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LONDON - The champagne-quaffing world of luxury goods is fizzing with deal talk.
Thanks to a hunger for monogrammed luggage and designer gowns by the new rich in Russia, China and India, changes are afoot at Europe's luxury houses - and recent market turbulence hasn't slowed the momentum, say bankers and fashion executives.
Private equity's swoop on Valentino Fashion Group, home of the august couturier, in May signaled the start of an open season on some of the world's most enduring brand names.
Come September, Italy's Prada and Salvatore Ferragamo will decide whether to take a catwalk on to the stock market, while Roberto Cavalli is considering its strategic options including a stake sale, say bankers familiar with the matter.
In France, Hermes International, home of the "Birkin", the handbag with the world's longest waiting list, is also the most expensive luxury stock trading at 30.5 times next year's earnings buoyed by consolidation talk.
And it is not expected to stop there, bankers say.
High market valuations and unprecedented opportunities for expansion in emerging economies combined with the credit crunch have left the owners of independent luxury houses eager to tap investors before the window of opportunity closes.
Those conditions are "bringing entrepreneurs to the table" many who have guarded family businesses from outside investors for decades, said one senior M&A banker who requested anonymity.
Alex Bell, chief executive of Dominion Group which launched luxury goods fund CHIC in June, is one fund manager who believes it is just the start of a season of luxury dealmaking.
"To best take advantage of the opportunities that are unfolding, companies in the sector have to have a certain amount of fire power and access to capital. The challenge is to successfully make the leap in terms of production and distribution without compromising quality," he said.
SPOTLIGHT ON ITALY
Fuelling the push for luxury deals is a surge in the new super rich in emerging markets. Between 2001 and 2007, the wealth of billionaires in those countries grew from 11 per cent to 28 per cent of the global billionaires' wealth.
That trend is forecast to continue.
While there are luxury companies from Britain to India with the potential to expand into global brands, the deal spotlight is strongest on Italy where ownership remains fragmented but the brand names command global recognition, bankers say.
Italian fashion entrepreneurs are also in a rush to boost their capital in order to compete with conglomerates LVMH, PPR and Richemont who have proved most successful so far in gaining a foothold in China, Russia and India where demand for luxury goods is booming.
"Italian companies are open to being acquired or finding a very large investor now because of the worldwide competition," one fashion executive who requested anonymity said.
That executive said several mid-sized Italian brand names were in talks for private investors to buy 60-80 per cent of their capital but on condition they could retain design control.
While Giorgio Armani and Versace - both owned by family members - are obvious targets for industrial and financial investors, smaller family owned houses like Max Mara, Marni or Aspesi are attracting interest with their well-known brands and significant store networks, bankers and executives said.
With Italy's best known luxury houses claiming stellar valuations, smaller brands are also likely to prove more appetizing to private equity firms whose access to funding for mega-deals is restricted with the squeeze on credit.
Their price tags are seen lower than the 3.5 billion euros ($4.75 billion) Prada has said it believes it is worth.
Bernstein senior analyst Luca Solca, a former executive deputy chairman at Gianfranco Ferre's parent company IT Holding, said he expects "a few deals" in the Italian luxury sector in the next 12 months. He also believes an industrial buyer from Europe or Asia may be ready to pounce.
"Sooner or later a Chinese company is going to want to make an acquisition to give it a front row seat," Solca said.
- REUTERS
