportunities in the luxury sector, following its successful investment in Versace.
Blackstone paid €210 million to buy a 20% stake in Versace in 2014. Four and a half years later, the fashion brand was sold to Michael Kors for an enterprise value of €1.83 billion—valuing Blackstone’s stake at around $424 million.
“We would [invest in another business], we now have the tool kit but we would need a business of scale and there aren’t that many left that are independent,” said Andrea Valeri, chairman of Blackstone Italy.
Analysts say that part of the sector’s appeal for private equity is the rapid rise in the number of high net worth individuals globally. People who are reaching a certain level of disposable income where they start buying luxury goods is growing, according to Bain & Company’s Joelle de Montgolfier. This has driven consistent growth for the industry, which Bain estimates has around €260 billion of annual retail sales.
“The sector has enjoyed almost a perpetual cycle of positive growth. If you look at the history of the market over the last 30 years, even in most recent years, it’s been growing faster than more consumer markets—6% annually between 2010 and 2018,” de Montgolfier added.
The expansion of the middle-class in countries such as China could also fuel opportunities for luxury fashion companies.
“The world as a whole is growing and so is demand for luxury goods,” said Pierre Mallevays, the former head of acquisitions at LVMH LVMH, +1.34%, who now runs the boutique financial advisory firm Savigny Partners.
