Permira plans further fashion buys

Permira, the private equity house that last year took control of Valentino Fashion Group (VFG), has said it plans to use the initial investment as a platform to make further acquisitions in the fragmented fashion space.

Gianluca Andena, co-chief executive of Permira in Italy, said: “We are ready to implement an add-on strategy for the group.” He pointed out that Valentino was “already one of the largest groups in the luxury space” after LVMH, PPR and Polo Ralph Lauren.

“Given the large size of the business at the moment, we think we are like a natural magnet that can attract other companies, with the idea of further expanding the group,” Andena said. Permira’s purchase valued Valentino at €2.6bn (US$4bn).

Some analysts believed Permira’s main aim in buying Valentino was to pick up German brand Hugo Boss, in which the Italian fashion house had a 51% stake. “There should be a lot of growth for Hugo Boss in emerging markets,” said one.

However, there are also significant acquisition opportunities in Italy, where a lot of family-owned businesses are facing succession issues. Several, such as Prada and smaller fashion house Ferragamo, have set out plans to float in Milan this year.

JPMorgan, Mediobanca and UBS are advising Ferragamo, with Banca IMI, Goldman Sachs and UniCredit acting for Prada.

A sale to a major trade player could be an alternative exit route. Broker Merrill Lynch estimates that a third of Italian luxury goods companies are still owned by the “first generation” who founded the business. Many might now be considering selling.

“An estimated 40% of the top 500 companies in the sector in Italy have chief executives of at least 60 years old. We therefore expect dramatic changes to sweep through Italy’s predominantly family-owned luxury industry in coming years,” said Merrill’s report.

Permira has experience of executing such a buy-and-build strategy in this area, having expanded yacht maker Ferretti by this method. “Group building is in line with our way of looking at private equity, where we act with an industrial approach,” said Andena.

“Accordingly, notwithstanding the current focus, which is more on Valentino and Hugo Boss, we remain interested in both large deals that could add to the group another important brand and in smaller transactions that could complement and further strengthen our product offering of the existing brands,” he added.

However, he warned that “with the deterioration of the credit environment experienced since the first half of 2007, large transactions like Valentino are not yet possible”.

What are possible in these conditions are deals to restructure the portfolios of existing luxury goods companies.

Andena said: “Uncertainty may also create unstable situations, triggering sales processes or revision of portfolios, creating interesting M&A opportunities for the most entrepreneurial players.”

Carlyle, which also expressed an interest in buying Valentino last year, would not comment when asked if it was also interested in buying other companies in the sector.

Another interested party might be Opera, a €300m private equity fund set up by watches and jewellery business Bulgari and others, which has recently been bought out by its management.