Why the Versace family decided to sell
today Sep 25, 2018
As the Milan Fashion Week was ending on Monday morning, the most outrageous rumours were circulating about the imminent sale of Versace. All speculation was put to bed on Tuesday, however, with the confirmation that American group Michael Kors would acquire the storied Italian label in a $2.1 billion deal.
Italy’s leading daily paper, Il Corriere della Sera, first reported the news on Monday, at the time mentioning two potential buyers, US groups Michael Kors and Tiffany & Co.
Other potential buyers, like French luxury group Kering, reportedly dropped out owing to the price, which was considered too high. The Versace family held an 80% interest in the eponymous label, and U.S. private-equity group Blackstone -- now exiting the label -- owned the remaining 20%. When the investment fund acquired its stake in 2014, the Versace group was valued at €1 billion. The current valuation is reportedly about $2 billion, equivalent to more than €1.7 billion.
“It’s hard for Donatella Versace, who has been in charge of the label for 20 years, to turn such an offer down! It is nearly double the estimated 2018 revenue [for Versace], which ought to be in the region of €800 million,” said Salvo Testa, Fashion Management professor at Milan's Bocconi University.
It also seems to be the right time for Blackstone to exit Versace, having found a US buyer. After a far-reaching reorganisation, in the last two years Versace enjoyed a period of strong growth, under the leadership of Jonathan Akeroyd (the former CEO of Alexander McQueen,) who was appointed CEO in 2016. The group made significant investments, notably on the retail front.
Sizeable investments and rising costs meant however that profit margins were drastically reduced in 2016, when Versace closed the financial year with a loss of €7.4 million, while its revenue grew by 3.7%, to €668.7 million. Versace did rebound the following year though: in 2017, the label generated a net profit of €15 million. Last June, Jonathan Akeroyd stated that “ sales grew by 18%” on a yearly basis, and EBITDA grew by “50%.”
The label was founded in 1978 by Italian designer Gianni Versace, with his brother Santo and his sister Donatella. Donatella took charge after Gianni was murdered in 1997, and has been the label's Creative Director for 21 years. She is very popular in the USA, where she is regarded as the most American of the Italian designers. According to the Corriere della Sera, Donatella has been able to ensure the label's continuity through her constant, decisive presence at the helm of Versace.
Last year, when it came to bringing in a major designer to take over from her, Donatella dithered. In the last few seasons, she gave the impression of chiefly focusing on Versace’s archives, presenting revamped versions of the label’s signature prints and vivid colours, for which it is famous. Perhaps it was a way of heralding her retirement.
“The family couldn’t actually ensure the label's continuity, either on the creative front or the managerial one, unlike Prada and Ferragamo, where a new generation is beginning to take over,” said professor Testa.
Ownership of the label's holding company, Givi, is split within the family, with 20% belonging to Donatella, 50% to her daughter Allegra and 30% to Donatella’s brother Santo, who will all stay on as shareholders in the company post-acquisition. The latter remains chairman of the board of directors, but no longer has an operational role. “It is clear that, sooner or later, he would have sold his stake, while Allegra, who is still young, never played an active role at Versace,” added professor Testa.
The options that were left to the family were either a stock market listing, which was briefly envisaged, or selling the label. “Since Versace's profits have been much reduced, the group [wasn't] solid enough to suggest that an attractive listing is possible. A sale therefore [seemed] to be the most logical outcome,” concluded professor Testa.
For Michael Kors, owning Versace could prove to be extremely interesting. First of all, it allows the US group, which last year bought British footwear label Jimmy Choo for GBP896 million (€1 billion), to add to and diversify its portfolio. Also, it will enable Michael Kors to go even more upmarket, by acquiring a luxury label with a major tradition and great visibility. Michael Kors, currently led by its eponymous President and CEO John Idol, is strongly focused on accessories, and with Versace it gains a complementary expertise in ready-to-wear.
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