Dealmakers sleepwalked into 2023 — not ready to commit with high inflation, high interest rates and fears of recession conspiring to muddy the outlook for just about everything.
KPMG logged just 191 retail deals in the first quarter, a 40 percent drop from the fourth quarter and a 99 percent plummet in total deal value after the nearly $25 billion supermarket merger between Kroger and Albertsons revealed in October.
But a funny thing happened as the world waited for recession.
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The rich kept spending, the economic worries subsided some and the luxury deal market awakened this summer — not gradually but all at once.
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The jolt of life came from Kering, which snatched up the high-end fragrance house Creed for a reported $1.5 billion in late June, and then followed that up last week with a deal to buy 30 percent of Valentino for 1.7 billion euros, with an option to buy full control of the tony brand by 2028.
Kering rival Compagnie Financière Richemont confirmed the new trend on Friday, buying a controlling stake in Gianvito Rossi and registering a vote of confidence for sophisticated heels in a world of sneakers.
Every deal gives the market another data point to work with — at least when the prices are made public.
And the Valentino deal suggests luxe is alive and well.
Kering is buying into Valentino at a price that equates to 16.3 times earnings before interest, taxes, depreciation and amortization of 350 million euros. That is in line with other valuations in high luxury.
It also reflects the growth of the brand under its current majority holder, Mayhoola, which bought Valentino in 2012 when it had EBITDA of just 22 million euros annually.
Mayhoola paid about 700 million euros, or 2.2 times revenues — a multiple that has expanded to 4.1 times in the Kering deal.
That’s in keeping with the 4.4 times revenues LVMH Moët Hennessy Louis Vuitton paid for Tiffany & Co. in 2021 and the 4.2 times revenues VF Corp. paid for Supreme in 2020.
To some degree, Kering is playing catch-up, trying to regain the momentum that has been lost as its largest brand, Gucci, has slowed.
Valentino helps reassert the company’s uber-luxe positioning with both Creed and Valentino.
If that sounds like a lot of moving parts — a main brand that’s looking to get its mojo back, a big move in beauty and a big stake in Valentino — that just might work to Kering’s advantage.
Erin Schmidt, an independent retail industry consultant, said, “Perhaps this is a great time to do it, while there are a lot of moving parts. This is a time of change and evolution. I believe at Kering these are exciting changes for them and they’re also seeing growth in their other brands, like Bottega Veneta and YSL.”
While market observers don’t expect the market to go into overdrive, mergers and acquisitions are clearly back on the table, along with IPOs, with Birkenstock said to be exploring its options and Kim Kardashian’s Skims preparing to take the plunge.
And while the case still needs to be made for any wheeling and dealing in more mainstream brands, it seems to be all lights green when it comes to brands with deep heritage that sell to the one percent of the one percent.
“There’s going to be continued activity in the luxury sector that targets the ultra-high net worth individual,” said Cathy Leonhardt, partner and co-head of consumer retail at Solomon Partners. “And you’re not seeing it only in fashion and luxury goods, but you’re seeing it in fragrance. You’re going to see it in beauty. We’re seeing it in food.
“When you look through the earnings releases and what all these luxury houses are saying, the aspirational consumer’s not doing as well,” Leonhardt said. “So I do think you’re going to see more deal activity around the ultra-high net worth individual and how they’re shopping.”
And so the big luxury players like Kering, Richemont and LVMH are also going to be shopping.
“They’re always going to be searching for that next asset that they can build and grow,” Leonhardt said. “And there’s huge value creation when these businesses come under an umbrella of the true luxury house. There’s scarcity in true luxury houses. Any authentic brand with a deep heritage, that’s what they’re on the hunt for. There are fewer and fewer of those. They don’t make them every day. And you have to grow them, build them.”