Yoox and Net-a-Porter confirm merger talks
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Online luxury retailers Yoox and Net-a-Porter are closing in on a deal to merge their operations, in the latest sign of increasing online competition among purveyors of high-end goods.
Italy’s Yoox on Monday confirmed weekend speculation that it was in advanced talks about a tie-up with Net-a-Porter, the luxury retail website bought by Switzerland’s Richemont in 2010. Shares in Milan-listed Yoox were up 8.7 per cent at €22.91 in afternoon trading, and people familiar with the discussions said an agreement could be reached as soon as Tuesday.
Any deal is likely to involve Yoox, which was founded 15 years ago by Internet entrepreneur Federico Marchetti, taking over Net-a-Porter, founded by London-based online fashion entrepreneur Natalie Massenet, in a cash-and-share transaction, the people said. Analysts suggested that Net-a-Porter could be valued at up to €1.5bn.
Richemont bought out Ms Massenet in 2010 in at a price that valued Net-a-Porter at €350m, but has since built up the business substantially, with its sales more than quadrupling in the intervening years.
However, as more luxury companies have started to sell their wares online, Net-a-Porter’s profitability has suffered. “Since we bought Net-a-Porter in 2010 we have experienced much more competition. That continues,” Gary Saage, Richemont’s chief financial officer, said in November. “That competition manifests itself in lower operating margins than we initially thought.”
John Guy, an analyst at MainFirst Bank, said that Richemont was likely to make a good profit on its initial investment. “The enterprise value that Richemont has effectively invested in Net-a-Porter is around €420m. It’s probably now worth around €1.5bn, which would give them a nice return,” he said.
Net-a-Porter is looking for a price of €1.3bn at a “minimum”, but aiming for a much higher valuation, said one industry executive familiar with the matter.
While luxury companies were laggards in moving on to the internet, they have rapidly accelerated their exposure in the past two years, realising that luxury clientele from so-called millennials to time-strapped working women are increasingly shopping online at all hours of the day and night.
Yoox and Net-a-Porter were early movers — and rivals — in selling fashion over the web. However, their business models differ. Net-a-Porter sells full-priced fashion and accessories, while Yoox has a dual model where it sells luxury at discount prices and also creates and manages the Internet sites for big brands.
Yoox’s main client is the Kering group behind Gucci and Bottega Veneta. It made a net profit of €12.6m in 2013, the latest annual figures available, on revenues of about €500m.
Analysts say Net-a-Porter and Yoox’s business models are expected to come under more pressure as the luxury industry matures. They believe that luxury goods will want to bring control of their online sales in house.
Luca Solca, analyst at Exane BNP Paribas, considers the move by Yoox and Net-a-Porter to be defensive.
“Of the two, Yoox seems to have the most directly challenged business model in the short term — and is probably the most eager to merge. Hence, we expect the merger to be more advantageous to Net-a-Porter/Richemont in terms of valuations,” he said.
Discussions about a merger also happened in 2012 but never got anywhere, according to the industry executive. The two companies are close, and believe a deal would be good fit from a cultural and technical perspective.
Amazon has also been rumoured as a possible purchaser of Net-a-Porter, but a deal with Amazon was not on the table, the executive added.
Additional reporting by Murad Ahmed in London
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