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As Armani Speculation Swirls, What’s Next for Italy’s Dealmaking Surge?

The current wave of mergers and listings is expected to grow as big groups like LVMH and Kering surge ahead and Italy’s last remaining luxury independents face pressure to bounce back from the pandemic while juggling succession planning and digital transformation.
Models walk the runway during the Armani's show at Milan Men's Fashion Week Spring/Summer 2021/22 on June 21, 2021. Getty Images.
Models walk the runway during the Armani's show at Milan Men's Fashion Week Spring/Summer 2021/22 on June 21, 2021. Getty Images.

How will things shake out for the last of Italy’s independent luxury brands? That’s the question many in the fashion industry are asking after another flurry of financial news and deal speculation.

Last week, after Reuters reported that talks between Armani and Agnelli family holding Exor had stalled, both Women’s Wear Daily and Astrid Wendlandt’s Miss Tweed cited unnamed sources saying an accord between the two companies could be reached as soon as September. The week before, in less than 72 hours, Etro sold to LVMH-backed private equity fund L Catterton and Zegna announced it was going public by merging with a New York-listed special purpose acquisition company.

The Zegna transaction, which valued the high-end menswear brand at $3.2 billion and raised around $880 million, signalled an escalation of dealmaking in the Italian fashion space after months of increased activity in small and mid-sized brands like Jil Sander and Stone Island, which sold to Diesel-owner OTB and Moncler, respectively.

Markets are flying high at a time when the luxury business is getting increasingly complex and competitive, putting pressure on independent players. Now, luxury analysts and investors are closely watching the handful of remaining Italian independents, especially those whose sales have surpassed $1 billion.


In addition to Armani and Zegna, billion-plus brands Dolce & Gabbana, Salvatore Ferragamo and Prada are still controlled by their founding families, and are under pressure to bounce back from the pandemic as large luxury rivals like LVMH surge ahead. They are also juggling pre-existing challenges including succession planning, digital transformation and growing calls for sustainability.

Tod’s or Valentino, owned by the Qatari royal family’s Mayhoola fund, could also come into play. Other smaller Italian fashion firms that remain independent include Brunello Cucinelli, Missoni and Aeffe, which owns Moschino and Alberta Ferretti.

“Market multiples are very high right now,” said Erwan Rambourg, an analyst at HSBC. Luxury results since the pandemic have shown a “huge difference between big and small” with the market favouring the biggest and most-well funded brands.

“If you’re a privately-held business this might be the appropriate time to ask if you want to find a bigger organisation to support and back you,” Rambourg said.

Armani-Agnelli Tie-Up?

A deal for Armani would kick things up to the next level, but would surely have its hurdles: the company has been wholly owned and controlled since 1975 by its 87-year-old namesake founder and designer, who has tenaciously avoided taking on investors or creditors who would compromise his independence.

Known for his healthy lifestyle and continued passion for work, Armani maintains a hands-on approach to design and business. He still styles his shows himself, tweaking hats and shirt cuffs on models before they step onto the catwalk, and regularly shakes up top management to ensure that the company is being run his way. He has even showed an interest in managing how his brand is operated following his death, setting up a trust that would structure the company’s governance and keep it running independently well into the future.

A buyer wouldn’t just need the money to take over the brand, whose turnover including licensed products like sunglasses and perfume totalled €3.3 billion last year. They would need to present a convincing plan for how to take forward Armani’s vision. A deal would have to be able to deliver value for the buyer’s own shareholders while also appealing to Armani, who loathes relinquishing control. It’s a tall order.


But the pandemic, which brought on fashion’s deepest crisis since World War II, has shaken Armani’s desire to go it alone. Speaking to US Vogue, he said as early as April that he would consider taking on a partner, as long as the entity was Italian, thereby ruling out LVMH or Kering.

In 2020, net revenue fell 25 percent to €1.6 billion, the brand announced Sunday, while its operating result turned loss-making at minus €29 million. The rough year came on the heels of several years of falling sales at the brand, during which the company’s declining market share was exacerbated by a lengthy effort to weed out and reposition various sub-brands that were diluting the label’s message of relaxed refinement.

An Exor spokesman denied it had made an offer for the brand or that a takeover was being studied. (Some reports on the talks specified they were thus far limited to informal conversations between Mr Armani and Exor chairman John Elkann, the Agnelli family’s scion).

A spokesperson for Armani declined to comment on the merger and acquisition reports.

High Valuations, More Complications

Whether or not Armani turns out to be a seller, analysts expect the market for Italian fashion deals to remain active.

READ: Moncler-Stone Island, OTB-Jil Sander: What A New Wave of Italian M&A Means for Fashion

Brands who are experiencing a strong recovery and can point to resilience in their businesses could choose to list or sell off shares — with owners taking advantage of high valuations in the market to raise capital to scale up, reduce their personal stakes or cash out completely — while struggling players, too, could seek shelter within the structure of a larger group.


Listing shares is another option that can help boost a company’s visibility and accountability to investors, as well as providing a more objective view of what a business is worth. An IPO or SPAC deal, whereby a privately-held brand goes public by merging with a publicly listed shell company, can be a first step toward being more active in M&A, or simply provide funds to scale up a business faster.

“Market conditions are benign, and investors like stories where you combine tradition and growth,” said Sergio Ermotti, the chairman of Swiss Re Group, as well as of the SPAC that’s currently working with Zegna to take the brand public.

“You want to build up ex-ante the financial capability to fund your growth trajectory, whether it’s through organic growth or [M&A]”, Ermotti said.

Even before the pandemic, the biggest and most well-funded luxury groups had been using their heft in real estate, publicity and talent management to outpace independent rivals. Since the pandemic that gap has only widened, as bigger groups can invest more heavily in digital and keep up marketing spend and investments in talent despite the financial headwinds of store closures and disrupted tourism.

Recent financial results show Salvatore Ferragamo and Armani still struggling to get their business back to 2019 levels, while French groups surge ahead. Gucci-owner Kering reported second-quarter sales up by double digits compared to 2019′s pre-pandemic levels, while LVMH’s fashion division surged ahead by as much as 40 percent.

Independent brands have survived crises before, and many of them probably could continue on their own. “But are they surviving, losing share every year, or can you thrive?” asked Rambourg.

Beyond Armani

While Armani has been the focus of most immediate speculation, luxury analysts see other Italian brands as ripe for potential deals as well.

After reportedly exploring options for a sale to a rival conglomerate in 2019, Prada could take advantage of its current momentum to negotiate an exit for its founding family, which still owns 80 percent of shares. (Conversely, some believe the brand will shield itself from the scrutiny of the market by buying back and de-listing its shares, an intention that chief executive Patrizio Bertelli denied last May).

Qatar’s Mayhoola fund could also revive its ambitions for an exit from Valentino, either through a sale or IPO. A reported plan to list the brand around 2017 was scuttled as growth cooled, but the company has high hopes for a turnaround under its new CEO, former Gucci executive Jacopo Venturini.

On the other hand, Salvatore Ferragamo, long a target of takeover speculation, seems to be committed to trying again to relaunch growth under incoming CEO Marco Gobbetti, who is set to join from Burberry at the end of the year, before exploring a sale.

Italian Acquirers Emerge

For top assets that do go up for sale, few companies could hope to outbid the likes of LVMH or Kering.

But the emergence of some more acquisitive players within Italy’s borders could open a pathway for deals that appeal to founders’ sense of national pride, or a desire to maintain a seat at the table. The Moncler-Stone Island deal fused two outerwear companies with similar histories and supply chains, and married mutually beneficial skills like Stone Island’s expertise in garment dyeing to Moncler’s investments in a more traceable supply chain for sensitive materials like goose down. The deal gave Stone Island’s founding family shares in the holding company of Moncler chairman Remo Ruffini, and representation on the combined company’s board.

It’s the kind of family agreement that the Agnellis’ Exor fund may be hoping to strike as it pushes into the fashion space. While the family doesn’t have the financial firepower to outspend LVMH, they have the name recognition, business and political ties of Italy’s most prestigious industrial family, and a long track record of brokering complex deals, such as Fiat-Chrysler’s merger with French carmaker Peugeot S.A.

Selling to Exor could be more palatable than to a French group for entrepreneurs whose identity and family reputations are tied up with their namesake brands. (With Armani specifically, the ties with Exor go deeper: the fashion brand designs and produces the uniforms for Ferrari’s racing team; Ferrari’s fashion line is designed by a former executive from Armani’s studio, and Armani’s nephew and board member Andrea Camerana is related to the Agnelli family.)

Exor has insisted it invests in specific businesses whose fundamentals it believes in rather than targeting any sector. But a spate of recent moves in luxury seem to point clearly to ambitions in the space: since last December, the group acquired a majority stake in Shang Xia, the Chinese luxury start-up launched by Hermès; bought a 24 percent stake in shoemaker Christian Louboutin; and relaunched the fashion line of its most prestigious holding Ferrari.

So even if a deal for Armani deal doesn’t materialise, fashion shouldn’t expect this family to go away.

“It would be awkward for a company to take these stakes then say, ‘We’re done now,” Rambourg said.

Diesel’s founder Renzo Rosso is another player who has tried to encourage consolidation and partnerships in the Italian luxury sector, albeit with a focus on smaller brands. His OTB fashion group has already added Margiela, Marni and, most recently, Jil Sander to its stable, as well as inking production deals with DSquared2 and Koché. While many small Italian fashion companies know they could benefit from consolidation or cooperation, egos and old rivalries often get in the way. “The problem with Italian entrepreneurs was that they would never see a brand and think about how to team up — they only see a rival,” Rosso told BoF in March. But since the pandemic, “people are a lot more open to discussion,” he said.

By contrast, Moncler’s Ruffini, despite spearheading one of the sector’s biggest recent deals, has said he doesn’t expect widespread consolidation in Italy’s luxury sector to take off.

‘Made in Italy’

One space where Italy’s independent brands seem to be accepting the need to band together is on preserving their supply chains, and investing in making them more sustainable.

Thousands of the highly fragmented web of small factories responsible for guaranteeing the quality and specificity of Italian fashion have closed down in recent years, and the pandemic has risked pushing many more over the brink.

In June, Prada and Zegna announced they had teamed up to acquire a key supplier of cashmere thread. Zegna said it would continue to deepen its investments in vertically integrating its supply chain after going public.

The moves see Italian brands finally hitting back at French groups like LVMH, Chanel, and Hermès, who in recent years have built dedicated factories for their brands, poaching talent from prestigious suppliers, as well as investing in farms and tanneries for materials.

“If you look vertically at the textile manufacturers, shoemakers, leatherworkers, Italian brands have so many companies that they have to help keep alive. They’re crucial to the fabric of the company,” said Christophe Cauvy, partner at London-based Intersection M&A. “This is not costing billions, but step-by-step everything a brand needs to do to remain competitive these days is costing money.”

Related Stories:

What A New Wave of Italian M&A Means for Fashion

Armani Speaks on Restructuring and Succession

Report: Agnelli Heir Held Armani Tie-Up Talks to Build Luxury Empire

Inside Ferrari’s Fashion Reboot

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