In fashion and beauty, consolidation is still hot.
Most recently, Victoria’s Secret acquired lingerie startup Adore Me and a minority stake in Frankie’s Bikinis. The Estée Lauder Cos. Inc. buys his Tom Ford. Authentic Brands Group acquires Ted Baker. Oxford Industries, the parent company of brands such as Tommy Bahama and Lily Pulitzer, now owns Johnny Was, a bohemian-inspired women’s apparel brand. Last year, Levi’s acquired Beyond Yoga. Calida Group buys her Cosabella. And the list goes on. Other companies have said they are looking into whether it is a good fit or have hinted at adding it to their portfolios.
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The macro environment may contribute to at least some of the trading. With interest rates rising and the initial public offering market nearly dead, the era of overvaluation is over and cash is more expensive than ever. This means many smaller brands are struggling to raise investor capital. Selling all or part of a small brand to a legacy company is one of the fastest ways to scale.
Large companies will also benefit. They gain expertise, such as digital skills, an already established online community and followers, and are often able to expand into new geographies.
But will the industry’s M&A pace continue into 2023?
Brooke Kiley, one of the founders of VMG Catalyst, the venture capital arm of VMG Partners, told WWD: “My hunch is that it will be an acquisition market over the next two to three years, especially late-stage companies with fairly strong balance sheets that were opportunistically funded in 2021 due to high valuations and cheap capital. They have big balance sheets and would be a good soft landing for an interesting early-stage company that may not have a permanent business model. They may find their homes in some of these businesses. “
This scenario creates a buyer’s market for companies with cash. They have the resources to decide which brands to work with or add to their portfolio.
David Shiffman, co-head of the global consumer retail group at investment bank Solomon Partners, said consolidation with smaller direct-to-consumer brands is likely. But he noted that last year’s declining valuations have made some brands reluctant to sell at current asking prices.
“And to create a buyer’s market, you need willing sellers,” he said. “Usually they [brands] The big checks from VCs are: [aren’t profitable] and finally fail the test [to make money]We are still in the entrepreneurial stage yearning for valuation days like 2020. [Companies] To justify a higher valuation, you need higher cash flow, or money. “
While the market looks ripe, Shiffman sees companies shifting focus from apparel brands to health and wellness, beauty, home and outdoor sporting goods, and M&A “activities are very, very selective.” It was a target.”
“[Private equity] I was reluctant to participate in the retail game,” he said. “It’s become more expensive to borrow money. [But] I think you can see across the board quality companies looking for homes. Regardless of sector, people are always interested in owning a good business. Brand management saw the most activity. They have done a great job of acquiring branded retailers. “
One such example is WHP Global’s recent investment in Express. The brand management company invested his $260 million in his 7.4% stake in the fashion retail chain. This partnership includes creating a platform to acquire more brands in the future.
“Historically, opportunities have always been all over the place in fashion. But given today’s environment, the amount of opportunities has definitely increased,” said Yehuda, Chairman and Chief Executive Officer of WHP Global. Shmidman told WWD in December. “Imagine the kind of fashion brands that we are so excited to pursue.
“Just this year, things have changed in the macro markets, and the fact that the IPO market has closed, recaps have tightened, and funding has become difficult, has definitely increased the amount of opportunity for people like us. I did,” he said. Added.
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