Permira almost lost its shirt after buying luxury group Valentino on the eve of the global financial crisis. Though this might seem to support the contention that private equity investors are not the best owners for fashion houses – they need to sell within three to five years, too short a time to see young designers grow and weather downturns – seven years later the investor is back trying to stitch up another deal in Italian fashion. Why?
“Permira has learnt a lot from past deals,” says Armando Branchini, president of Milan-based consultant Intercorporate.
Vittorio Pignatti-Morano, a partner at Trilantic, which bought a stake in Elisabetta Franchi last year, agrees: “Funds that had troubles with fashion investments purchased in the bubble years have a solid expertise and are unlikely to make the same errors.”
Permira has looked closely at Versace, whose owners Donatella Versace and daughter Allegra are selling a 20 per cent stake. It also held talks with Roberto Cavalli after signs the 73-year-old would be ready to sell a majority stake in his fashion house.
Though Permira dropped out of the Versace race and contacts with Mr Cavalli have not led to an offer, it is on track to close a €5bn fund for acquisitions, and has sought to leverage its Valentino experience.
Fabrizio Carretti, one of the Permira dealmakers in charge of the Valentino deal, declined to comment, but Nicola Volpi, a Permira veteran who has since retired, told Il Sole 24 Ore in 2012: “With the experience gained, we will certainly be looking at opportunities in the fashion sector.”
Valentino was a small part of the €2.6bn leveraged buyout in 2007 – Permira coveted Hugo Boss, the bigger brand in the group – but a tough time lay ahead for the luxury brand.
In 2007 Valentino was estimated by analysts to be worth €750m, based on operating profit of €37m. By 2009 it was losing money and going through a difficult transition after founder Valentino Garavani retired.
Three years later Permira sold the house for €700m to Qatari investors, after earnings before interest, tax, depreciation and amortisation recovered to about €30m. It now boasts a 100 per cent gain on its stake in Hugo Boss.
Still, Permira faces stiff competition in Italy. The Moncler listing in Milan in December, which made Carlyle more than six times its investment, has whetted other funds’ appetites.
Blackstone, CCMP and Investcorp are vying for a piece of Versace, lured by growing markets in Asia and the US. The deal is expected to value the brand at nearly €1bn.
Carlo Pambianco, president of luxury adviser Pambianco, says: “Many luxury companies, largely family-owned, would like to expand abroad but they are too small to approach those international markets. They need a financial partner.”
Permira, it seems, plans to be a part of that.
Anne-Sylvaine Chassany and Rachel Sanderson