m&a in the fashion & luxury sector in italy: accelerate...

M&A in the Fashion & Luxury sector in Italy:Accelerate and sustain the growthMaurizio Castello, KPMG Advisory Partner

Il Sole 24 Ore - 9th Luxury Summit

Milano, May 24th 2017

2© 2017 KPMG Advisory S.p.A., an Italian limited liability share capital company and a member firm of the KPMG network of independent member firms affil iated with KPMG

International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

Key questions to be addressedM&A for Growth

Are Italian firms

still preys or

are they

starting to

acquire

abroad?

Who are the

main buyers

and how are

they evolving?

Are high M&A

multiples still

sustainable?

Is external

financing a real

solution to sustain

growth?

What are the

perceived barriers

for acquisitions?

How should

Shareholder &

Manager roles

evolve?

What are the key

requirements for

growth for Medium

Enterprises?

What are

equity

investors

looking for in

a potential

deal?

What are the

most wanted

categories?

?

The story so far… …What's next?



The story so far…



Are Italian firms still preys?Numbers of F&L deals in Italy

The story so far…

— 252 Fashion & Luxury deals completed from 2010 to 2017, of which 132 from 2014

— Foreign investors still very active (around 30% of total 2014-2016 deals)

— Italy is slowly increasing its presence abroad (e.g. Net-A-Porter, Hugo Boss, Roger

Vivier, Woolrich)

— Golden Goose/Carlyle

— Buccellati/Gansu Gangtai

— Arclinea/B&B(Investindustrial)

— Philippe Model/21

Investimenti

— Yoox/The Net-A-Porter

— Roger Vivier/Tod's Group

— Sergio Rossi/Investindustrial

— Giorgetti/Progressio

— Cavalli/Clessidra

— Moncler/Eurazeo

— Poltrona Frau/Haworth

— Versace/Blackstone

512 9

1814

713

6

65

56

7

10

312

1315

20

1419

22

11

17

3129

43

34 33

45

20

0

5

10

15

20

25

30

35

40

45

2010 2011 2012 2013 2014 2015 2016 April2017

Source: KPMG Advisory Italy

Main deals 2014-2017

132 dealsItaly Italy

Italy Abroad

Abroad Italy



63%52%

25%

30%

10%13%

3%2% 2%

1 2

Who are the main buyers and their evolution? The story so far…

Private Equity: Blackstone, Carlyle, Clessidra, Tamburi,

L Capital/L Catterton, Investcorp, Ergon, Sator, NB

Renassiance, Charme, 21 Investimenti, Investindustrial,

Progressio

Corporate: Yoox Net-A-Porter, Tod's Group, Europeenne de

Participations Industrielles, Campari, Haworth, Gansu

Gangtai, Hanes Brands, Philipp Plein, OVS, Prada, Piquadro

N. deals by investor type

Emirates investors: Mayhoola, Alabbar Enterprises

IPO: OVS, Italian Wine Brands, Masi, Fope

Other investors / financials: Italian Holding Moda, Veneto

Sviluppo, Family Offices, Club deals

100%=120 100%=132

Main buyers in 2014-2017

2010-2013 2014-2017

— Corporate were less active in the last 3 years (no more LVMH and Kering acquisitions)

— Private Equity Houses are still a strong investors

— Going public is becoming more popular in the Italian market (OVS, Italian Wine

Brands, Masi, Fope..)



50%34%

23%

20%

11%

20%

5%15%

7% 7%5% 3%

2010-2013 2014-2017

What are the most wanted categories?The story so far…

Main deals in 2014-2017

Yacht: Azimut-Benetti, Ferretti, Bertram

Retail: Yoox/Net-A-Porter, Eataly, Marchesi, Sempione Retail

Food&Beverage: Sella&Mosca, Grand Marnier, Masi, Jacopo Biondi

Design/Lifestyle1: Poltrona Frau, Giorgetti, Arclinea, FontanaArte,

Flos, Frette

Accessories2: Roger Vivier, Sergio Rossi, Buccellati, The Bridge,

Golden Goose

Apparel: Moncler, Versace, Cavalli, Dondup, Aspesi, Corneliani, Pal

Zileri, Harmont & Blaine, Champion Europe

N. deals by category

— Apparel is still the largest category, but declining in number of deals due to the

end of the French poles expansion period

— Few top brands still available in the market, mainly in the shoes and other

Accessories segments, which is expected to revert

2010-2013 2014-2017

100%=120 100%=132

Note: (1) Furniture, Lighting, Home accessories

(2) Shoes, Bags, Leather, Jewels & Watches, Cosmetics



How much were the average EBITDA multiples?EV/EBITDA average multiples in various sectors

The story so far…

— Fashion still represents the sector with the highest EV/EBITDA ratio

— Average Multiples are declining from the peak reached in 2011

— Multiples are just an indicator to understand if there is room for a deal

Source: Directory M&A 2016 - KPMG analysis on Fineurop Soditic data (2017)

Fashion

Food &

Beverage

Retail

Chains6.0x 6.0x

7.8x

8.0x

9.3x8.6x

8.9x

5.4x 5.6x

14.7x 14.6x

11.3x

12.9x

11.2x

9.5x9.3x

8.7x

10.2x

10.2x

8.2x 8.1x

9.2x

7.7x 7.5x

6.6x 6.5x

8.5x

10.6x

8.2x7.8x

7.1x

6.3x

6.8x

9.7x

8.9x

8.6x

5.9x

10.5x

7.4x

9.3x9.7x

8.8x

4x

7x

10x

13x

16x

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016



— More focus on long term value creation potential rather than on multiple value

— Investors are now focusing on smaller brands with high potential on the retail

channel and international expansion opportunities

— According to our interviews multiples will stay close double digit for the next few years

Year Target Bidder Stake

Value

(€m)

EV/

EBITDA

2014 Versace Blackstone 20% 210 15.7x

2014 Eataly Tamburi 20% 120 14.5x

2014 Poltrona Frau Haworth 100% 415 15.3x

2015 Hugo Boss Zignago Holding; PFC 7% 510 12.2x

2015 Cavalli Clessidra SGR 90% 390 20.9x

2015 Golden

Goose

Ergon (75%) Zignago

Holdings (25%)

100% 113 12.9x

2016 Corneliani Investcorp 51% n.a. 48.0x

2017 Golden

Goose

The Carlyle Group 100% 400 ~15.0x

Are high multiples still sustainable?Although transaction tickets for the period 2014/2017 are lower in value

comparing to 2011/2013, largest assets are still trading at high multiples

The story so far…

Year Target Bidder Stake

Value

(€m)

EV/

EBITDA

2011 Bulgari LVMH 100% 4,300 28.7x

2011 Gruppo

COIN

BC

Partners

100% 930 6.4x

2011 Moncler Eurazeo 45% 418 10.5x

2011 Rinascente Central

Group

100% 205 11.0x

2012 Valentino Mayhoola 100% 700 31.6x

2012 Brioni Kering 100% 218 14.2x

2013 Loro Piana LVMH 80% 2,000 22.0x

2013 Pomellato Kering 75% n.a. 17.7x



…What's Next?



What are the perceived barriers for acquisitions?… What's next?

13%

14%

16%

28%

44%Availability

of funds

High deal risk

Prices too high

Lack of

adequate skills

Fear of

losing control

Source: KPMG M&A Academy Survey - 2016 (around 200 firms with revenues > €50m)



Which are alternative financing instruments? … What's next?

Yield

Debt size (€m)

Key issues

— Each financing solution comes with

very specific characteristics (e.g.

cost, minimum/maximum ticket,

covenants)

— Their availability depend on size,

level of indebtedness and brand

relevance of the Company

— CFOs of SMEs must find the right

financing mix to finance Company's

growth at a sustainable rate while

avoiding excessive financing costs

Although there are various options for Medium Enterprises looking for

alternative financing instruments, they cannot be used as a medicine to solve

company's structural problems…

Mezzanine

Unitranche

Minibond / Private Placement

Bank Debt

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

0 50 100 150 200 250 300 350



What are equity investors looking for in a deal?… What's next?

High-potential Brands Governance well defined upfront

— PE houses act as system aggregators: entrepreneur, management team,

banks, external stakeholders, bringing finance competences and

relationship network…

Enlightened entrepreneur

(that knows where to go)

Scalable business model

for growth

"Shareholders must behave as

shareholders" (from being an

entrepreneur to a shareholder)

Strong Management team in a

structured organization



What are the key requirements for growth? … What's next?

— Focus on a solid business model finding

the optimal balance among brand,

team, and creativity

— Pay greater attention to NEW

customers that have different needs

(millennials, product characteristics,

service level,…) and taste (style, image,..)

depending on the Country of origin

— Have a viable/credible growth plan(e.g. retail expansion, e-commerce,

omnichannel, international scalability,…)

Structural problems in many cases

are due to some lack of managerial

skills or to an unclear vision of the

future development of the business…

Creativity Team

balance

Brand



What are the roles of the majority Shareholder?… and to an unhealthy overlap of Shareholders with Management

… What's next?

ENTREPRENEURS GUIDELINES

Act as a real Shareholder (e.g. Arnault, Pinaut,…):

— Delegate and avoid overlap with Management in day-to-day

decisions

— Respect the autonomy of your teams

— Measure the economic results

— Quickly take the proper countermeasures

Protect and develop the "history" of the brand with a

medium/long term view

Provide Management with support and resources to scale up to

the next level



New

managerial

competences

for growth are

required

Act as

a shareholderSize is a

must

to compete

globally

KPMG View

Manage the

generational

change

Third party

financing is

useless if the

COMPANY

DEVELOPMENT

PLAN

is not clear

and robust

Large PE

houses provide

not only finance,

but competences

and network

for growth

UNLOCK VALUE TO ACCELERATE AND SUSTAIN GROWTH

ContactsThe contact at KPMG in connection

with this report is:

Maurizio Castello

Deal Advisory, Strategy

Head of Fashion & Luxury Practice

Partner, Milan, KPMG Advisory S.p.A.

Tel: + 02 6763 2682

[email protected]

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© 2017 KPMG Advisory S.p.A., an Italian limited liability share capital company and a member firm of the KPMG network of independent member

firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

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