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2020’s Top M&A Targets in Luxury

BoF tapped industry experts and analysed the market to determine which brands will likely be targeted this year — and which wild-card mergers could pick up steam.
  • Laure Guilbault,
  • Chantal Fernandez

PARIS, France — Is there room in the luxury market for independent brands?

LVMH's record-making acquisition of American jeweller Tiffany's for $16.2 billion at the end of 2019 further illustrated the growing power of the market's conglomerates. The more luxury brands in a portfolio, the greater the advantages they have in manufacturing, distribution, talent acquisition and retail real estate — and these bloated conglomerates make it challenging for independents trying to get an edge on the competition.

But with so much consolidation already underpinning the luxury market, appealing targets are few and far between. And brands that are struggling to adapt to a new world order in luxury, defined by online shopping and digital communications, will have a harder time finding exits.

“Brands that require investment to prove their growth potential or to establish profitability will face a reduced pool of investors and will find it harder to meet valuation expectations,” said Pierre Mallevays, founder and managing partner of financial advisory firm Savigny Partners LLP.


But “trophy assets, digital stars or add-on acquisitions” that fit easily into a buyer’s business will continue to attract interest and high valuations.

Many are based in Italy, where several family-run brands with close ties to factories still operate independently or are closely held by its founders and their descendants — like Prada, Brunello Cucinelli and Ferragamo. "Their brand awareness is often by far higher than current revenue," said luxury analyst Mario Ortelli.

Investors are looking for brands with strong cultural history and global resonance, making them less dependent on trends, as well as generational shifts coming on the horizon that might open otherwise staunchly independent owners to the idea of selling.

But attractive luxury assets can be found outside Italy, too. BoF tapped industry experts and analysed the market to determine which brands will likely be targeted in 2020 — and which wild-card mergers that could pick up steam.

Revenue: €3.2 billion in 2019 (according to an estimate from Reuters), up from €3.1 billion in 2018

Pros: Italy's leading independent luxury group was on par with Gucci in terms of revenue just six years ago: since then, the latter has more than doubled while Prada has shrunk. But the brand is still one of the most recognised and respected luxury labels in the world, and a buyer could boost its business with better e-commerce and product assortment strategies. With Raf Simons freshly signed on as co-creative director with Miuccia Prada, the brand's forthcoming designs are likely to be a hit with luxury shoppers, provided the brand can support it with the right distribution, marketing and merchandising strategy.

Prada also has untapped opportunities in beauty: in December, it signed a new license agreement with L'Oréal, set to begin in January 2021, ending its tie-up with Puig.

Cons: Miuccia Prada and Patrizio Bertelli appear to have no interest in selling the business anytime soon. They control 80 percent of the company, publicly listed in Hong Kong, and their son, Lorenzo Bertelli, joined in 2017 as head of marketing and communications — signalling the couple's interest in keeping the business in the family.


A buyer would have substantial work to do: Prada’s revenues fell from €3.5 billion in 2016 to an estimated €3.2 billion in 2019, and share prices halved since their peak in 2013. “It requires time rather than pressure for short-term results,” said Citi analyst Thomas Chauvet about the business.

Revenue: £2.7 billion (about $3.5 billion) in the fiscal year ending March 31 (according to a Reuters estimate), flat from the prior year.

Pros: The British heritage label is one of the few independent, sizeable targets in the market and could be a lucrative investment. Despite its size, its financial structure could simplify a prospective deal: 100 percent of its shares are publicly traded, so a buyer would need to convince a majority with its offer. The approval of the board would further streamline the acquisition process.

Cons: Burberry is in transition and would require attention. "It is not a plug-and-play asset, where the brand positioning is already optimal," Ortelli noted.

Chief Executive Marco Gobbetti initiated a multi-year plan to move upmarket in November 2017. Part of that strategy is a focus on high-margin leather goods, which only represent about 40 percent of Burberry's business, a much lower percentage than at industry heavyweights such as Louis Vuitton and Gucci.

Chief Creative Officer Riccardo Tisci joined in 2018, and while his collections are popular with celebrities, the products have not generated Gucci-Alessandro Michele levels of excitement. By the end of this fiscal year, Tisci's designs will account for 80 percent of Burberry's assortment on the market, which should give further indication of their performance.

Revenue: €377 million ($417 million) in the fiscal year ending June 2019, up 25 percent from a year earlier

Pros: The only multi-brand retailer on our list, Mytheresa is profitable and growing, with a 50 percent year-over-year increase in EBITDA (earnings before interest, tax, depreciation and amortisation). The Neiman Marcus Group-owned entity managed its growth more carefully than some heavily funded competitors, inspiring talk in February 2020 of an initial public offering that would potentially value the site at $500 million, allowing its parent company to pay off some of its mounting debt. But Mytheresa, a spinoff of Munich, Germany's's multi-brand designer retailer Theresa, might also be an interesting, and reasonably priced, proposition for a group like Kering or LVMH, the latter of which has struggled to make its own Net-a-Porter competitor, 24S, work.


Cons: Online and off, multi-brand retail is a challenged category. Competition is fierce, with dozens of players vying for the same customers while carrying virtually the same product lineup. This has resulted in a race to the bottom, with retailers offering an increasing number of discounts weeks before the traditional sales seasons even begin. Meanwhile, powerhouse brands from Gucci to Prada are putting more muscle into their own e-commerce channels, limiting the range of covetable product they make available to the multi-brand players. However, Mytheresa is small enough that if it were to be acquired, there may be an opportunity to experiment with the business model, perhaps shifting more toward concession.

Revenue: €1.8 billion in 2020 (according to an estimate from Reuters), up from €1.6 billion in 2019

Pros: Moncler is growing fast: sales rose 15 percent in 2019, with a margin of earnings before interest, taxes, depreciation and amortisation of 35.3 percent.

There may also be room to grow the brand in terms of its product range.

“Already among the leaders in outerwear, it has opportunities to enter new product categories, open stores and internalise e-commerce,” Ortelli said.

The brand's "Genius" strategy, inaugurated in 2018 and consisting of collaborations with a range of buzzy labels, is attracting new consumers, especially Gen Z and Millennials who now represent 40 percent of the brand's shoppers. It's also attracting rumoured acquisition interest: the brand reportedly met with Kering in December 2019. But both CEO Remo Ruffini and Kering CEO François-Henri Pinault have since said that no deal is under consideration.

Cons: It's not a good time to buy: Moncler's shares have risen more than 30 percent in the last year, and an acquisition would require a significant premium as its valuation is currently over €10 billion. How much more value could a new buyer extract from the brand to make such a costly purchase worth it? Plus, Ruffini is used to running the business independently, and he owns more than 22 percent of the shares.

Brunello Cucinelli
Revenue: €607.8 million in 2019 (according to preliminary results), up from €553 million in 2018.

Pros: The brand's casual, modern cashmere blazers and coats are a hit with affluent shoppers from Paris to Silicon Valley, where it has a particularly ardent following. The company went public in 2012, and its share price is essentially flat despite gains in 2019.

Cons: Brunello Cucinelli and his family own the majority of his company's substantial share of stock and do not seem interested in selling. Two years after the public listing, the founder transferred his stake to a trust "to benefit his daughters and ensure the continuation of his philanthropic work."

Salvatore Ferragamo
Revenue: €1.4 billion in 2019 (according to a Reuters estimate) up from €1.3 billion in 2018.

Pros: The Italian heritage brand has a strong DNA, especially in shoes which represent more than 40 percent of its revenue and is a growing category in luxury right now. Handbags and leather goods represent another 40 percent of total revenue.

Creative Director Paul Andrew has helped elevate the brand in recent years, during which he has been promoted from head of women's footwear to creative director of the entire brand.

Cons: Chief Executive Micaela Le Divelec Lemmi, who was appointed to the role in 2018, has been trying to rejuvenate the brand. But the brand's momentum is still weak. After signs of recovery in the first half of 2019, revenues were down 3.6 percent at constant exchange rates in the third quarter.

The October 2018 death of Wanda Ferragamo, the widow of Salvatore Ferragmo who led an expansion of the company after his death in 1960, fuelled speculation that the founding family might become more open to selling the business. But son Ferruccio Ferragamo, the company's chairman, denied any intentions to sell as recently as February 2019.

Ermenegildo Zegna
Revenue: €1.2 billion in 2018

Pros: The family-run Italian menswear company, founded in 1910 as a fabric mill, has strong industrial capabilities and still sells fabrics for other menswear companies. It has strengthened its supply chain and invested in introducing innovative fabrics in recent years, a key advantage as more luxury brands aim to move further upstream in their production processes. The brand, led by third-generation family member Gildo Zegna and Artistic Director Alessandro Sartori, has strong brand awareness and is thought to have opportunities to diversify beyond menswear.

Cons: As new generations move away from formal suits and favour more casual looks, suit makers like Zegna have been challenged. The family has not signalled an interest in selling and actually has been in the market itself, having acquired American fashion label Thom Browne in 2018.

Revenue: Approximately €150 million in 2018

Pros: The brand's knitwear and zigzag prints have strong awareness in the market, aided by mass-market collaborations like the 2011 Target collection which caused the American retailer's website to crash.

Cons: The Missoni family continues to own the majority of the business. But private equity firm FSI Mid-Market Growth Equity Fund took a 41.2 percent stake last year and intends to scale up, so the business may need some years before it is open to an acquisition.

The Row
Revenue: Between $100 and $200 million a year in sales, according to market sources (the press-shy private company does not disclose revenue figures)

Pros: The Row's ready-to-wear, at the core of its business, has a cult following, and the brand would be a complementary addition to the LVMH portfolio as a rival to Kering-owned Bottega Veneta, especially following Celine's recent pivot away from the unfussy, sophisticated minimal aesthetic it held under Phoebe Philo. While The Row has a significant footwear and leather goods business, there is still lots of room to grow, especially outside the United States.

Cons: Co-founders Ashley and Mary-Kate Olsen have self-funded the brand from the start, thanks to their lucrative early careers in film and television, and don't appear to need the validation or support of a larger group. Convincing them to sell would be a barrier.


Richemont/Kering merger
Revenue: Richemont is expected to generate €14.8 billion in fiscal year 2020, according to a Reuters estimate, up from €14 billion in the prior year, while Kering is expected to hit €17 billion in 2020, also according to Reuters, up from €15.9 billion in 2018

Pros: Analysts have long speculated about an industry-redefining mega-merger between Kering and Richemont, perhaps the only way the two groups could truly compete with rival LVMH. Speculations recently resurfaced after LVMH picked up Tiffany & Co. and further asserted its dominance.

The two groups are complementary: while Richemont is the leader in hard luxury, its soft luxury business has seen mixed results. Meanwhile, Kering’s strengths are in soft fashion and leather goods. Such a tie-up would be a “game-changer,” said Mallevays.

Cons: Richemont and Kering are owned by two families, the Ruperts and Pinaults, and a strategic alliance would inevitably result in a power struggle. But it's likely that the Pinaults would take the leadership in case of a merger: Kering's market capitalisation (about €64 billion) dwarfs Richemont's, which is valued at approximately €36 billion (as of December 31). Richemont's complex shareholder structure would also be a factor: Richemont founder Johann Rupert controls the company with a much lower stake than the Pinaults have in Kering.

Revenue: $11 billion in 2018, up from $9.6 in 2017

Pros: Chanel is one of the most valuable brands in the world.

When it released its financial results in 2018 for the first time in its history, revealing just how massive the private business has become, many wondered if the company was signalling that it was looking for a buyer. Then its longtime designer Karl Lagerfeld died a year later, marking the end of a significant era for Chanel and the beginning of a potentially challenging one.

Chanel owners Alain Wertheimer — the interim chief executive since Maureen Chiquet was ousted in 2016 — and his brother, Gérard Wertheimer, might want to protect the assets for the fourth generation.

Cons: Chanel leaders have been adamant that the company is neither seeking a buyer or preparing for an initial public offering, as Chief Financial Officer Philippe Blondiaux told BoF in an interview last year.

A new generation of Wertheimers is being groomed to take over the business, including Alain’s son Nathaniel Wertheimer and his cousin Arthur Heilbronn (son of Alain and Gérard’s half brother, Charles Heilbronn).

If the brand were to be up for sale, the cost would be immense, with industry sources valuing the company at $70 billion to $100 billion. Such an acquisition would be daunting even for LVMH unless the Wertheimer family becomes a significant stakeholder in the conglomerate.

Ralph Lauren
Revenue: $6.3 billion in fiscal year 2020, according to a Reuters estimate, flat from 2019

Pros: American fashion juggernaut Ralph Lauren is one of the most recognisable global brands and a true lifestyle player with products spanning linens to eveningwear. But it has the potential to grow further, especially in womenswear and internationally.

PVH, the owner of Calvin Klein and Tommy Hilfiger, might be a good fit as a buyer. "We are looking to make another acquisition; we're looking at a strong brand, or portfolio of brands, that we can layer on to our operating platform," said PVH Chief Executive Emanuel Chirico in an interview with Bloomberg in 2019.

Cons: The company has struggled as the American wholesale market contracts, and has been slow to adapt to changing consumer buying preferences and communications strategies. Founder Ralph Lauren, the chief creative officer, remains deeply involved in the business.

Armani Group
Revenue: €2.1 billion in 2018, down from €2.3 billion in 2017

Pros: Much like Ralph Lauren, Armani is one of the most well-known brand names in the world, and the brand stretches everything from red carpet gowns to confectionaries, restaurants and hotels.

Cons: Founder Giorgio Armani is the sole shareholder of Armani SpA and adamant about the company's independence. With questions about succession planning looming as he turns 86 this year, the designer announced the formation of a foundation in 2016 designed to protect the future of his company and making it more challenging to acquire. He has said he plans to run the company until his death.

Lauren Sherman contributed to this reporting.

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