Fashion & Luxury Private Equity

and Investors Survey 2019

Global report
Contents

Preface and methodology 4

Key takeaways 7

M&A Deal Monitor 2018 9

Private Equity and Investors Survey 2019 17

Glossary and contacts 37

Fashion & Luxury Private Equity and Investors Survey 2019 | Preface and methodology

Preface
During 2018, Fashion & Luxury (F&L) grabbed the
attention of PE funds and Investors. Some have raised
special vehicles to be on top of trends and to recognise
the best assets in the industry.
Valuations have grown high and this has shone the
spotlight on the F&L industry, despite market challenges
such as disruptive technologies and new competitive
landscapes.
PE funds and Investors have faced increasing
competition from strategic buyers, that pursue strong
buy-and-build strategies to consolidate their businesses
and to survive market transformation. Competition has
also extended geographically, with increased interest
from Asia and Middle East.
In this context, global investors interested in the
Fashion & Luxury industry are reviewing their
expectations and strategies for the next years.
In order to analyse and measure market trends and
expectations on M&A activities, Deloitte has launched
the fourth edition of the “Global Fashion & Luxury
Private Equity and Investors Survey”.

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 Fashion & Luxury Private Equity and Investors Survey 2019 | Preface and methodology

Methodology and contents

The study considers more than ten sectors of the F&L industry, of which three are Personal Luxury Goods.

M&A Deal Monitor 2018 Private Equity and Sectors covered Market segmentation
Investors Survey 2019
• Size of M&A deals by F&L • F&L market outlook Personal Luxury Goods
Contents

sector • Exit and investment

• Target company profiles strategies in 2019

Price point analysis

Consumers’ perception
• Investor profiles • Investors’ current
• Analysis of global deals portfolio of F&L assets Absolute
Scope

Apparel & Cosmetics & Watches &

Geo

Global Global Accessories Fragrances Jewellery

Aspirational
Absolute

• News and reports • Online survey based

Primary Primary
from major media
Data source

data level on Computer Assisted data level

Luxury
providers Web Interviewing
• Investor press (CAWI) Aspirational
releases • Interviews with Private
• Company press Equity funds top Accessible
releases management Furniture Private Yachts Luxury Electric
Jets Cars Cars

• The survey targeted senior members within investment funds,

Remarks

with a substantial knowledge of the F&L industry

Fashion
Luxury Luxury Luxury Digital Luxury
Full secondary data Full primary data New sector Hotels Cruises Restaurants Goods Fashion

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 Fashion & Luxury Private Equity and Investors Survey 2019 | Key takeaways

Key takeaways
M&A Deal Monitor 2018

2018 Global M&A deal overview Top deals in 2018 M&A features and strategies
The Fashion & Luxury industry proved to be fertile Acquisitions in Automotive, Hotels and Apparel & Of the M&A deals completed, 56% were carried out
soil for M&A activities with #265 deals registered in Accessories sectors drove numbers in 2018: by Strategic investors (vs.47% in 2017), with a strong
2018, presenting a significant increase of #47 deals increase in 2018 in terms of number of deals compared
• Beijing Electric Vehicle Ltd. by BAIC BluePark New
compared to the previous year. Personal Luxury Goods to 2017 (+42 deals). Financial investors, involved in 44%
Energy Technology Ltd. (~3.6B$ for 100%)
deals have increased (+11 deals versus 2017) with of the total, increased only slightly the number of deals
Cosmetics & Fragrances (17% of total) growing by #16 • Belmond Ltd. by LVMH (~3.3B$ for 100%) (+5 YoY).
deals, while both Watches & Jewellery (11%) and Apparel • Gianni Versace SpA by Michael Kors Holdings Strategic sellers were involved in 57% of the
& Accessories (28%) decreased by #1 and #4 deals Limited (~2.1B$ for 100%) transactions (vs.63% in 2017). Generally, bidders’
respectively. The Hotels sector, which represents 28%
investments focused on a buyout strategy (38% of the
of total, was the best segment in terms of deals growth Other relevant acquisitions in 2018 involved Cruises,
times, +3 deals vs.2017).
with respect to the previous year, increasing by #29. Yachts and Furniture companies:
M&A deals volumes in other sectors increased, with • Silversea Cruises Ltd. By Royal Caribbean Cruises Ltd.
activity in Cruises (+3 deals), Restaurant & Pubs (+3) and (~1.5B$ for 67%)
Yachts (+1) growing compared to the previous year. The
average deal value has shown flat at $233m in 2018, • Boat Holdings, LLC by Polaris Industries Inc. (~717M$
with just a $3m increase from 2017. for 100%)

M&A deals in Europe strongly increased (+41 deals), • Ekornes ASA by Qumei Investment AS (~700M$ for
whilst North America and Asia-Pacific remained flat. 100%)

Luxury Automotive deals were present only in China

during 2018, driven by the very active electric car’s
industry.

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Fashion & Luxury Private Equity and Investors Survey 2019 | Key takeaways

Private Equity and Investors Survey 2019

Fashion & Luxury market outlook Investors’ positive consensus regarding 2019 investment strategy sized companies (+10 percentage
both Asia and the Middle East has points), where investors plan to
Within its Private Equity Survey, Deloitte 70% of funds are considering investing
continued in 2019 as the forecast boost performance by implementing
focuses on understanding investors’ in an F&L asset in 2019, with notable
continues to see these regions internationalization, performance
perceptions of the potential growth in interest rising in: Apparel & Accessories
stimulating the growth of the F&L improvement and digital strategy design
the F&L market in coming years. The (where 79% intend to invest), Cosmetics
industry. Expectations for North America (which grew by 20 percentage points).
consensus view is that major players & Fragrances (79%), Furniture (57%),
are positive (5-10% annual growth), but Digital disruptions, such as Artificial
in Personal Luxury Goods (PLG) are Watches & Jewellery (36%), Selective
sentiment has decreased compared Intelligence (AI), Robotics and Big Data
projected to achieve 1.1 times their Retailing (29%).
to 2018. Finally, sentiment regarding & Analytics enable companies to keep
2018 sales index by 2021 (~ +4% CAGR
Europe, Latin America and Japan has Interest across categories is increasing pace with the virtual customers; given
2018-21), while other Luxury sectors are
changed compared to the previous year, compared to previous year, mostly that, luxury companies are seeking for
expected to achieve 1.2 times their value
but the regions are forecast to develop noticeable at Selective Retailing and digital startup/companies to exploit
(~ +6% CAGR 2018-21).
relatively stable. Cosmetics & Fragrances. Interest synergies. Digital penetration will lead
Within the next three years, investors however in Digital Luxury Goods to physical disruption; the classical store
forecast that the F&L industry will decreases, despite positive market will inevitably change from point of sales
continue to grow by 5-10% annually. 2019 exit strategy growth expectations. to point of touch.
Digital Luxury Goods, Cosmetics &
The report considers potential strategies Both current investors and newcomers The consensus is that forecast returns
Fragrances and Furniture are projected
investors will undertake in 2019 to are more attracted to consolidated will range from 21 to 30%.
to outperform strongly, growing by
enhance or disinvest their Fashion & sectors within the F&L industry (such as
more than 10% per year. Apparel & According to respondents in 2019,
Luxury portfolios. About 43% of funds Apparel & Accessories and Cosmetics
Accessories, Hotels and Restaurants 43% will probably invest in disruptive
are considering divesting an F&L asset & Fragrances) where market knowledge
are consolidating (with expected annual technologies in order to benefit from
in 2019, resulting in an increase from the is widespread. Newcomers seem more
growth of 5-10%). A decrease is expected potential synergies. Internet of Things,
previous year (+8.2 percentage points). interested in experiential luxury.
in Cars and Private Jets, while Yachts, Big Data & Analytics and Artificial
Generally, an investor’s exit is motivated
Jewellery and Selective Retailing are With respect to 2018, the continuous intelligence will have the largest impact
by an opportunity for high returns, the
forecast to stay flat. consolidation of the F&L industry is on investors’ portfolios according to
closing of the investment period, market
moving investments towards smaller- respondents in 2019.
trends mismatches or concerns related
to the shrinking of multiples.

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 Fashion & Luxury Private Equity and Investors Survey 2019 | M&A Deal Monitor 2018

M&A Deal Monitor 2018

Fashion & Luxury M&A deals
Overview of deals in 2018 by sector Top luxury deals of 2018
Value

218 265 +47

Month Target Bidder
1 ($m)
Jul. Beijing Electric Vehicle BAIC BluePark New Energy Technology 3,620
Deals in 2017 Deals in 2018 Deals
Dec. Belmond Ltd. LVMH Group 3,310
Sector Personal Luxury Goods (PLG) 2017 2018 Growth
Oct. NH Hotel Group SA Minor International Public Company 3,207
Apparel & Accessories
77 73 -4
Dec. Gianni Versace SpA Michael Kors 2,162

Hotels
46 75 +29 Jul.

May
Silversea Cruises Ltd. Royal Caribbean Cruises

Wyndham European Vacation Rentals Platinum Equity

1,513

1,231
Watches & Jewellery
29 28 -1
Jul. Boat Holdings, LLC Polaris Industries 717

Cosmetics & Fragrances 28 44 +16 Aug. Ekornes ASA

Guangzhou Xiaopeng Motors
Qumei Investment 702

Aug.
17 14
Primavera Capital Group 595
Technology
Furniture -3
Oct. Perry Ellis International George Feldenkreis 541

Private Jets
10 9 -1 Jun. Byton Contemporary Amperex Technology 501

7 8
Aug. ShangHai YouXia Motors Co., Ltd. Gezhi Asset Management 357
Yachts +1
Nov.2 Nox Bellcow Cosmetics Fujian Green Pine 343

Cars (including Electric Cars)

2 6 +4 Nov. Zhejiang Leapmotor Technology
Shanghai Electric Group Company
Limited
298

1 4
VF Corporation
Apr. Authentic Brands Group 278
+3 (Nautica brand business)
Cruises

1 4
Notes: 1) 2017 adjusted for changes in perimeter; 2) Still pending
Restaurants +3 The analysis considers both closed and announced deals during 2018
Source: Elaboration on Deloitte intelligence data
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Fashion & Luxury Private Equity and Investors Survey 2019 | M&A Deal Monitor 2018

M&A deals by region and sector

Overview of deals in 2018 by region
(number of deals)

Europe North America Asia-Pacific

Key findings

+41 95 109 150 -1 59 59 58 +2 36 36 38

11 16 5 3 Europe was the only region which saw a
18 6 3 8 2 6 7
14 18 5 4 significant increase of Fashion & Luxury
5 18 10 4
15 16 12 10 2 6 deals in 2018, with 41 more deals, driven
10 10 17
21 12 10 by an increase in the Hotel business.
19 50 8 5
16 11 North America and Middle East presented
9 10 8
38 47 a lower number of deals with respect to
46 15 14 14 8 12
7 2017.
2016 2017 2018 2016 2017 2018 2016 2017 2018 Luxury Hotel and Apparel deals were
present in all major regions, and were
notable drivers of M&A activity globally in
Middle East Japan Rest of the world 2018.

-1 +4 +2 Asia-Pacific presented a slight increase

5 3 2 8 4 8 8 6 8
in F&L deals since 2017, thanks to the
1 2 1 1
2 1 1 Watches & Jewellery segment.
1 2 1
5
3 1
1 4 4
2 5
1 4
2 3
1 2
1
2016 2017 2018 2016 2017 2018 2016 2017 2018

Apparel & Accessories Cosmetics & Fragrances Hotels Private Jets

Watches & Jewellery Yachts Others # Variance 2017-18

Source: Elaboration on Deloitte intelligence data

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 Fashion & Luxury Private Equity and Investors Survey 2019 | M&A Deal Monitor 2018

Size of main M&A deals

The F&L soil has been fertile with 265 M&A deals in 2018, showing a 22% increase from 2017.
Personal Luxury Goods (+8% YoY) represent 55% of all deals.

Number of deals in 2018 - Breakdown by sector

(number of deals, percentage)

Key findings
6 4 4 265
8
14 9
PLG YoY 2017-18 +11 75
Other
Cosmetics registered #16
45% Luxury deals more compared to
Markets 2017.
Apparel and Watches &
Jewellery deals decreased by
44
#4 and #1 respectively.
28 Personal The Hotel sector has become
55% Luxury more attractive to investors
Goods
73 during 2018, becoming the
top gainer in terms of deal
number (+29).
Apparel & Watches & Cosmetics & Hotels Furniture Private Jets Yachts Cars Restaurants Cruises Total F&L
Accessories Jewellery Fragrances
Sector
breakdown 27.5% 10.6% 16.6% 28.3% 5.3% 3.4% 3.0% 2.3% 1.5% 1.5% 100%

Var. #
deals -4 -1 +16 +29 -3 -1 +1 +4 +3 +3 +47
2017-18

Source: Elaboration on Deloitte intelligence data

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Fashion & Luxury Private Equity and Investors Survey 2019 | M&A Deal Monitor 2018

Average value of main deals by sector

Deals related to the Cars industry were the largest in 2018 with an average value of $945m (#6 deals).
The average deal value of PLG’s in 2018 was $117m.

Average value per deal in 2018 – Breakdown by sector

($m, percentage)

945 Personal Luxury Goods Other luxury sectors F&L average Key findings

771
Cosmetics and Apparel saw their
average deal value fall in 2018.
Automotive (+561% YoY), Yachts
(+407%), Private Jets (+174%),
Hotels (+63%) and Furniture (+45%)
recorded remarkable increases.
279
266
233
191 172
120
Avg. PLG 97
$117m 63
24

Cars Cruises Yachts Hotels F&L Apparel Furniture Private Jets Watches & Cosmetics & Restaurants
Average Jewellery Fragrances

+561%
+407%

+174%
N/A +63% +45% N/A
YoY 2017/18
(%) -12% -46% -15%
-84%

Note: The average deal value has been calculated based upon data of disclosed transactions
Source: Elaboration on Deloitte intelligence data

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 Fashion & Luxury Private Equity and Investors Survey 2019 | M&A Deal Monitor 2018

Target company features

Compared to the previous year, funds increased the number of deals related to smaller sized firms, delivering lower
average multiple, with a significant increase of the 5-10x EV/EBITDA multiple (42% of deals in 2018, vs. 17% in 2017).

Target company features - Sales class and multiples

(percentage, enterprise value - EV/EBITDA multiples)

Key findings
TARGET COMPANIES SALES CLASS DEAL EV/EBITDA MULTIPLE

100% 100% 100% 100% 100% 100% In 2018, investors were mostly oriented
Big Size towards lower-sized firms ($0-$50m)
-22% >15x -21%
(> $250m)
16% 17% which accounted for 65% of deals in the
28% 23%
%
Medium Size year, compared to 55% in 2017.
-25% 37% 42% 11x-15x +1%
($51m-$250m) There was a marked decrease in deals
18%
29% involving players in the Medium Size
Low Size
+28% 5x-10x +45% market, between $51m and $250m, by
($0m-$51m) 35%
32% % 11% (-25% CAGR 2016-18).

n.m.
Deals involving multiples superior to 15
34% <5x
31% times the EBITDA decreased, while there
CAGR 16-18 was an increase in deals positioned on
65%
55% EBITDA multiples of both 5-10x and 11-15x.
40% % 42% CAGR 16-18
20% 17%

9% 10%

2016 2017 2018 2016 2017 2018

Note: The target sales class has been calculated for all companies with financial data which is publicly available
Source: Elaboration on Deloitte intelligence data

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Fashion & Luxury Private Equity and Investors Survey 2019 | M&A Deal Monitor 2018

Investor profiles

Financial investors were 44% of total bidders with Private Equity/Venture Capital representing 44% of them, while the
majority of Strategic investors (51%) were involved in an Apparel & Accessories or Hotels related deal in 2018.

Main bidders’ profile

(percentage, number of deals)

Key findings
Financial investors +5 +42 Strategic investors
100% 100% YoY 2017-18 Deals conducted by Strategic investors,
Other mainly operating in the Apparel &
11% Industries -11
Accessories, Hotels and Cosmetics &
+2
Other investors 27% 6% Furniture +4 Fragrances sectors, represent 72% of
11% Watches & +5 total deals.
Jewellery
+13 The growth in the number of deals with
Cosmetics &
Financial Services 20% Fragrances
+15 respect to the previous year was mostly
29%
44% driven by Strategic investors (+42 deals).
56% Apparel &
24% Accessories +10
-10
Private Equity / 44%
Venture Capital
28% Hotels +19

Breakdown by Breakdown by
investor type investor core industry

Source: Elaboration on Deloitte intelligence data

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 Fashion & Luxury Private Equity and Investors Survey 2019 | M&A Deal Monitor 2018

Portfolio exit strategies

In 2018 there has been an increase in financial sellers (43% vs 36% of 2017), with the most significant part of the
acquisitions carried out through buyouts (38% of total, +3 deals YoY).

Exit types vs investment strategies

(percentage, number of deals)

Key findings
Exit types patterns Investment strategy by bidder type
100% 100% 100% 100% 1% 100% 1% 100% 1% There was a slight decrease in M&A
Sponsor
7% 4% 2% 3% Other -1 operations carried out by “strategic”
to sponsor 6% 7%
9% sellers in 2018 (57% vs. 64% in 2017).
Sponsor 25% Turnarounds +2
to strategic
16% 34% Financial 20% Furthermore, the exit patterns of
seller 25% Consolidations +58 Financial investors increased from 36%
11% 43% 32% in 2017 to 43% in 2018.
Strategic Acquisition capital +1
25% 9%
to sponsor There was a strong growth in
39%
Growth capital +24 investments through Consolidation
26%
9% (+58 deals) and Growth Capital (+24),
39% Buyouts +3
34% reflecting the higher number of deals
Strategic carried out by Strategic investors.
Strategic seller
52% YoY 2017-18 (deals)
to strategic 57% 45%
38%
32%
25% 23%

2016 2017 2018 Financial Strategic Total

investor investor

Note: The deal strategy analysis has been performed based upon data of disclosed transactions
Source: Elaboration on Deloitte intelligence data

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Fashion & Luxury Private Equity and Investors Survey 2019 | M&A Deal Monitor 2018

Bidders’ investment stake

Majority stake in the Personal Luxury Goods deals increased by 23% points reaching 85% in 2018,
consistently with both the Other luxury sectors (85%) and the Total F&L (85%). The remarkable 19% growth
(85% vs. 66% in 2017) was driven by a larger percentage of Strategic investors.

Investment stakes by sector

(percentage)

76 28 44 14 75 9 8 4 6 4 265
7% 7% 9% 12% 15% Minority
18% 21%

75%
93% 93% 100% 100% 100%
82% 79% 91% 88% 85% Majority

25%

Apparel & Watches & Cosmetics & Furniture Hotels Private Jets Yachts Cruises Cars Restaurants Total F&L
Accessories Jewellery Fragrances

PERSONAL LUXURY GOODS OTHER LUXURY SECTORS

85% Majority 85% Majority

+23%pts Majority +9%pts Majority

Note: Undisclosed investment stakes deals have been excluded from the analysis
Source: Elaboration on Deloitte intelligence data

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 Fashion & Luxury Private Equity and Investors Survey 2019 | Private Equity and Investors Survey 2019

Private Equity and Investors Survey 2019

Fashion & Luxury market outlook

Market outlook: 2018-21 F&L sales index outlook

(index on sales 2010=100)

rising sales forecast Index

280 PLG idx growth: 1.1x

Other lux idx

Investors expect PLG top players to achieve 1.1 260
growth: 1.2x
times the 2018 sales index by 2021 (~4% 18-21 240
CAGR). Other luxury sectors are expected to be at
1.2 times the 2018 value (~6% 18-21 CAGR). 220
CAGR
200 2018-21F

180 Personal Luxury Goods +3.7%

160
Other luxury sectors +6.4%
140

120

100
Forecast
80
2010 2011 2012 2013 2014 2015 2016 2017 2018 2021F

Note: Values reported at constant exchange rates

Source: Elaboration on Company Financial Report data and Deloitte survey

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Fashion & Luxury Private Equity and Investors Survey 2019 | Private Equity and Investors Survey 2019

Market outlook: trend by F&L sector

In the next three years investors expect a sound growth in the Cosmetics & Fragrances, Furniture and
Digital Luxury Goods industries, confirming last year's trend. A solid, but more limited growth is also
expected in Hotels, Restaurants and Apparel & Accessories industries, while investors forecast Cars and
Private Jets as shrinking. Yachts, Watches & Jewellery and Selective Retailing are expected to remain stable.

Expected F&L market trends for the next 3 years – Breakdown by sector
(index on responses)

Key findings
Strong
Increase
(>10%
per year) Private Equity funds expect the F&L industry to grow
by around 5-10% annually in the next three years,
Increase
(5-10%
confirming last year’s sentiment.
per year) The main sectors that will drive this growth are
Cosmetics & Fragrances, Digital Luxury Goods and
Stable
Furniture, with growth rates higher than 10%. A
Decrease
(< 0%
slower but positive trend is predicted for Apparel &
per year)
Apparel & Watches & Cosmetics & Cars Hotels Restaurants Yachts Private Furniture Selective Digital Total F&L Accessories and "out-of-home experiences": Luxury
Accessories Jewellery Fragrances Jets Retailing Luxury Hotels and Restaurants (between 5-10% annually).
Goods
Personal Luxury Goods Other luxury sectors
Yachts, Watches & Jewellery and Selective Retailing
remain stable.
2018-19 change
in sentiment
N/A Forecasts are less favorable for Cars and Private Jets,
where the market is expected to decline.

Source: Elaboration on Deloitte survey

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 Fashion & Luxury Private Equity and Investors Survey 2019 | Private Equity and Investors Survey 2019

Market outlook: trend by geographical area

Investors expect the Asian and the Middle Eastern areas to stimulate growth of the F&L industry.
Investments in Europe, Latin America and Japan are forecast to remain stable.

Expected F&L market trends for the next 3 years – Breakdown by region
(index on responses)

Key findings
Strong
Increase
(>10%
per year) Asia and the Middle East Fashion & Luxury markets
will drive the industry’s growth in the coming three
Increase years, with growth rates which might exceed 10% on an
(5-10%
per year)
annual base.
North America is expected to have a small increase,
Stable even though a change in sentiment by investors.
European, Latin American and Japanese markets are
Decrease
(< 0% forecast to be stable.
per year)
Europe North Latin Japan Asia Middle East Rest of Total F&L
America America the world

2018-19 change
in sentiment

Source: Elaboration on Deloitte survey

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Fashion & Luxury Private Equity and Investors Survey 2019 | Private Equity and Investors Survey 2019

2019 Exit and Investment Strategy

Funds’ F&L exit strategy for 2019
Funds considering divesting an F&L asset in 2019 are increasing in number (+8.2 pts). The main drivers of exit are
the prospect of high returns and market trends mismatches, which are affecting smaller multiples expected by
investors.

Funds that are going to divest at least one asset in 2019

(percentage of respondents)

Key findings
+8.2
pts 43% of funds participating in the survey
43% project at least one disinvestment within
their F&L portfolio, an increase compared
to the results of the survey carried out last
Exit drivers Exit strategies Exit multiple year (+8.2 percentage points).

100% 100% 100% 100% 100% 100% 100% 100% 100%

The main drivers that will influence exits will
6% 12% Other drivers 6% 13% Other > 10x be: Market trends mismatches (50%) and
18% (EV/Ebitda)
Closing of the 19% 37% Second High returns opportunity (38%).
12% 35% investment
19% buyout 44% 33%
< 10x
50% period 19% 0% 55% (EV/Ebitda)
In 63% of cases, the exit will be completed
29% 19% IPO
24% Market trends through operations of trade sales, in
Trade sale
mismatch which 33% of investors will pay an EBITDA
expectations 63%
56% 50% 67% multiple higher than 10x, a further decrease
41% 38% 56%
35% High returns
opportunity 45% compared to 2018’s expectations when 44%
expected multiples greater than 10x.
2017 2018 2019 2017 2018 2019 2017 2018 2019

Source: Elaboration on Deloitte survey

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 Fashion & Luxury Private Equity and Investors Survey 2019 | Private Equity and Investors Survey 2019

Expected new investments in 2019

Personal Luxury Goods remain the most attractive sectors for investors, with Apparel & Accessories and Cosmetics &
Fragrances becoming even more prominent. Investments in Digital Luxury Goods are expected to decrease.

100%
Most attractive sectors for investors Change in 2018-19
(percentage of respondents) (percentage points)
30% No Key findings
Apparel &
Accessories 79% 4pts
The sectors considered to be most
Cosmetics &
Fragrances 79% 17pts attractive based on survey respondents
are: Apparel & Accessories (79%),
Furniture 57% 12pts Cosmetics & Fragrances (79%), Furniture
Watches &
(57%) and Watches & Jewellery (36%).
Jewellery 36% 16pts Interest across sectors is increasing
70% compared to last year, particularly in
of PE Yes Selective
Retailing 29% 19pts Selective Retailing, which went up by 19
funds
percentage points.
Restaurants 21% N/A2
Digital Luxury Goods on the other hand
Digital Luxury (7%) declined by 9 percentage points.
7% -9pts
Goods

Other1 12% 0
Will your fund
acquire an F&L
Personal Luxury Goods Other F&L sectors
asset in 2019?

Notes: 1) Other includes Hotels, Private Jets, Cruises, Yachts and Cars; 2) Restaurants was not included in last year's survey
Source: Elaboration on Deloitte survey

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Fashion & Luxury Private Equity and Investors Survey 2019 | Private Equity and Investors Survey 2019

F&L sector attractiveness

Both Apparel & Accessories and Cosmetics & Fragrances are remarkably attractive to
investors. Furniture has shown a notable increase since previous years, remaining a star sector
for potential investments in the coming year.

Map of investor attraction in F&L sectors

45

40 Key findings
35 Cosmetics &
Fragrances
Change in 2018-19 (percentage points)

30
Selective Retailing
The Digital Luxury Goods sector seems to attract less investors
25 Furniture compared to last year, resulting in a negative delta from last
20 year’s result.
15 Apparel & Accessories, as well as Cosmetics & Fragrances are
10 the two sectors that remain the primary choice for investors,
Watches
5
& Jewellery attracted by higher margin performances.
Other1
0 Both sectors represent around 80% of the investment
-5 propensity in 2019.
-10 Apparel &
Accessories
-15 Digital Luxury
Goods
-20 General investor propensity
-25
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85%

Investment propensity 2019 (percentage of respondents)

Note: 1) Other includes Hotels, Private Jets, Cruises, Yachts and Cars (note that Restaurants was not included in last year's survey)
Source: Elaboration on Deloitte survey

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 Fashion & Luxury Private Equity and Investors Survey 2019 | Private Equity and Investors Survey 2019

Sector attractiveness: current vs potential investors

Both current and new F&L investors are willing to invest in consolidated sectors such as
Cosmetics & Fragrances and Apparel & Accessories. Even though newcomers seem attracted
also by other segments such as Hotels, Cars and Cruises.

Map of investor attraction in F&L sectors – Current vs potential investors

100%
General investor propensity
New F&L investor’s propensity (percentage of respondents)

Attractive sectors for

90% new investors Key findings
80%

70% As the most established sectors, Cosmetics & Fragrances and

Cosmetics & Apparel & Accessories remain the main target for all investors.
60% Other Furniture Fragrances
Furniture has become a highly attractive sector for potential
50%
Apparel &
investors in 2019, in line with previous year's trend.
40%
Accessories
New investors especially target experiential segments such as
30%
Hotels, Cars and Cruises.
20% Restaurants Watches
& Jewellery
10%

0% Digital Luxury Selective Attractive sectors for

Goods Retailing current investors
-10%
-10% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Current F&L investors’ propensity (percentage of respondents)

Source: Elaboration on Deloitte survey

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Fashion & Luxury Private Equity and Investors Survey 2019 | Private Equity and Investors Survey 2019

Growth strategies for the F&L portfolio

Internationalization and Performance improvement are the key strategic investment drivers for 2019.
Digitalization is becoming prominent as well, and shows the highest change in sentiment from the
previous year.

Main adopted strategic drivers for the F&L portfolio

(percentage of respondents)

Key findings

57% 57%
Internationalization and Performance improvement are
now the main strategic levers (57%) adopted by F&L
70% investors to grow their asset value.
Digital strategy design (36%) is becoming a relevant topic
36%
for F&L companies seeking faster growth, synergies
29% opportunities and to pursue an omni-channel strategy
(+20pts with respect to 2018). New technologies will further
21% 21%
enrich shopping experience and connectivity: mobile and
beyond.

International. Performance Digital strategy New distribution Change New production

improvement design channel management development

Change in %
pts 2018-19
+14 +17 +20 +4 -16 -0.4

Source: Elaboration on Deloitte survey

24
 Fashion & Luxury Private Equity and Investors Survey 2019 | Private Equity and Investors Survey 2019

Size of potential investment in F&L

The F&L industry is polarizing on investors looking to acquire small sized firms. Compared to last year
the expected investment in small sized companies still has the highest share (+10pp) while the interest in
medium-large companies is decreasing.

Average sales of potential target companies

(percentage of respondents)

Key findings

100% 100% 100% 100% 100% 100% 100%

9% 10% Investors are typically attracted by small (62%) and
12% 15% -3
70% 27% medium-sized (23%) businesses.
40% Investments in 2019 oriented towards medium and
27% 50% 23%
38% -7 larger sized companies have declined, in favour of small
27% sized companies.
20% 80% Target companies in Apparel & Accessories, Cosmetics
25% & Fragrances, Watches & Jewellery and Furniture tend
64% 62% to be smaller (<$50m), while Selective Retailing and
46% 50% +10
40% Digital tend to be medium and large sized (>$50m).
25%
10%
App & Acc Cos & Fra Wat & Jew Sel Ret Furniture Digital Total F&L

Big (>$250m) Medium($50m-$250m) Small (<$50m) Change in 2018-19 (% points)

Source: Elaboration on Deloitte survey

25
Fashion & Luxury Private Equity and Investors Survey 2019 | Private Equity and Investors Survey 2019

Main features of the M&A deal

The preferred deal strategies are Management Buyout (MBO), Expansion capital and Leverage Buyout (LBO). They
are financed mostly through senior debt, aimed at acquiring a majority stake in the targeted companies, although the
percentage of minority stakes grew (from 19% to 25%) since 2018.

Structure of the new F&L investment deals

(percentage of respondents)

Key findings

Deal type Funding Stake The main deal strategies adopted by

investors in 2019 are: Support to the
70% 100% 100% 100% 100% 100% 100% 100% 100% 100% MBO (31%), Expansion capital (27%) and
Other Other Majority
13% 19% 17% LBO/Replacement (23%).
22% 27% 24%
Support to Convertible Minority Operations financed through
MBO/MB 13% 4% bonds
Shareholders’ loan have been increasing
29%
24% 31% 12%
Expansion Shareholders’ 79% 75% (28%). Senior debt has remained one
23% 28% 81%
capital
15% loan of the most used sources (44%) even if
25% experienced a slight decrease since last
26% LBO/ Senior debt
27% Replacement year (-3pp).

46% 47% Most deals focus on acquisitions of

44%
33% 28% majority stakes, even if minority stakes
23% 21% 25%
19% share has increased.

2017 2018 2019 2017 2018 2019 2017 2018 2019

Source: Elaboration on Deloitte survey

26
 Fashion & Luxury Private Equity and Investors Survey 2019 | Private Equity and Investors Survey 2019

Return expected from new investments

On average, investors forecast rates of return from their assets ranging from 21% to 30%, while 11%
forecast a higher performance (>30%); Apparel & Accessories and Selective Retailing industries are
expected to guarantee highest IRR.

Internal Rate of Return (IRR) expected from new F&L investments

(percentage of respondents)

Key findings

100% 100% 100% 100% 100% 100%

9% On average, funds expect an IRR from their investments
13% 11%
18% 20% -1 ranging from 21% to 30%, while 11% forecast a higher
70% 25%
performance (>30%).
+1.7 Lower expected rates of return for Watches & Jewellery
40% 61% do not play a major role in investors’ strategies, due to
73% 62%
the lower volatility of this segment.
73%
65% Apparel & Accessories and Selective Retailing are
expected to guarantee investors a higher IRR.
-0.3
40%
25% 28%
18%
9% 10%

App & Acc Cos & Fra Wat & Jew Sel Ret Furniture Total F&L

>30% 21% - 30% 0% - 20% Change in 2018-19 (percentage points)

Source: Elaboration on Deloitte survey

27
 Fashion & Luxury Private Equity and Investors Survey 2019 | Private Equity and Investors Survey 2019

Return expected from new investments

Respondents confirm the existence of a correlation between a target firm’s size and the expected
rate of return from investment. A return greater than 20% is more likely from small and medium-sized
companies.

IRR expected from new F&L investments – Breakdown by target company size
(percentage)

Key findings
24% 76%
5%
15% Big company
76% of investors expect an IRR >20%, causing also a
20% (> $250m) high competition in investing in the F&L sector for the
incoming years.
Target Turnover Size

31%
Medium company
($50 - $250m)
(percentage)

75%

54%
Small company
(< $50)

< 20% > 20%

Expected IRR
(percentage)

Source: Elaboration on Deloitte survey

28
 Fashion & Luxury Private Equity and Investors Survey 2019 | Private Equity and Investors Survey 2019

Disruptive technologies in Fashion & Luxury

43% of respondents will probably invest in disruptive technologies in order to benefit from potential synergies
and pursue an omni-channel strategy. Internet of Things will have the largest impact on investors’ portfolios
according to respondents in 2019, followed by Big Data & Analytics and Artificial Intelligence.

Fund likelihood of Impact of disruptive technology based on portfolio type

Investment in disruptive (percentage)
technologies firms
(percentage) Key findings
Personal Luxury Goods (PLG)
32% 100%

11% The disruptive technologies considered to be of most

12% impact on portfolios relevant to Personal Luxury
14%
15% goods are: Internet of Things (16%), Big Data &
16%
Analytics (15%), Artificial Intelligence (14%), Healthtech
(12%) and Robotics (11%).
Internet of Big Data & Artificial Health Robotics Other1 Total PLG
Considering other luxury sectors, the main disruptive
43% Things Analytics Intelligence Tech
technologies perceived by F&L investors are: Internet
57% of Things (18%), Artificial Intelligence (17%), Big Data &
Other luxury sectors Analytics (17%), Robotics (12%) and Blockchain (7%).
29% 100%

7%
12%
17%
Will probably invest 17%
in disruptive technologies 18%

Internet of Artificial Big Data & Robotics Blockchain Other Other luxury
Things Intelligence Analytics sectors

Note: 1) Other includes wearables, fintech and others

Source: Elaboration on Deloitte survey

29
 Fashion & Luxury Private Equity and Investors Survey 2019 | Private Equity and Investors Survey 2019

Profile of survey respondents

Funds’ key features Fund strategy

100%
The main strategic approach 10% Other Fund core industries
11% Venture Capital
of the involved funds is:
16% Growth
90% of survey participants are small-medium Private Buyout (63%) and Growth The main industries
Equity Funds. In 11% of cases, they hold a portfolio (16%) strategies represented in investors’
portfolios are: F&L (22%), Retail,
of net assets greater than $1bn. 63% Buyout
Consumer & Leisure (19%),
Industrial (19%) and
% of
Healthcare (15%)
respondents
Investor type
% of respondents
100%
Other types
Fund net assets 25% Other
10%
63% of funds 15% Healthcare
participating in the 100% 19% Industrial
survey have net assets 11% > $1 bn 90%
11% $501m - $1 bn 19% Retail, Consumer
ranging less than & Leisure
$100m, while 11% have 15% $100m - $500m
22% Fashion & Luxury
full net assets greater Private Equity Fund
% of
than $1bn respondents
63% < $100 m

% of
respondents

Note: 1) Other investors: family offices, luxury holdings and sovereign wealth funds
Source: Elaboration on Deloitte survey

31
Fashion & Luxury Private Equity and Investors Survey 2019 | Private Equity and Investors Survey 2019

Profile of survey respondents

Respondents are mainly Managing Director/Partner or Investment Managers.

RESPONDENTS’ LOCATIONS RESPONDENTS’ ROLES

(percentage of respondents)

15%

15%

70%

GLOBAL
Managing Director and / or Partner

Main countries Investment Manager Other

Source: Elaboration on Deloitte survey

32
 Fashion & Luxury Private Equity and Investors Survey 2019 | Private Equity and Investors Survey 2019

Funds’ current F&L portfolio: main sectors

Investors mainly manage assets in Apparel & Accessories (79%) and Cosmetics & Fragrances (50%),
Furniture (43%), Watches & Jewellery (29%) and Selective Retailing (21%).

Main F&L assets managed by investors

(percentage of respondents)

70% of investors have a Fashion & Luxury asset in their portfolio

79%

50%
43% 43%

29%
21%

Apparel & Cosmetics & Watches & Furniture Selective Other F&L
Accessories Fragrances Jewellery Retailing sectors1

Note: 1) “Other F&L sectors” includes mainly: Digital Luxury Goods, Hotels, Yachts and Cars
Source: Elaboration on Deloitte survey

33
Fashion & Luxury Private Equity and Investors Survey 2019 | Private Equity and Investors Survey 2019

Funds’ current F&L portfolio: structure

43% of current F&L investors focus 25% or more of their overall portfolio on the F&L industry. Investors usually hold their F&L assets
for less than 5 years, mostly with a majority stake (79%).

Portfolio focus in F&L industry Portfolio equity stake and duration

(percentage of respondents) (percentage of respondents)

-2

Low focus
(< 5% of AuM) Minority > 5 years

21% 21%

43% +20 43%

High focus 57%

(> 25% of AuM)
36% 79%

Majority < 5 years

-18

Medium focus Equity stake Duration

(5% - 25% of AuM) Change in 2018-19 (percentage points)

70% of investors have a Fashion & Luxury asset in their portfolio

Source: Elaboration on Deloitte survey

34
 Fashion & Luxury Private Equity and Investors Survey 2019 | Private Equity and Investors Survey 2019

Funds’ current F&L portfolio: average asset size

76% of respondents have assets with an average turnover which is less than $50m. Large-sized assets (>$250m) represent 15% of
the average portfolio.

Average turnover of F&L assets in investors’ portfolio

(percentage of respondents)

0% 100%

0% 15% 15% Large assets

9% 9% Medium assets

38%

76% Small assets

38%

< $25 m $25m - $50m $51m - $100m $101m - $250m $251m - $500m $501m - $1B Total F&L
investors

Source: Elaboration on Deloitte survey

35
 Fashion & Luxury Private Equity and Investors Survey 2019 | Glossary

Glossary
Main terms and abbreviations

Personal Luxury Goods Personal Luxury Goods include the following

sectors: Apparel & Accessories, Cosmetics &
Fragrances and Watches & Jewellery

App&Acc Abbreviation for Apparel & Accessories

AuM Acronym for Assets Under Management

CAGR Acronym for Compound Annual Growth Rate

Cos&Fra Abbreviation for Cosmetics & Fragrances

F&L Abbreviation for Fashion & Luxury

IRR Acronym for Internal Rate of Return

PE Acronym for Private Equity

PLG Acronym for Personal Luxury Goods

RoW Acronym for Rest of the World

Sel Ret Abbreviation for Selective Retailing

Wat&Jew Abbreviation for Watches & Jewellery

37
Fashion & Luxury Private Equity and Investors Survey 2019 | Glossary

Contacts
Deloitte Fashion & Luxury Leaders Deloitte Financial Advisory & Corporate Finance contacts

EMEA Fashion & Spain China Luxemburg UK

Luxury Leader Fernando Pasamon Ivan Man Kit Wong Nick Tabone Richard Lloyd-Owen
Patrizia Arienti [email protected] [email protected] [email protected] [email protected]
[email protected] Victoria Kisseleva
Switzerland France Singapore [email protected]
China Karine Szegedi Lisa Lauv Jiak See Ng
Tian Bing Zhang [email protected] [email protected] [email protected] USA
[email protected] Lucile Regnault Lorin DeMordaunt
UK [email protected] Spain [email protected]
France Ian Geddes Tomas De Heredia
Benedicte Sabadie [email protected] Germany [email protected]
[email protected] Karsten Hollasch
USA [email protected] Switzerland
Italy Jean-Emmanuel Biondi Stephan Bruecher
Claudio Bertone [email protected] Italy [email protected]
[email protected] Elio Milantoni Andreas X Gehre
Giovanni Faccioli [email protected] [email protected]
[email protected] Tommaso Nastasi
[email protected]
Japan
Jun Matsuo
[email protected]

38
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