Fashion and Beauty M&As Roll On

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Fashion and Beauty M&As Roll On


Consolidation is still running hot in fashion and beauty.

In recent times Victoria’s Secret has scooped up lingerie start-up Adore Me, as well as a minority stake in Frankies Bikinis. The Estée Lauder Cos. Inc. acquired Tom Ford; Authentic Brands Group snatched up Ted Baker; Oxford Industries — parent to the Tommy Bahama and Lilly Pulitzer brands, among others — now owns bohemian-inspired women’s apparel brand Johnny Was. Last year Levi’s bought Beyond Yoga. The Calida Group purchased Cosabella. And the list goes on. Other companies have said they’re looking — or hinted at adding to their portfolios — if it’s a good fit.

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The macro environment can be credited for at least some of the dealmaking. With interest rates running high and the initial public offering market at a near standstill, the era of inflated valuations is coming to an end and cash is more expensive to come by than ever. That means many smaller brands are struggling to raise investor capital. Selling all or part of a smaller brand to a legacy firm is one of the fastest ways to scale.

Bigger firms benefit too. They gain expertise, such as digital skills, as well as already established online communities and followers and oftentimes can expand into new geographies.

But will the industry’s pace of M&A continue into 2023?

“That’s the big question for the next two to three years,” Brooke Kiley, one of the founders of VMG Catalyst, the venture capital arm of VMG Partners, told WWD. “My instinct is that it will be an acquisitive market over the next two to three years, especially because there are a lot of later-stage private companies that have pretty robust balance sheets that raised opportunistically in 2021 because valuations were high and capital was cheap. They have big balance sheets and they will be a good soft landing for some interesting earlier stage companies that might not have enduring business models. They might find their home in some of those businesses.”

The scenario creates a buyer’s market for the firms with cash. They’re the ones with the resources to decide which brands they want to work with or add to their portfolios.

David Shiffman, co-head of the global consumer retail group at investment bank Solomon Partners, said there will likely be some consolidation with smaller direct-to-consumer brands. But he pointed out that with declining valuations in the last year, some brands are reluctant to sell for their current market asking prices.

“And you need willing sellers to create a buyer’s market,” he said. “Typically, those [brands] that take big checks from VC’s are the ones that are running companies that [aren’t profitable] and ultimately fail the test [to make money]. We’re still in the stage of entrepreneurs who are longing for the days of valuations that they had in 2020. [Companies] will need to have higher cash flows —  in other words make money — in order to justify those higher valuations.”

While the market seems to be ripe with opportunities, Shiffman’s view is that M&A “activity has been highly, highly selective,” with firms shifting their focus from apparel brands to health and wellness, beauty, home and outdoor sporting goods.

“[Private equity] has been a reluctant participant in the retail game,” he said. “Borrowing money has gotten more expensive. [But] I think you’ll see across the board for high-quality businesses that are looking for a home. People are always interested in owning good businesses, regardless of the sector. Where we’ve seen the most activity is in brand management. They’ve done a massive job in buying branded retailers.”

One such example is WHP Global’s recent stake in Express. The brand management firm invested $260 million for a 7.4 percent stake in the fashion retail chain. The partnership includes creating a platform to acquire more brands in the future.

“Historically there have always been opportunities in fashion here and there. But given the environment today, it’s increased for sure, the amount of opportunities,” Yehuda Shmidman, WHP Global chairman and chief executive officer, told WWD in December. “You can imagine the types of fashion brands that are out there that we’re very excited to pursue.

“Just this year, as things are shifting in the macro market and the fact that the IPO markets have been closed, recaps have been tight and financings have been hard to secure, the amount of opportunities has definitely increased for people like us,” he added.

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