Blackstone’s €287 million investment in Versace in February 2014 for a 20% stake in the family-controlled luxury clothing company is the latest example of the supermarket sweep taking place in Italy (and much of the European periphery) for luxury brands.
The Versace deal valued the company at 14.5 times earnings, which is a substantial discount on the 31.5-times multiple paid by Qatari investors Mayhoola for Valentino in Summer 2013, but still a price that imputes significant value to Versace's intellectual property – particularly the brand – taking into consideration the faltering commercial success of the management since the death of Gianni Versace in 1997.
Trade buyers have been active in Italy’s luxury fashion sector for several years, seeking out established brands that for one reason or another are ripe for acquisition. Transactions such as Trinity Group’s acquisition of Cerruti in 2012, The Paris Group’s acquisition of nearly bankrupt Gianfranco Ferre in 2011, LVMH’s 2011 purchase of Bulgari and then two years later of Loro Piana, and Mayhoola’s purchase of Pal Zileri in February 2014 reflect the attractiveness of the brands underpinning these businesses for a growing population of wealthy consumers, particularly in emerging markets.
According to data provider Prequin, at least 15 private equity firms are raising funds to deploy in Italy and Spain this year, with small and medium-sized enterprise (SME) brands targeted as highly attractive investments. Part of this attraction reflects the fact that successful SMEs often have unique profitable niches in which their brands have significant value. They are also particularly rich in know-how and trade secrets. SMEs are a dynamic sector in southern Europe, representing over 50% of all employment, but investment 'bite' sizes are relatively small for this much money to be put to use. Deploying a significant war chest of private equity money is therefore likely to escalate prices.
For family owners of luxury or niche brands, this is good news. However, the supermarket sweep extends to many other sectors. For example, in December 2013 a 49.5% stake in ValvItalia was acquired by CDP Group and Qatari investors. Valvitalia is a world leader in valves for the oil and gas industries and has unique intellectual property for desalination and naval applications. And in February 2014 Octo Telematics, a specialist in insurance telematics with unique 'black box' intellectual property for car insurance was acquired by oligarch Viktor Vekselberg’s Renova Group.
Dozens of southern European companies have been the subject of takeover speculation, acquisition or significant inward investments since Summer 2013. This includes:
- China Petroleum’s buy-in to Italian gas champion ENI;
- General Electric’s investment in aerospace specialist Avio;
- Mohawk Industries' acquistion of Italian ceramic tile specialist Marazzi;
- CVC’s acquisition of the unique financial database held by Cerved;
- Bain Capital’s acquisition of customer relationship management/call centre specialist Attendo;
- Hutchinson Wampoa’s mammoth acquisition of Telefonica;
- Emma Delta’s auction acquisition of Greece’s betting monopoly Opap;
- Carlyle’s acquisition of industrial motor/generator manufacturer Marelli;
- ASC’s purchase of Hellas Sat;
- Zoomlion’s 50% investment in steel fabrication specialist Cifa;
- Veolia’s acquisition of innovative engineering and water pump specialist Proactiva;
- Mahindra & Mahindra’s acquisition of automotive parts manufacturer Cie Automotive; and
- Orascom’s acquisition of web portal Virgilio.
Southern Europe appears to offer a wealth of IP-rich companies available to international investors at reasonable prices. Oversold equity markets in Spain, Italy, Greece and Portugal have all risen dramatically this year. Notwithstanding the lack of convincing data linking the IP estates of individual companies to market movements or stock prices, it is tempting to look into the rising tide in the European periphery to see which companies are floating on quality intellectual property. From my superficial analysis in the supermarket sweep of southern Europe, it seems that IP-rich companies are the most attractive purchases.
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