Got cash?
A lot of people do right now — and they’re spending it as fast as they can on startups, streetwear, beauty, fashion tech, lifestyle or heritage brands — and companies large and small.
It’s a golden moment for entrepreneurs with profitable — or even just promising — businesses as investors are looking for returns on cash, which they’ve been raising, stockpiling or returning to investors at a time of very low interest rates and slow GDP growth in the West.
The first quarter hasn’t even wrapped up, but multiple M&A deals have already been done — or are in the works.
We have learned that Acne Studios is the latest company to hit the block, with the founders looking to sell a majority stake. Co-founders Jonny Johansson and Mikael Schiller have given a mandate to Goldman Sachs to look for buyers for their company, which has annual revenues in excess of 200 million euros ($247 million).
According to multiple industry sources, Goldman has been holding fireside chats with potential buyers for a few months and is likely to launch a formal sale process after the summer. Johansson did not return requests for comment, while Schiller would not confirm that the company was for sale. A spokesman for Goldman in London declined to comment.
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Industry insiders believe that Acne, with its distinctive stamp of Scandi cool, will be a highly fought-over opportunity — especially since management is strong and the founders plan to remain involved. They also say that Asian or European private equity players might be eager to snap up the brand, given its success in Asia and bullish plans for retail and category expansion.
Founded in 1997 with contemporary price points and a multidisciplinary approach, Acne quickly became famous for its raw denim jeans and Pistol leather ankle boots, not to mention fashion collaborations with artists and brands including Lanvin.
And the Acne founders clearly are picking a good time to seek an investor. Over the past two and a half months alone, investors have been pouring their money into brands ranging from Bally, Lanvin and La Perla to Hussein Chalayan, Mary Katrantzou and MSGM. Farfetch, which has been striking deals with companies as diverse as JD.com, The Chalhoub Group and Chanel, may eschew M&A altogether and seek a stock market listing this year.
More deals are in the hopper, with the Italian accessories brand Piquadro confirming Tuesday that it’s in exclusive talks to buy the French accessories label Lancel from Compagnie Financière Richemont. Richemont, meanwhile, is on its way to taking full control of Yoox Net-a-Porter Group, pending shareholder approval over the next few months.
According to sources, Antonio Marras is negotiating the sale of a stake in his company to Principia SGR, a venture capital company, while Tory Burch and Stella McCartney may be facing shareholder reshuffles at their respective companies.
John Idol, chairman of Michael Kors Holdings Ltd., said he’s ready for more investments after paying a jaw-dropping multiple for Jimmy Choo. According to sources, Idol kicked the tires at Lanvin, which Fosun International acquired last month. Kors’ competitor Tapestry — owner of the Coach and Stuart Weitzman brands — is also on the prowl for acquisitions.
Be they private equity or sovereign wealth funds, trade buyers, family investment businesses or high0-net-worth individuals, investors are not only looking to park their money in the right place but are also using their cash to beat a path to millennials. They’re shaping their investment strategies around that demographic and its embrace of social media, direct-to-consumer plays and sustainable products.
“Investors are struggling to put their money to work, and they’re willing to pay high multiples,” said M&A and strategic advisory specialist Jacques-Franck Dossin of Dossin Advisory. “Private equity in particular has been raising a lot of money, and they’re under pressure to invest the cash.”
If the investments are right, the returns can be lush — in luxury and beauty in particular. Backers can expect to see 5 percent — or more — in top-line growth per annum over the next five years, compared with GDP growth of 1.5 to 2.5 percent in most Western countries, combined with hefty margins, according to Dossin.
Carmen Busquets, a co-founder and early investor in Net-a-Porter, whose myriad investments include Farfetch, Moda Operandi and Cult Beauty, said this particularly lively M&A moment is a confluence of many factors. They include low interest rates, slim market pickings and a shift in investors’ mentalities, especially among private equity.
“There are fewer good, premium companies to invest in — and even fewer unicorns. As a result, there is a lot of demand, and companies’ valuations have gone up,” said Busquets, adding that investors have also become “less greedy” with regard to their returns and are more willing to stick with companies for the longer term and help them to create value.
She added that family-owned funds and investment firms in particular have surged to the fore, and are not only willing to make early-stage investments but to advise the companies as well.
Busquets pointed to her friend and fellow investor Adrian Cheng, who recently took stakes in companies including Flont, Armarium, Not Just a Label, Finery and Moda Operandi through his newly formed C Ventures firm or other investment vehicles.
“After the banks crashed, investors started distrusting funds and bank products and didn’t want to leave their cash in the bank at low interest rates. This motivated big families to invest more and become more active in directly injecting money into companies,” she said.
Not only are investors getting more active and engaged, they’re spotting companies earlier and grabbing at opportunities rather than established brands. It happens a lot in beauty, where the sales volumes and markups are high and the returns can be rich.
London-based entrepreneur Thea Green, who founded Nails Inc. in 1999 and has launched INC.redible Cosmetics, said she recalls how hard it was to get investors’ attention when Nails, which is now turning over about 20 million pounds ($28 million) a year, was still young and growing.
“They used to say you weren’t big enough, but I don’t think it’s about sales and numbers anymore,” said Green, whose company remains independent.
“Everyone wants this millennial customer and brands that are social media-relevant. That’s where the market is trending, so if you’re a brand that was born in the social media age and you can prove you have a track record — although you’re only 2 years old — then that’s a lifetime.”
The millennial customer is very different from the Gen X or baby boomer. “Younger customers have no brand loyalty,” so it really doesn’t matter whether a company has been around for one year or a hundred years, as long as it has market traction and a growing customer base, said Cindy Palusamy, a beauty industry consultant and entrepreneur.
Another reason why the beauty space remains hot is that it offers investors opportunities to bolt on acquisitions rather than start trendy new brands from scratch. It can also gives the big corporates instant kudos among customers who want sustainable or niche products or ones with a strong social media following. These corporates aren’t necessarily buying sales or profits; what they’re buying is the new customer.
“The market is being hugely disrupted as consumers call for cleaner and greener products, while accusing their longtime suppliers of poisoning them,” said Ludovic Grandchamp, partner at Savigny Partners, the boutique M&A firm based in London. “This creates opportunities for emerging companies with fundraising and acquisitions on the horizon.”
Over the last few months, Unilever Ventures has made some extreme early-stage investments, including Gallinée, a company founded in 2016 that specializes in products that work with the skin’s natural bacteria, and Trinny London, the new direct-to-consumer color cosmetics business from the TV and Instagram personality Trinny Woodall that launched late last year.
But it’s not only the startup beauty companies getting attention from investors. This year, Axel Arigato, the cult sneaker brand that launched in 2014 and drops new styles every week, secured a $7.5 million investment from the new specialist fund Vaultier7. Talk about scaling rapidly: Arigato’s turnover jumped to $9 million in less than three years.
The investment is one of the first from Vaultier7, whose founders, Montse Suarez and Anna Sweeting, are looking at companies with revenues of between 3 million pounds and 15 million pounds, with a focus on the U.K. and Europe. They have said their aim is to partner with small companies after the angel investor and venture capital stage, and before midsize private equity players are ready to invest.
Nowadays, investors are not only willing to take smaller stakes if they know the brand is growing fast, they’re also forging alternative deals with founder-entrepreneurs.
Glansaol, the Warburg Pincus-backed platform founded by Alan Ennis, buys beauty companies and then asks the founders to invest in Glansaol and stay on board to run their respective businesses. So bullish is Ennis about his strategy, he told WWD last year that his goal is to buy up to seven companies before taking Glansaol public.
Building scale quickly — in beauty, fashion or tech — is another reason behind the recent flurry of investments. It’s why Matchesfashion.com sold to Apax Partners in a deal that valued it at $1 billion and why Richemont is so keen to get its hands on the shares in YNAP that it does not already own.
“The consumer has moved so quickly from pure bricks-and-mortar to online, much faster than a lot of people expected within the luxury space. Average transactions are going up, customer acquisition is coming down, and those platforms are becoming more commercially viable. Online is going to be a very important channel that people are looking to invest in and control,” said Justine Mannering, managing director at Alantra, a European investment bank.
She’s not the only one contemplating the importance of scale: Last week, Luca Solca of Exane BNP Paribas indulged in some blue-sky thinking, mooting a merger between Richemont and Kering, which he said are complementary: “Kering is strong in soft luxury, Richemont is a champion in hard luxury. The combination would create significant scale advantage. We calculate top-down cost synergies of 340 million euros. The question is whether the respective controlling families would be willing to sacrifice control in order to build a stronger, better and more valuable company.”
It may be an unlikely scenario — given the egos and personalities involved — but Solca argued a merger would likely be very well-received by the stock market and could spur a counterbid by LVMH Moët Hennessy Louis Vuitton if Richemont were to be in play.
While private equity investor Fabrizio Zappaterra, who is involved with brands such as Hunter and Temperley, would argue there’s a record amount of liquidity out there, he stressed that fashion doesn’t find itself in as favorable a position as beauty or wellness, where growth is easier to achieve and the perceived prize is bigger.
“Fashion is a very well-served — and saturated — market. Today, there is more reticence and apprehension around fashion than I have ever seen,” said Zappaterra, pointing to the seismic shifts the industry is facing in terms of distribution, direct-to-consumer sales, value proposition and millennials’ increasing tendency to spend their money on experiences rather than things.
“In fashion, you have to have a brand and an edge that is so strong and a value proposition that is very clear to the customer. Whether you are selling something for 100 pounds or for 1,000 pounds, the inherent value has to be amazing to win.”
He also pointed out that the most attractive investments right now are the ones that are high-growth, tech-led or ones that have multiple ways of creating value. “Investors,” Zappaterra said, “want companies that can explode.”
