Global Fashion & Luxury market: Private Equity and Investors Survey 2016
Singapore, 7 June 2016 — The survey conducted by Deloitte Financial Advisory – Global Fashion & Luxury Market: Private Equity and Investors Outlook 2016 – analyzes the main trends that, according to the interviewed investors, are expected to characterize the performance of this industry in 2016. The survey showed four main trends that are impacted on the evolution of this industry: Digital Revolution, Craftsmanship, Contemporary Fashion, Fashion Capitals.
“The outcomes of this report demonstrates that the Fashion & Luxury remains one of the most interesting markets in terms of economic trends and investments. It continue to grow in terms of revenue and to be profitable for investments of PE and investors,” says Patrizia Arienti, Deloitte partner and EMEA Fashion & Luxury Leader.
“Investors’ trust in the fashion & luxury sector is confirmed in 2016. More than half of respondents are expected to increase over 5% in the Fashion & Luxury investments, especially in Asia, the Middle East and North America. In particular, Asian market looked like the most attractive where it has been expected a double digit growth,” adds Elio Milantoni, Financial Advisory Partner at Deloitte.
Global Luxury Market in 2015
In 2015, sales in the Luxury market reached US$ ~1.2 trillion, growing by 14.8% (+5% at constant rates) over the last year mainly thanks to the Hotels and Cars sectors.
Fashion & Luxury M&A deals in 2015
In 2015, around 141 M&A deals focused on the larger Fashion & Luxury industry were carried out, of which 48% (67 deals) were finalized in the Personal Luxury goods sector. The sectors that recorded the highest number of deals are: Hotels (51), Apparel & Accessories (33), Cosmetics & Fragrances (19) and Watches & Jewelry (15). The remaining 23 transactions took place in the Yachts & Private Jets and Furniture sectors.
Within the Asia Pacific region (excluding Japan), the Hotels sector accounted for nearly half of all Fashion & Luxury deals in 2015. There has been a considerable increase in the confidence level in Southeast Asia in view of the regional economic prospects. Corporate managers are also looking at doing deals for more company-specific reasons, such as market expansion, margin improvement and talent acquisition.
“Competition is very intense in the luxury segment of the Hotels sector,” says James Walton, Deloitte Southeast Asia’s Travel, Hospitality & Services Leader. “As digital technologies continue to transform – and in many cases, disrupt – companies’ distribution channels and supply chains, we have witnessed the foray of new entrants and the emergence as well as consolidation of online accommodation platforms, which are becoming increasingly widespread.”
In 2015, 47% of the finalized deals had an average value below US$ 100 million, whereas it exceeded US$ 500 million in 18% of cases. The average value per transaction was US$ 426 million.
Fashion & Luxury Private Equity and Investors Outlook 2016
Around 60% of investors maintain they own assets in the Fashion & Luxury industry characterized by a majority stake and an average duration generally below 5 years.
In 2015, the main strategies developed to support the creation of economic value from owned Fashion & Luxury assets were as follows: development of new distribution channels (60%), penetration of new geographical markets (51%), improvement of operational performance through actions to increase efficiency (37%), development of new products (29%).
Now, 44% of investors foresees at least one exit from their F&L portfolio in 2016, mainly driven by the opportunity to achieve high returns on the investment made. The 53% of all respondents forecast an increase of over 5% (of which 15% with double-digit growth) driven by the positive trends predicted in the following sectors: Cosmetics & Fragrances (on the increase according to 69% of investors), Furniture (60% of investors), Apparel & Accessories (59%), Cars (54%).
The sectors which attract the highest percentage of negative forecasts – although they are fewer than positive forecasts – are as follows: Yachts (25% predicting a decrease vs 30% predicting an increase), Private Jets (22% - decrease vs 39% - increase), Cruises (21% - decrease vs 41% - increase) and Selective Retailing (21% - decrease vs 69% - increase).
Investors with assets in the F&L industry have better expectations, compared to potential investors who do not own F&L assets, as regards the Cosmetic & Fragrances and the Apparel & Accessories sectors.
The geographies where investors expect growth in 2016 are the Asia-Pacific region (excluding Japan), the Middle East and North America, whereas Europe should remain stable. Investors forecast a negative trend for Latin America and Japan.
In 2016, 76% of respondents plan to make at least one investment in the Fashion & Luxury industry, more specifically in the following sectors: Apparel & Accessories (75%), Cosmetics & Fragrances (48%) and Furniture (39%).
Investors interested in F&L maintain:
- in 72% of cases, that they intend to acquire target companies with a turnover below US$ 100 million; 10% of investors plan on investing in companies with sales above US$ 500 million;
- that they intend to carry out new transactions in this industry through Expansion Capital strategies (63%), Leverage buy-out strategies (61%) and Management buy-out strategies (54%), mainly acquiring a majority stake in the target organization;
- that they intend to fund the investment using mainly senior debt (80%)
The average return expected from investments in the Fashion & Luxury industry is very high; 70% of respondents expect investments to have an IRR exceeding 20%. The Personal Luxury Goods sectors are considered as the most profitable ones by investors, as confirmed by the business performance of the companies analyzed.
The highest returns are expected from large-sized organizations; around 35% of investors expecting an IRR above 20% plan on acquiring companies with sales above US$ 100 million.
Key Fashion Business Trends in 2016
In conclusion, the findings of the survey conducted by Deloitte is that there are four key trends that are influencing the Fashion industry and consequently the strategic and operational choices of organizations:
- Digital Revolution: the booming of digital is modifying companies’ distribution channels for the front-end market and business models for product development and supply chain
- Craftsmanship: the research of quality and exclusivity from end users encourages fashion luxury corporates to invest in craftsmanship, influencing production and design competences and skills
- Contemporary Fashion: the upsurge of this segment is represented by emerging designers launching their own start-ups
- Fashion Capitals: the global growth of mature and emergent fashion capitals is driven by the economic growth of emerging markets, offering the possibility of geographical expansion to key players in the industry.
The read the full report, please click here.