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The Secret Deal to Merge Net-a-Porter with Yoox

The untold story of how Compagnie Financière Richemont agreed to merge Net-a-Porter with Yoox behind the back of Natalie Massenet for a valuation much lower than what many believed the business to be worth.
Illustration: Paul Price for BoF
  • Imran Amed

Prologue: For months, the fashion world has speculated as to why Natalie Massenet suddenly exited Net-a-Porter, just weeks before a merger was consummated between the company she founded and Yoox, founded by Federico Marchetti. As it turns out, the real battle was not between the two former rivals, but between Net-a-Porter and Compagnie Financière Richemont, the powerful Swiss luxury goods conglomerate which invested in Net-a-Porter in the early days of the company and then acquired the business in 2010. Massenet’s original investor, Carmen Busquets, and several other current and former employees of Net-a-Porter, Yoox and Richemont spoke to BoF about the multi-billion-euro deal announced last March — and why it was so troubling for so many of them. To protect their relationships, most of these people spoke on the condition of anonymity. Massenet, Marchetti and representatives for Richemont all declined to comment — but the exclusive story pieced together here reveals that as the business relationship between Richemont and Net-a-Porter deteriorated, and Richemont sought to merge Net-a-Porter with Yoox without Massenet’s knowledge, things went from bad to worse.

LONDON, United Kingdom — It was the second week of February 2015 and Natalie Massenet was feeling ebullient. Fresh from two days of internal strategy meetings with her team, she was summoned for a meeting with her bosses at Compagnie Financière Richemont, the Swiss luxury goods group that invested in — and subsequently acquired — her pioneering London-based fashion e-commerce business, Net-a-Porter, which by then included menswear site Mr Porter, discount fashion retailer The Outnet, and Porter, a print magazine that launched in 2014.

Source: BoF Analysis Source: BoF Analysis

Source: BoF Analysis

But the meeting with Richemont was to last only 15 minutes. Richard Lepeu and Gary Saage, respectively co-CEO and CFO of Richemont, informed Massenet that a secret deal had been agreed to merge Net-a-Porter with Yoox, the Italy-based discount fashion e-tailer and e-commerce services company, which, like Net-a-Porter, launched in June 2000 and in its own way disrupted fashion retail.


Richemont had agreed to the merger in which Yoox was to buy Net-a-Porter based on a valuation of about £950 million (about $1.4 billion) — much less than what Massenet had been discussing the very same day with investment bankers from Morgan Stanley. (Morgan Stanley had been hired by Massenet and other minority shareholders in the Net-a-Porter Group to determine the company’s overall value and estimated the business was worth more than £1.8 billion.) She insisted to Saage and Lepeu that the proposed valuation was too low, but according to people familiar with the conversation, Massenet was told that Richemont and Yoox had already shaken hands on the deal several months earlier.

Massenet was caught completely by surprise. Although she had narrowly staved off a similarly proposed merger with Yoox in 2013, she had not seen this coming. It was the final blow in a more-than-a-decade-long business relationship with Richemont that had started to break down a few years after Richemont first invested in the business in 2002.

It was a critical moment for Net-a-Porter. The luxury e-commerce market was in flux. Consumers were shifting their usage away from desktop and laptop computers to smartphone and tablet devices, on which around 50 percent of e-commerce transactions were now taking place. Companies like Farfetch, Moda Operandi, and Lyst were raising large sums of capital and employing novel business models designed to improve upon Net-a-Porter’s original wholesale model. (Like a traditional fashion boutique or department store, Net-a-Porter buys inventory upfront, which is capital intensive and comes with significant risk). What’s more, fashion brands themselves were finally beginning to focus on e-commerce channels of their own, having previously left this high potential market to Massenet and Federico Marchetti, the founder of Yoox and one of her fiercest rivals.

In recent years, Yoox had been making its own strategic moves in the market, launching full-price businesses (Shoescribe and The Corner) to sit alongside the discount and white-label services businesses for which it first became known. In 2012, Yoox announced a landmark joint venture with Kering, the French luxury goods group, to provide e-commerce technology and fulfillment for several of the group's top luxury and fashion brands, including Bottega Veneta, Yves Saint Laurent, Alexander McQueen and Balenciaga. In 2014, Yoox turned over €524 million and earned €50 million in EBITDA (earnings before interest taxation depreciation and amortisation, a measure of operating profit). By 2015, Yoox was operating the e-commerce websites of about 40 luxury and fashion brands including Alexander Wang, Giorgio Armani and Valentino.

Amidst these market changes, Massenet had been crafting a new strategy for Net-a-Porter, key elements of which were embodied in the company’s new mobile app, The Net Set, which was set to launch in a few months. Indeed, it formed a central part of a presentation she had planned to share at an important meeting with Richemont in Geneva later that month.

Massenet had been emboldened by the fact that the Net-a-Porter Group (NAPG) business had returned to profitability in recent months after several years in the red. Moreover, her team projected that NAPG would turn over more than £2 billion in revenue by 2020, earning £325 million in EBITDA.

But all of this seemed secondary now. She left the meeting stunned and, standing on the street in tears, immediately called Carmen Busquets, Net-a-Porter’s first major investor, to explain what had happened.

Busquets, who still retained a 2.3 percent stake in the Net-a-Porter business, was incensed that the deal was done without their knowledge and, importantly, without an open sale process, which would be more likely to garner the best possible valuation for the company through the competitive dynamics of a bidding process.


Almost immediately, the two women began to plan how they could save the business from the Yoox merger — or, at the very least, ensure the company was sold at fair market value. Massenet convened an emergency meeting of the Net-a-Porter management team on a phone call to discuss the merger. “Why Yoox?” they wondered, and “Why at only £950 million?”

Within days, Busquets and her advisors assembled a consortium of respected investors, including Tiger Global, Certares and NEA who together agreed to back a management buyout (MBO), valuing the business at between £1.3 billion and £1.5 billion, up to a 57 percent premium on the proposed price to be paid by Yoox.

In a letter dated 26 February 2015 — seen by The Business of Fashion — Massenet implored Johann Rupert, chairman of Richemont, to reconsider his decision to merge Net-a-Porter with Yoox.

Referring back to her meeting with Saage and Lepeu of Richemont two weeks earlier, she wrote: “While I completely understand your decision, I was very surprised at their comment that no one else other than Yoox had shown an interest in the company… I was unaware that a [sale] process was being run. I could perhaps have been more helpful to you and Richemont in finding a better option than the one being explored.”

As an alternative, Massenet introduced the idea of the MBO backed by the consortium of investors and also named other parties who had expressed interest in NAPG over the years, a who’s who of major fashion industry players including Barneys New York, Condé Nast, Kering and LVMH.

“We have many concerns about the strategic rationale and the cultural fit of the businesses, but are particularly surprised at the price being ascribed to NAPG in comparison to Yoox,” she wrote.

“As mentioned during our previous discussions in 2013, NAPG has a much better business proposition, offering and brand than any other player in the sector,” she wrote, adding later: “All the reservations which I expressed about a merger with Yoox in 2013 continue to be evidenced in the market. As you will be experiencing with all of your brands, the consumer today is more sophisticated and informed than ever before. Personal connection with them and between them and the brands they are drawn to is vital. Yoox does not have a proposition that is comparable to NAPG. It is no longer enough to be able to deliver product to the consumer efficiently.”

“I strongly believe our alternative transaction will deliver the best possible value and outcome to all current stakeholders of NAPG,” she concluded, further explaining her plan to take NAPG public in the coming years.


The next day, Massenet flew to Geneva to meet with Richemont. She was called into an unplanned meeting with Johann Rupert, who rejected the MBO proposal immediately. Massenet could not understand why Richemont wouldn’t even consider an offer for NAPG at a valuation which was more than 50 percent higher than that offered by the Yoox deal. She left Geneva dejected.

Over the next few weeks, Net-a-Porter accelerated its ongoing valuation work and, in early March, Morgan Stanley set an enterprise value range for NAPG with a midpoint of £1.95 billion — more than double the price to be paid by Yoox. The Net-a-Porter management was up in arms. “It’s not a merger of equals,” says one former Net-a-Porter insider, who spoke to BoF on the condition of anonymity. “It was a reverse takeover, and they were giving it away for half its value.”

According to several people familiar with the negotiations, at the eleventh hour the conglomerate offered to compensate NAPG management (but not other minority shareholders) for their shares at a higher valuation of £1.2 billion — a 25 percent premium above what was being paid by Yoox — and have the opportunity to roll over these shares into the newly merged entity. Net-a-Porter management countered with a valuation of £1.5 billion to be applied to shares owned by all minority shareholders, including a roll-over option in the new entity, believing that the value of the shares would pop after the merger announcement, bringing the company’s valuation closer to the £2 billion they had been seeking, but this offer was not accepted. (Richemont declined to comment for this story and these offers could not be independently verified by BoF.)

Busquets sent an e-mail to co-CEO Richard Lepeu, just three days before the proposed merger with Yoox was to be announced. “I write to you to reconsider going down the path you have chosen with NAP,” she urged, asking why he thought “it was OK to negotiate a transaction like this behind the back of the founder and acting CEO.”

“My issues with the [Yoox] merger go beyond the proposed valuation, which can be addressed, to the strategic rationale and the haste with which the transaction is being pursued,” she added. “It has become quite evident during the meetings that are being held between the different teams trying to organise for integration of everything from management to IT services, that the companies are nothing alike and will not benefit from a meeting of cultures. The businesses are simply not compatible at most levels. Is Mr. Rupert aware of all of this?”

Busquets was referring to the different management styles and resulting company cultures of Net-a-Porter and Yoox, or as one former Net-a-Porter executive described it, Yoox’s “tell” culture, rooted in Marchetti’s take-it-or-leave-it leadership style, which contrasted sharply with Massenet’s more inspirational, team-based approach, which focused on getting “buy-in and bringing people along.”

Source: Instagram Source: Instagram

Source: Instagram

On 31 March 2015, the day the merger was announced, Massenet was in Net-a-Porter’s cavernous offices in West London putting on a brave face and speaking to reporters, saying: “Hello, we’re calling from the offices of the Yoox Net-a-Porter Group.” She spoke of “creating the future of fashion” together with Marchetti and his team, and did her best to put a positive spin on a merger she had strongly opposed, but whose strategic rationale she understood.

By that point, Massenet had accepted that the merger was going to happen and was determined to make it work. According to people familiar with Massenet’s mindset, she wanted to continue to be part of the business she had built for 15 years, knowing that she and the other minority shareholders had some form of protection for the value they would get from their shares through an independent arbitration process that had been negotiated at the time of the Richemont acquisition in 2010.

In a statement, Massenet said: “Today, we open the doors to the world’s biggest luxury fashion store. It is a store that never closes, a store without geographical borders, a store that connects with, inspires, serves and offers millions of style-conscious global consumers access to the finest designer labels in fashion. A store that provides established and emerging brands with the greatest interactive shop window to the world. Together, with our world-class teams in technology, logistics, content and commerce we are redefining the fashion media and retail landscape. The best way to predict the future of fashion is to create it.”

According to the terms of the deal, the all-share transaction would result in Richemont owning fifty percent of the new entity, but with only 25 percent of the voting rights. This was done so as not to trigger any change of control clauses included in some of Yoox’s mono-brand agreements and to allay concerns that Richemont might favour its own fashion brands, such as Chloé and Dunhill, in the newly merged company, according to people familiar with the terms of the transaction. Marchetti would become chief executive of the new entity and Massenet would become executive chairman.

Following the announcement, the steps to closing the merger began to progress quickly. The Boston Consulting Group was hired to oversee post-merger integration, Marchetti soon had an office in Net-a-Porter's London offices and the combined business began readying itself for an autumn listing on the Borsa Italiana, the Italian Stock Exchange in Milan, under the stock symbol YNAP, short for the Yoox Net-a-Porter Group.

In his first in-depth interview following the announcement of the merger, Marchetti spoke with Financial Times fashion editor Jo Ellison for a 'Lunch with the FT' interview. "It's a merger based on substance. And the substance is two companies that started at exactly the same time, with exactly the same vision, but which took completely different approaches," Marchetti explained. "We started with end-of-season, they started full price. Then they started end-of-season [with The Outnet], we started full price [with The Corner]. Then we launched the mono brands, because we were strong at the back-end with logistics, and they launched the editorial content, because they were strong at the front end with the marketing. It's incredible, like sliding doors — like it was almost planned. I don't think any merger in history has been so perfect on paper."

But it was something that came later in the interview which raised eyebrows across the industry. “Nevertheless, as he quickly points out, this is not a marriage of equals,” wrote Ellison. “Marchetti is still a solo operator and he’s very clear that the Yoox Net-a-Porter Group has only one boss. He raises a hand: ‘And that’s me.’”

Some observers saw Marchetti’s comments as an affront to Massenet, publicly diminishing the role of his new partner in a high profile interview with one of the most important business newspapers in the world.

Meanwhile, the battle between Massenet, her management team, Busquets and her legal and financial advisors on one side and Johann Rupert and the executive team at Richemont on the other raged on. Now that the deal was a fait accompli, the key issue at stake was the valuation of the Net-a-Porter business.

In an independent arbitration process held in London in July 2015, Net-a-Porter management made the case that Richemont should have to pay a higher price for the shares owned by all the minority shareholders, in line with what they believed to be the fair market value of the business.

Over the next two days, almost 25 people filled the conference rooms of prestigious ‘magic circle’ law firms Allen & Overy and Slaughter & May — one day in each office as a sign of fairness to each side — for discussions presided over by independent arbitrators from professional services firm Deloitte. The mood was cordial and professional, but intense.

The Net-a-Porter side was made up of Massenet and Busquets; Mark Sebba, former CEO of Net-a-Porter; and active members of the management team — including Alison Loehnis, president of Net-a-Porter; and Stephanie Phair, president of The Outnet — as well as financial advisors from Morgan Stanley, legal advisors from Allen & Overy and Busquets' own advisors.

Gary Saage, CFO of Richemont, was accompanied by Richemont’s in-house counsel Cedric Bossert and Wolfgang Heimstadt, another senior financial executive. Also present were Ed Boyce and Alexandra Soto, senior investment bankers from Nomura and Lazard, respectively, as well as lawyers from Slaughter & May.

According to documents seen by The Business of Fashion, the Net-a-Porter management would focus their case on two key questions.

First, why would Richemont sell Net-a-Porter, which was considered a trophy asset, at what its management thought to be half of its fair market value? They contended that Richemont had not been involved in or shown much interest in the Net-a-Porter business and therefore did not understand its inherent value, or the dynamic marketplace in which it operated. According to Net-a-Porter, Richemont had only participated in three board meetings since October 2013.

Second, how could Richemont’s advisors prepare an accurate valuation of Net-a-Porter without speaking to the company's management to understand their underlying assumptions and thinking?

Over the course of the next two days, Net-a-Porter also submitted documents which showed that Nomura, one of the investment banks hired by Richemont, had previously conducted a valuation of the Net-a-Porter business, on 6 June 2011, code-named Project Light, which concluded that Net-a-Porter was worth between £1.8 billion and £2.3 billion. Net-a-Porter revenues had grown from £238 million to £654 million between March 2011 and March 2015, and adjusted EBIDTA on a like-for-like basis had increased from £26.6 million to £54.2 million. How could the value of a profitable, growing business plummet by more than 50 percent?

Richemont and its advisors took a completely different point of view, arguing that Net-a-Porter management had consistently missed profitability targets, and since a significant portion of the valuation in the Net-a-Porter management’s business plan was based on future income streams, it was only fair to cut their projections back.

“The original NAP 2016-20 business plan projected profit growth considerably above historical performance (42 percent projected versus 25 percent historical),” Nomura and Lazard wrote in their valuation analysis, adding later that “at the EBITDA level, NAP has underperformed on average between 10 percent and 70 percent versus its management business plan forecasts.” They also asserted that NAPG had understated its capital expenditure costs, writing that the company had projected “a material and unjustified reduction in Capex considerably below the levels seen historically (2 percent versus 6 percent historically).”

The investment banks hired by Richemont therefore concluded that a more accurate valuation range for Net-a-Porter would be around £1 billion. Net-a-Porter management responded by saying that their assumptions could have easily been explained if the investment banks had bothered to ask.

In the end, Andrew Robinson, the partner at Deloitte LLP who was appointed to settle the dispute, concluded in early August that the headline value of the Net-a-Porter Group business was about half way between the two parties, or £1.45 billion — not quite the value Net-a-Porter management were looking for, but at more than £500 million higher than the price announced in March, a victory nonetheless for the Net-a-Porter minority shareholders. Massenet took home more than £100 million as a result.

But this did not change the fact that the merger was still going ahead as planned. According to friends of Massenet, as this reality became clearer, the August holidays provided her with some perspective. After celebrating her 50th birthday with friends and family in Positano, Italy, she quietly made the decision to step down.

The news of her departure first leaked in the Italian newspaper La Repubblica on 2 September 2015, creating shockwaves throughout the fashion world. That Massenet would step down from her role at the business she founded appeared to signal she felt there was something wrong with the merger, especially as she had initially publicly committed to stay on and work with Marchetti.

In an email to Net-a-Porter employees the next day, Massenet wrote: “After some serious soul searching I have taken the decision to retire from The Net-a-Porter Group and to start a new chapter in my life — one where I take the company, the team, the memories, the incredible journey with me in my heart and stand back and position myself in the proud spectator’s box and watch the business flourish and grow independently.”

On 5 October 2015, Yoox Net-a-Porter (YNAP) was officially listed on the Borsa Italiana, which, to mark the occasion, was symbolically wrapped in the signature black and white ribbon of Net-a-Porter’s famous packaging. YNAP was now the largest fashion e-commerce retailer in the world, with a combined market value of more than €3.7 billion, serving 2.1 million active customers generating total annual revenues exceeding €1.3 billion and controlling more than 10 percent of the global online luxury and fashion market.

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To rapturous cheers and applause, Marchetti made an emotional speech to the gathered employees, investors and members of the Italian fashion community, including Renzo Rosso and Laudomia Pucci.

“Who would have ever thought that I would list my company for the second time through this merger with Net-a-Porter? Well I would have said it because for six years I have been thinking about this merger,” he said. “The destiny of this merger almost seems like a twist of fate, because the history is truly unique. started in 2000 with an idea from the visionary Natalie Massenet, to whom I give all of my respect and thanks.”

As the dust began to settle on the controversial merger, three key questions emerged: First, how did Massenet and Busquets find themselves in this situation where a company they had built together could be sold from underneath their feet? Second, how did Federico Marchetti manage to strike the ‘deal of a lifetime’ with Richemont to get the YNAP merger done at such favourable terms? And third, what does the future hold for the new entity? Will the Yoox-Net-a-Porter merger succeed, and now that Massenet has exited the company, what will she do next?

How did Natalie Massenet and Carmen Busquets find themselves in this situation, where a company they had built together could be sold from underneath their feet? To read Part 1, click here.

Research for this article was contributed by Kate Abnett.

Disclosure: Via Cabus Ventures, Carmen Busquets is part of a group of investors who, together, hold a minority interest in The Business of Fashion. All investors have signed shareholder's documentation guaranteeing BoF's complete editorial independence.

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