Luxury and investment finance, a complex equation
today Nov 24, 2017
How to engineer the perfect match between the fashion/luxury sector and investment finance? In what ways can private equity firms add to the value of luxury labels without causing them to lose their identity and creativity? These are some of the issues addressed by the participants of the Milan Fashion Global Summit 2017, held in the Italian city on Thursday 23rd November.
When a financial partner acquires a stake in a luxury label, this can turn into a genuine boost for the latter's growth, but it can also sometimes lead luxury companies down a negative spiral, if for example they start investing in a reckless fashion and grow too fast for their capabilities.
"Undeniably, if the operation is properly managed, having an investment fund as a capital partner, or achieving a stock market listing, can be synonymous with high added value for fashion companies. Simply consider the spectacular success enjoyed in recent years by Moncler, Valentino and Golden Goose, who doubled or even tripled their revenue while their margins also skyrocketed, growing in double figures," said Emanuela Pettenò, a partner at auditing multinational PwC.
"Remarkable operations such as these allowed the labels to speed up their international expansion, strengthen their retail organisation, broaden their product range and deploy appropriate communication strategies. Common traits that are to be found in each of these instances," she added.
"You must be careful not to go too fast," warned Roberta Benaglia, the founder and CEO of asset management company Style Capital SGR, which successfully supported labels such as Twinset and Golden Goose in their initial expansion phase. "SMEs are faced with several challenges in their initial development period. A premature stock market listing risks paralysing them, especially if they aren't used to dealing with the financial world."
For their part, investment funds cannot approach the world of fashion and luxury as they would any other industry. "Investment funds work with a single model, which they tend to apply to all and sundry. But fashion is different, it's a world apart. To enter this kind of industry, it's better to have some understanding of the business already," said Andrea Morante, President of QuattroR SGR, the turnaround fund backed by semi-public Italian investment bank Cassa Depositi e Prestiti. "It isn't a generalist business," he added.
"When you start working with small Italian companies, you mostly find they are family-managed: the father is in charge, the mother looks after administration, the brother after sales, etc. You must first of all understand the inner balance of the companies, manage your relationship with these people and set up an organisation around their internal nucleus. It's a complex alchemy," said Roberta Benaglia, adding that "investing in the luxury industry can turn out to be very interesting and generate remarkable returns, but if the investment is badly managed, it can also cause major debacles."
Success is therefore dependent on the way in which investment funds are able to integrate a more managerial organisation with the original company, without clipping its wings, as underlined by Andrea Ottaviano, Managing Partner Europe of the L Catterton fund. "The most difficult thing is managing to preserve the company's and the entrepreneur's imagination, while making them both more managerial."
In this context, the human factor plays a decisive role. "Investors must have the ability to choose the right people, managers who are themselves able to act like entrepreneurs, and win the trust of company founders and their support in transmitting the company's own values and expertise," he added.
"To win this trust, we start working with entrepreneurs from the earliest stages, sometimes even two years before we complete an operation," said Roberta Benaglia. "They get to know us and, gradually, they start appreciating us, for our advice and help. It is a long-term endeavour," she concluded.
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