The Blackstone Group AUM (as of 01/03/14): $66bn (Private Equity only)
Versace Market Cap (as of 01/03/14): N/A (€1bn EV)

When Gianni Versace was shot and killed in 1997, the homonymous company he founded was left in the hands of his sister and relatives. Donatella, Allegra and Santo split the ownership, respectively receiving 20%, 50% and 30% through the family financial holding, GIVI Holding. However, they did not turn out to be the best managers around for Versace, and the company narrowly escaped bankruptcy in 2004, when it was forced by creditors to change its management. The turning point, however, was when Gian Giacomo Ferraris took the reins of the struggling company in 2009 and proceeded to an energetic turnaround, closing loss-making operations in Japan, refocusing the company and putting it back on its path to profitability. Versace returned to profit in 2011 with €8.5mln net profit, up from a €22mln net loss in the previous year. The company benefited mostly from emerging market sales, especially from Greater China, as well as an increasing relevance of the US market. On the other hand, up to this day Versace still lags behind some of its peers, such as Ferragamo and Prada, which have been able to build an extensive presence in the Asian market over the years. In order to catch up with the competition, the fashion house, which had been gearing up for public listing before the founder died, has launched a competitive auction to sustain its growth in emerging markets and strengthen its presence in relevant developed economies.
On the 27th of February, Blackstone won the auction to finance the capital raise sought out by Versace by offering €150mln in capital and buying €60mln worth of shares from the family holding company, GIVI Holding (in particular, those shares will diminish the stake of Santo). Blackstone will also receive a seat on the Board of Directors and on the Steering Committee. The overall consideration paid by the American fund represents a 20% stake in Versace, valuing it at €1bn inclusive of debt. Blackstone’s main rivals in the competitive process were Investcorp, the Bahrain-based investment firm former owner of Gucci, CCMP Capital and Fondo Strategico Italiano, the Italian government-backed fund. The minority stake represents the first luxury deal completed by the Blackstone, if we exclude the Hilton stake (already partially monetized with one of the biggest IPO of 2013).
However, it is not the first move by a private equity in the sector, quite the opposite. The most recent example, as well as one of the most successful ventures, has been Carlyle’s participation in Moncler in 2008 that eventually led to public listing on the Milan stock exchange, granting the fund a whopping six times return on the investment in spite of some troubles on the path (they sold part of their initial 48% stake to another private equity fund, Eurazeo, after the company failed to be IPOed in 2011).Permira bought Valentino Fashion Group and Hugo Boss in 2007, survived the crisis and turned the company around to then sell VFG at an astonishing 31.0x EV / EBITDA to the Qatari royal family. More recently, KKR bought a 65% stake in the French Sandro, Maje, Claudie Pierlot last April, valuing the French luxury company at €650m.
Mr Ferraris expects revenues to reach €480mln (+18% Y-o-Y) and EBITDA to be at least €69mln (+50% Y-o-Y). Additionally, the company expects sales to reach €800mln by 2016, based on an increase in the number of directly operated shops from 137 to 200 (which currently generate 60% of the revenue). Given those numbers, the minority stake values the company at roughly 14.5x EV / EBITDA, which is higher than the multiple at which its peers have been floated on the market: Moncler was listed at 13.7x last December, Cucinelli at 14.3x in April 2013 and Ferragamo at 13.7x back in 2011. However, such a high multiple (based on the company’s 2013 expected financial results) is not the whole story in Versace’s case. In fact, crucial for the future success of the operation will be the preservation and above all the reinforcement of the brand, avoiding costly mistakes such as those made by Permira with VFG. Permira almost destroyed the brand when they changed the creative director, who was forcing her style in the products instead of keeping the Valentino’s tradition alive, and also when they almost closed down the specialized high-couture operations in Rome. Luxury companies are very peculiar, there is nothing more valuable than the brand and this is what makes the few strong, world-renowned fashion brands such as Versace so appetible and valuable to investors seeking a luxury play (and what has made the latest IPOs in the sector extremely successful). Sometimes, loss-making operations have to remain in place in order to attract customers to more accessible (and profitable) businesses. It remains to be seen whether the Versace brand is really worth its hefty price-tag, or Blackstone is going to suffer from a winner’s curse.

A Lazard team led by Michele Marocchino and Fotis Hasiotis advised Blackstone, while Versace has been advised by Goldman Sachs and Banca IMI.

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