Quiet luxury may be all the rage right now, but Kering SA is sticking to maximalism with its purchase of a 30% stake in Valentino for €1.7 billion ($1.9 billion) in cash.
The owner of Gucci said on Thursday that it had reached agreement with Qatar’s Mayhoola, which includes an option to buy 100% of Valentino by 2028. The deal is part of a broader strategic partnership that could see the fund could become a significant shareholder in Kering.
The deal certainly has merits. There are few sizable, high-profile luxury brands that remain unencumbered by a family shareholding — and Valentino is an iconic Italian name, with its roots in haute couture. That may explain why Kering is paying a punchy premium for the brand best known for its shocking pink collection, which creative director Pierpaolo Piccioli sent down the catwalk in March 2022.
The transaction values the whole of Valentino at €5.7 billion. The house generated sales of €1.4 billion in 2022 and earnings before interest, tax, depreciation and amortization of €350 million. That implies an acquisition multiple of about 16 times Ebitda, similar to what Moncler SpA paid for Stone Island in 2020.
Adding Valentino will reduce Kering’s dependence on Gucci, which accounted for half of the group’s sales and two-thirds of its operating profit last year but lately hasn’t been firing on all cylinders. Gucci’s underlying sales rose by just 1% in the second quarter, well behind the 21% increase for LVMH’s fashion and leather-goods division.
Kering also has a strong track record in rejuvenating fashion brands, such as Saint Laurent, Bottega Veneta and Balenciaga (at least before the advertising controversy that engulfed the latter house last year). Meanwhile, the company knows Valentino’s management well. Not only has new Gucci designer Sabato de Sarno joined from the company, but Valentino’s CEO Jacopo Venturini was previously Gucci’s chief merchandizing officer — he was one-third of the triumvirate, with outgoing Gucci CEO Marco Bizzarri and former designer Alessandro Michele, that achieved a remarkable renaissance of the house eight years ago.
In turn, Valentino should benefit from being part of one of the world’s largest luxury groups. The biggest players have the resources to invest in the most eye-catching marketing campaigns, the best stores and high-profile designers, making life much more challenging for mid-sized companies.
Kering and Mayhoola will work on other opportunities, too. This could include eyewear and fragrances. French fashion house Balmain, which the Qatari investor also owns, isn’t envisaged as part of the deal at this stage. But that is one potential avenue that could be explored in the future.
Yet it’s somewhat surprising that Kering has opted to double-down on fashion, particularly when Valentino isn’t too far off in its positioning from Saint Laurent. The company should really be snapping up further assets in beauty, where it recently bought high-end fragrance house Creed, or in jewelry, where it punches below its weight, although it is somewhat limited by the availability of suitable assets.
And while Valentino has been enjoying a fashion moment recently, it has yet to live up to its full potential. That means future upside, but there’s an awful lot to do in the meantime when Kering has its hands full with its other brands. Valentino could benefit from moving more upmarket and becoming more visible. Kering is already on this journey at Gucci and is trying to restore momentum at Balenciaga at the same time.
Depending on how involved Kering will be in Valentino — it will have a board seat and wants to speed up the growth and development of the brand — this could see management stretched too thin. The company recently announced a shakeup of top executives, including Bizzarri stepping down from Gucci.
And while Kering has a strong balance sheet after three years of growth in the luxury sector, with the reported €3.5 billion price tag for Creed, its net debt, excluding lease liabilities, will likely expand beyond the €3.9 billion at June 30.
Still, it’s worth remembering that Kering remains a master of making fashion bands more desirable. And in the world of top-end goods, once a name is snapped up by an industry behemoth, it rarely comes onto the market again. So, if Kering can make a go of Valentino, then it will be the one in the pink.
Source : TheWashingtonPost