PARIS, Jan 31 (Reuters) – A scarcity of sellers, combined with a growing number of cash-rich buyers from Asia and the Middle East, mean high-priced takeover deals are set to remain in fashion for the luxury goods industry, despite slowing sales growth.
- Luxury buyers seen paying 15-18 times EBITDA vs 11-13 before
- Asian, MidEast buyers joining industry leaders, buyout firms
- Tightly-held brands drive up prices despite slowing growth
Rapidly expanding emerging market companies, such as China’s Fosun and the Qatar Luxury Group, are looking to snap up European brands with long histories – a major attraction for affluent shoppers in their home markets.
But they face competition from industry leaders such as LVMH and Richemont, whose coffers are also full after a buoyant few years, as well as private equity firms which are finding it easier to raise money as the global economy recovers, and like luxury firms’ strong cash generation.
While a few brands such as Italian fashion labels Versace and Roberto Cavalli and U.S. jeweller John Hardy are in play, many others are difficult to prize away from family owners.
So even though industry growth is expected to slow for the next few years as once red-hot demand in China cools, takeover deals look set to remain pricey – turning up the heat on buyers to choose well and execute purchases flawlessly.
“Valuations in the luxury sector are likely to remain high,” predicted Francois Arpels, managing director of the consumer and luxury goods practice at investment bank Bryan Garnier.
Industry bankers say that while luxury brands might have sold for 11-13 times core earnings (earnings before interest, tax, depreciation and amortisation, or EBITDA) in 2011, most are now likely to fetch at least 15-18 times current annual profit.
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