Fashion and Beauty M&As Continue to Roll on
Fashion and beauty continue to be hot on the heels of consolidation.
In recent times Victoria’s Secret has scooped up lingerie start-up Adore MeFrankies Bikinis also holds a minority share. The Estée Lauder Cos. Inc. acquired Tom Ford; Authentic Brands Group snatched up Ted Baker; Oxford Industries — parent to the Tommy Bahama and Lilly Pulitzer brands, among others — now owns bohemian-inspired women’s apparel brand Johnny Was. Last year Levi’s bought Beyond Yoga. The Calida Group purchased Cosabella. The list goes on. Other companies have said they’re looking — or hinted at adding to their portfolios — if it’s a good fit.
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You can credit the macro environment for some dealmaking. With interest rates running high With the initial public offering market in a near halt, the era with inflated valuations is over. Cash is becoming more difficult to find than ever. This means that many smaller brands are finding it difficult to raise capital. The fastest way to scale up is to sell a small brand or a portion of it to a legacy company.
Bigger firms benefit too. They can gain digital skills and expertise.
But will the industry’s pace of M&A continue into 2023?
“That’s the big question for the next two to three years,” Brooke Kiley, one of the founders of VMG Catalyst, the venture capital arm of VMG Partners, told WWD. “My instinct is that it will be an acquisitive market over the next two to three years, especially because there are a lot of later-stage private companies that have pretty robust balance sheets that raised opportunistically in 2021 because valuations were high and capital was cheap. They have huge balance sheets, so they will be a great soft landing option for companies in the earlier stages that might not have sustainable business models. They might find their home in some of those businesses.”
The scenario creates a buyer’s market for the firms with cash. They’re the ones with the resources to decide which brands they want to work with or add to their portfolios.
David Shiffman is co-head for the global consumer retail Solomon Partners, an investment bank, indicated that consolidation will likely occur with smaller direct-to consumer brands. He also pointed out that some brands are reluctantly selling for current market asking price due to declining valuations over the past year.
“And you need willing sellers to create a buyer’s market,” he said. “Typically, those [brands] that take big checks from VC’s are the ones that are running companies that [aren’t profitable] And finally fail the test [to make money]. We’re still in the stage of entrepreneurs who are longing for the days of valuations that they had in 2020. [Companies] will need to have higher cash flows — in other words make money — in order to justify those higher valuations.”
While the market seems to be ripe with opportunities, Shiffman’s view is that M&A “activity has been highly, highly selective,” with firms shifting their focus from apparel Brands that focus on health, beauty, home, and outdoor sports goods.
“[Private equity] He was a reluctant participant in retail game,” he said. “Borrowing money has gotten more expensive. [But] I think you’ll see across the board for high-quality businesses that are looking for a home. There is always interest in good businesses regardless of their sector. Where we’ve seen the most activity is in brand management. They’ve done a massive job in buying branded retailers.”
One example is WHP Global’s recent stake in Express. The brand management firm invested $260million to purchase a 7.4 percent share in the fashion retail chain. This partnership will allow for the creation of a platform that can acquire additional brands in the future.
“Historically there have always been opportunities in fashion here and there. But given the environment today, it’s increased for sure, the amount of opportunities,” Yehuda Shmidman, WHP Global chairman and chief executive officer, told WWD in December. “You can imagine the types of fashion brands that are out there that we’re very excited to pursue.
“Just this year, as things are shifting in the macro market and the fact that the IPO markets have been closed, recaps have been tight and financings have been hard to secure, the amount of opportunities has definitely increased for people like us,” he added.