THE LUXURY BRANDS: NEW PAIRINGS – INTERNATIONAL

It seems that Louis Vuitton is about to pair up with Tiffany; so will Gucci make a similar move?

Kering, which owns Gucci, Saint Laurent and other brands, has approached luxury skiwear company Moncler for discussion of “strategic opportunities.”  Kering has recently said that it is open to, but doesn’t need, a new deal (ref WSJ).  Digital technology is making scale more relevant in the luxury industry, so the French company might feel compelled to shop around a bit more aggressively for partners to go down those paths.  But, with a market value of $75 billion, Kering would need a sizable deal to meaningfully boost sales and profit.  Thus, with Tiffany out of the picture, only Moncler and Burberry are likely targets for partnering, given their scale and free floats – other brands are privately held or controlled by family founders.  Moncler’s equity would be worth around 20 billion, which represents 18 times expected earnings before ITDA, which is high compared to recent luxury deals.  As well, such a large acquisition would be out of character for Kering which hasn’t bought anything since it acquired a small luxury watchmaker in 2014.  Instead of executing purchases, management has lately been focusing on growing existing brands – a noble endeavor.  However, there’s speculation that a more sizable deal might make sense now – the analysts are saying that it takes a decade to build a 1billion plus brand, but to take a brand from 2-3 billion takes less time.  Interesting to speculate on – we’ll follow the action and report back.

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