Since early this year the global industry of premium products saw an increasing number of mergers and acquisitions.
The most striking examples of this were the acquisition of Italian jeweler Bulgari S.p.A by Moet Hennessy - Louis Vuitton SA (LVMH), the leading manufacturer of products for the wealthy, as well as the buyout of Jimmy Choo, a British footwear brand, by German holding Labelux Group specialized in producing lifestyle products.
According to observers, the wave of these strategic mergers is driven by the desire of owners of large luxury brands to conquer countries with growing economies, especially China.
The European Commission, which is responsible for checking this kind of transactions for compliance with the EU legislation on free competition, has already approved the acquisition of Bulgari by LVMH.
According to the European Commission, "this absorption does not have a significant impact on the structure of competition in the market, as Bulgari takes only a small fraction of it, and LVMH will continue to compete with several other producers of luxury goods".
The purchase agreement between Bulgari and LVMH was concluded this spring. The transaction was effected in the form of an exchange of shares: LVMH has a controlling stake (50.4%) in Bulgari, and the Italians – a 3.5% stake in the French group.
In the opinion of experts, the absorption of Bulgari in the current year will bring an increase in sales to LVMH in the amount of $1 billion. The transaction value is estimated at 4.3 billion euros.
In its turn, Labelux Group forked out $600 million for Jimmy Choo, though the London-based company’ sales did not exceed $200 million.
Like LVMH, major manufacturers of premium-products now have significant liquidity and actively seek to expand the brand portfolio to take maximum advantage of all the benefits observed in the market boom in demand.
"Many large companies say that today they are able to realize their plan in five years, something for which previously they assigned ten," said Shawn Kravetz, President of Esplanade Capital, an investment firm.
In turn, independent producers of luxury goods are in need of funds to expand their distribution networks, particularly in countries with rapidly growing economies - China, India, Russia and Brazil.
From the beginning of this year, there has been an acceleration of mergers: Jean-Paul Gaultier, the brand fashion world legend, was bought by Spanish Puig manufacturing perfumes and cosmetics, while the Italian Fashion House of Cerruti was acquired by Trinity Limited from Hong Kong, a subsidiary of Li & Fung, a Chinese business group. The latter in its turn bought Robert Clergerie, the French footwear brand.
Globally, the total value of mergers and absorptions in the class of premium brands has already reached $6 billion this year, twice the figure for the end of 2010.
"We believe that industry consolidation will continue," says Laurent Belloni, Manager of Pictet Premium Brands, an investment fund.
He expects the next "victim" of absorption will be Tiffany & Co, the American jewelry retailer, which may be purchased by Swatch Group, with which it has a strategic alliance in the segment of watches.
French spirits producer Remy Cointreau, which recently sold its Champagne Piper-Heidsieck, has a chance to become part of one of the leaders in the field of wines and spirits group - Pernord Ricard and Diageo.
As for the French cosmetics empire L'Oreal, it regularly becomes the subject of rumors about acquisition by Nestlé, which already owns 30% of its shares.
However, experts note that faced with the need of fresh capital inflows, the owners of some independent trade brands have chosen to place their securities on stock exchanges instead of being absorbed by large holdings.
This was the case, in particular, with the Italian fashion house Prada and the Ferragamo brand, which expect to gain hundreds of millions of euros in their next appearance on the Stock Exchange of Hong Kong. And, according to experts, this step is one of the ways to enter the Asian markets and preserve identity.
Alex Shishlo, Editor in Chief of the European Bureau, Rough&Polished
