After Jimmy Choo, Michael Kors buys the Italian fashion powerhouse, Versace for a staggering $2.12 billion. This drift of fashion/power exchange has made Michael Kors the first American conglomerate-in-the making. But, it doesn’t come as surprise for fashion brands to be acquired for a much higher multiple. In 2016, Balmain was bought by Qatari-backed investment fund Mayhoola for €500 million which was 14 times its EBITDA.
So, what does it take two powerful fashion houses to make this exorbitant decision? Versace as reported has been struggling to grow a business of their popular prestige and culture for similar measure of years. In 2009, for instance, Versace was reported to have a loss close to €80 million in a stark difference to their €270 million in sales. This narrow profit of Versace as such has proven to be struggling scenario for their supposedly acquired fashion name.
In fact, this isn’t the first time Versace has staked up their brand for a more valued position. In 2014, 20 per cent of this fashion cachet was staked to the Blackstone at $1.4 billion.
What the Michael Kors Holdings/Capri Holding sees in Versace?
A greater chunk and a fatter deal! Because fashion powerhouses go for the bolt and Capri’s aspirations to climb upmarket for a chunkier luxury sale only seems valid. This year the total luxury sales are panned to grow up to 8 per cent according to Bain which means outstripping the mid-market sector that the company has relied on in the past.
Additionally, Versace is known to stand atop the fashion houses for not unknown reasons. The family has the fashion know-how in producing luxury apparel which represents a majority of the brand’s revenue, compared with 21 percent from shoes and 25 percent from leather goods to Capri Holdings. With under $1 billion a year in sales, Versace is far behind conglomerate-owned rivals including Louis Vuitton, Gucci and Saint Laurent.
Given the steep price, the amount of the ‘bought’ has been questioned by the buyer’s analysts and investors. Another raising concern also was about how the change in the market of the upscale Italian house will fit into an American brand where sales are driven by less outré items, such as handbags will sell for less than $400 in contrast to the $1,000 above Versace handbags.
Ever since Gianni Versace’s passing, Donatella Versace has been leading the house and will continue to do so as a conglomerate. In a statement, Idol said that Donatella will continue to lead creative at the company. “Donatella’s iconic style is at the heart of the design aesthetic of Versace," he said. “I am thrilled to have the opportunity to work with Donatella on Versace’s next chapter of growth.”