The Truth About Manufacturing Lauren Foster in New York
When it comes to an appetite for luxury goods, few companies have been as acquisitive as LVMH Mo?t Hennessy Louis Vuitton, Richemont, and PPR, formerly Pinault-Printemps-Redoute. Not surprisingly, they are the world’s three largest luxury goods companies.
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But after the spending-spree of the late 1990s and early 2000s, not all of it successful, the big three luxury titans have switched from being strategic buyers to focusing on their existing portfolios, including selling some businesses.
That has opened the door to the deep-pocketed private equity funds. Eager to cash in on the buoyant market for luxury merchandise, they are prowling around the industry looking for deals.
“Private equity has so much money, they don’t know what to do with it,” says Gail Zauder, managing partner at Elixir Advisors, an investment bank specialising in luxury goods.
Many private equity funds slowed their investments after the dotcom bubble because of a poor economic outlook and illiquid public markets. Leverage for their deals was harder to obtain because of tight lending criteria.
Now, with a brighter outlook and more liquid stock markets, private equity funds are buying aggressively.
The entry of many hedge funds into the lending market also provides more sources of debt for their leveraged deals. And with strategic investors mostly focusing on their existing portfolios, the big private equity funds have this market mostly to themselves.
With lots of cash chasing a finite number of deals, the result is more auctions and expensive prices.
Private equity interest in the upscale sector comes at a time when luxury retailing is booming because consumers around the world have more spending power.
According to the latest Affluent Market Research Program, TNS Financial Services’ annual survey of the wealthy, published in November 2004, the number of US households with a net worth exceeding $1m rose 33 per cent to 8.2m in 2004, from 6.2m the previous year. That is the largest increase recorded in the study’s 23-year history.
The recent wave of interest by private equity firms in the luxury sector was fuelled last year when Jimmy Choo, the shoe brand worn by celebrities including Julia Roberts and Sarah Jessica Parker, sold a 51 per cent stake to private equity firm Hicks Muse.
In another deal, Trimaran Capital Partners, a New York private equity firm, and Kier Group, which makes private equity investments in lifestyle, luxury consumer products and retail businesses, bought a majority stake in Fortunoff, the fine jewellery and home furnishings retailer.
Now two prized names in luxury retailing
