Much like improvements in the housing market, an increase in mergers and acquisitions (M&A) can signal an upward trend in the economy. Some tradeoffs are bargains, some are busts.
News Corp plunks down hundreds of millions for MySpace, for instance, only to sell it off at a huge loss. The Red Sox figure one of their pitchers isn’t really helping them much, so they unload him to archrival, the Yankees. Babe Ruth then goes on to hit 714 home runs for the Bronx Bombers. Go figure.
M&A activity in the U.S. has “jumped significantly” over the last year or so, says a report from PwC, with a number of large consumer packaging companies selling off non-core operations and brands:
- 2012 saw 130 deals in the retail and consumer sector with values greater than $50 million, translating into $91.2 billion, or a 20% increase in volume and a 200% gain in the value of 2011’s deals. Twice as much money for just one-fifth more the number of deals sounds like a pretty hot seller’s market.
- Compared to fourth quarter 2011, deal volume over the same period in 2012 increased 21% and value went up 100%, generating 41 deals valued $26.2 billion. That’s an end-of-year rush any holiday-minded retailer could appreciate.
- After several years of dormancy, specialty retail mid-market acquisitions in 2012 amounted to 18 deals (each at values more than $50 million). There were fewer than four deals in 2011 and 2010. And the value of billion dollar-plus deals went up by more than 200% over the same time-frames – resulting in what PwC calls “a banner year in terms of transaction value with approximately $14 billion in disclosed deals”.
- One force influencing the higher-priced entrances and exits? “A limiting factor may be the availability of high quality businesses for sale despite the buyer appetite, which may put further upward pressure on deal prices and the need to have a sound diligence and integration plan,” says Leanne Sardiga, PwC’s U.S. retail & consumer leader. In other words, people are buying quality, and are willing to pay top dollar.
Whatever Lola wants, Lola gets
Across the pond, M&A activity also appears to be on the rise in Europe, particularly in the areas of jewelry and fashion. A recent Women’s Wear Daily report calls it “a red-carpet moment” for M&As:
- In a stock swap deal valued at roughly $142 million, Gemfields, which mines emeralds as well as rubies and sapphires, snapped up Faberge near the end of 2012. The deal reportedly will help Gemfields use the Faberge brand, which has been marching in place for years, to promote its gems, helping it to compete with the likes of diamond pusher De Beers.
- Having absorbed the Chinese jeweler Qeelin in December 2012, U.K. apparel and accessory leader Kering shelled out $360 million this April to buy Pomellato, an Italian jeweler boasting a strong European presence for its Pomellato and Dodo brands. Andrea Morante, CEO of Pomellato, said of the sale, “Becoming global brands is no longer an option for Pomellato and Dodo; it is a necessity.” Translation: “We did the deal to keep our business alive and growing”.
- Earlier this year, Kering also took a majority stake in Christopher Kane, a London design shop. And, a short time before that, Qatari investment fund Mayhoola scooped up the Valentino Fashion Group — for $858 million.
“There is a deﬁnite pickup in M&A activity versus last year,” said Pierre Mallevays, managing partner of Savigny Partners, a London investment bank focused on luxury goods.
There hasn’t been so much ﬂuidity and open-mindedness in a long time. We will see a lot of variety in investment types and sizes.
Perhaps more importantly, the WWD article implies, the place to be for the near future is in emerging markets, where incomes are rising and middle-class tastes are looking for products that reflect their upward mobility. Smaller, boutique-like companies, says Mallevays, are signing on to the idea that penetrating those markets is much more difficult to do on their own than as part of a larger enterprise. With various larger players flush with available cash – a reported $2.82 billion USD on hand at LVMH and $4.13 billion available to Richemont – deals are ripe to be done.
Making deals on the run?
WWD goes on to point out that European companies, in particular, look to make highly selective acquisitions that will rebalance their portfolios as well as to complement existing brands and segments. Some behemoths will likely focus on adding smaller brands, others might explore both up- and down-stream additions, while still others will continue to improve production efficiencies, remaining wary of trying to grow too fast too soon.
Luxury retailers and jewelers, after all, have twice experienced fairly harsh market conditions in the last decade or so: The 2001 New York terrorist attacks, which were made even worse by a SARS outbreak. And the 2008-2009 worldwide financial crisis.
Even so, does the end-consumer look to benefit from the M&A activity? Is it a good time to plunk down thousands on that fur coat and matching, multi-jeweled necklace? (Is it ever?)
For now, the benefits of recent market activity look to benefit companies large and small, as under-performing assets rush to the safer havens of corporate arms. Deals might well prove accretive once the retail market begins showing interest in new and improved brands — and if the consumer continues in a quest to acquire quality and, by extension, status, an age-old drive that can sometimes get derailed but never quite stopped.
If nothing else, there looks to be a market opportunity for a whole new generation of Manhattan-based Check It Out guys, pushing rebranded knockoffs atop cardboard boxes, ready to relocate operations with a lift of the lid and a quick stash of the goods.
When that happens, it’ll be a clear sign that the luxury apparel and jewelry markets are back. For the consumer. For the time being, at least.