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louis vouittonNo Merger & Acquisitions For Luxury Groups
Operators in fashion industry claimed that the industry hadn’t become a sad place, although LVMH’s profits for the first half has fallen by 23% and that of its vigorous opponent PPR has dropped by 19%, and the profits of other luxury companies is like a glass of Chateau Margaux, which is easily to bottom up. But Gucci’s multibillionaire CEO Francois-Henri Pinault declared in the end of last month that the sales of luxury goods “will not worsen any longer”, which words for the moment has stopped rumors about mergers in this industry.lovis vuitton
Integration elements still exist. This industry has strong periodicity, and the assets and liabilities of some leading companies are in pretty good condition: MH and Christian Dior both have a net debt to tangible assets ratio of around 30% while Richemont Group from Switzerland holds net cash. Many companies are reluctant to cut their costs. Besides these tycoons, the whole industry is in a highly fragmented state of democracy, and no merger & acquisition transaction has taken place yet.
lui vitonOne of the reasons is that those privately-held enterprises don’t want to sell in a bear market, as their assets and brands are out there, but the prices they are offered might not match up. This also happens to listed companies. At present, the stock price of Tiffany is about half of its peak value in 2007. Nevertheless, it has increased by 40% this year, if measured in long-term benefits, its price/earning ratio is close to 20 times, which price has shown a hint of strong recovery. At such valuation, buyers won’t want to increase the number of brands they hold in hands.
Private equity companies are possible to be tempted. But it is reasonable for financial investors to hesitate when they saw that Permira had been struggling after they purchased Valentino at the price of 5.3 billion Euros and the 40 million USD check that Falic paid for Christian Lacroix was a boondoggle. Besides, even in its best time, the luxury industry is still an unpredictable industry full of extremely expanded self-awareness and family disputes. Ironically, such reputation tops the list of reasons defending mergers for this industry.
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