Fashion & Luxury Private Equity and Investors Survey 2019 Global Report

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”.

4 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 sector • Exit and investment • Target company proﬁles strategies in 2019

Contents • Investor proﬁles • Investors’ current • Analysis of global deals portfolio of F&L assets Absolute Price point analysis Apparel & Cosmetics & Watches & Global Global Consumers’ perception Ge o Accessories Fragrances Jewellery Scop e Aspirational Absolute

• News and reports • Online survey based Primary Primary Luxury from major media data level on Computer Assisted data level providers Web Interviewing • Investor press (CAWI) Aspirational releases • Interviews with Private Equity funds top Data source • Company press Accessible management Furniture Private YachtsLuxury Electric releases Jets Cars Cars

• The survey targeted senior members within investment funds, with a substantial knowledge of the F&L industry

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

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.

7 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.

8 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 1 Month Target Bidder ($m) 218 265 +47 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 -4 77 73 Dec. Gianni Versace SpA Michael Kors 2,162 Hotels 46 75 +29 Jul. Silversea Cruises Ltd. Royal Caribbean Cruises 1,513 May Wyndham European Vacation Rentals Platinum Equity 1,231 Watches & Jewellery -1 29 28 Jul. Boat Holdings, LLC Polaris Industries 717 Cosmetics & Fragrances 28 44 +16 Aug. Ekornes ASA Qumei Investment 702 Guangzhou Xiaopeng Motors Primavera Capital Group 595 Aug. Technology Furniture -3 17 14 Oct. Perry Ellis International George Feldenkreis 541 Private Jets 10 9 -1 Jun. Byton Contemporary Amperex Technology 501 Aug. ShangHai YouXia Motors Co., Ltd. Gezhi Asset Management 357 Yachts +1 7 8 Nov.2 Nox Bellcow Cosmetics Fujian Green Pine 343 Shanghai Electric Group Company Cars (including Electric Cars) +4 Nov. Zhejiang Leapmotor Technology 298 2 6 Limited VF Corporation Apr. Authentic Brands Group 278 Cruises 1 4 +3 (Nautica brand business)

Notes: 1) 2017 adjusted for changes in perimeter; 2) Still pending Restaurants +3 The analysis considers both closed and announced deals during 2018 1 4 Source: Elaboration on Deloitte intelligence data 9 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)

Key findings Europe North America Asia-Paciﬁc

+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 8 2 6 7 14 3 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 by an increase in the Hotel business. 19 21 12 10 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 12 15 14 14 8 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. Asia-Pacific presented a slight increase -1 5 3 2 +4 8 4 8 +2 8 6 8 in F&L deals since 2017, thanks to the 1 2 1 1 1 Watches & Jewellery segment. 2 1 2 1 1 5 3 1 1 4 4 2 5 1 4 2 3 2 1 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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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 4 4 265 8 6 14 9 PLG YoY 2017-18 75 Cosmetics registered #16 +11 Other 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 Goods more attractive to investors 73 during 2018, becoming the top gainer in terms of deal number (+29). Apparel & Watches & Cosmetics & Hotels FurniturePrivate 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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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% -15% -46% -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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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 CLASSDEAL EV/EBITDA MULTIPLE

100% 100% 100% 100% 100% 100% In 2018, investors were mostly oriented Big Size -22% >15x -21% towards lower-sized firms ($0-$50m) (> $250m) 16% 17% which accounted for 65% of deals in the 23% 28% % Medium Size year, compared to 55% in 2017. -25% 11x-15x +1% ($51m-$250m) 37% 42% 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). Deals involving multiples superior to 15 34% <5x n.m. 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% % 20% 17% 42% CAGR 16-18

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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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 +2 Accessories, Hotels and Cosmetics & Other investors 27% 6% Furniture +4 Fragrances sectors, represent 72% of 11% Watches & +5 total deals. Jewellery The growth in the number of deals with +13 Cosmetics & Financial Services 20% +15 respect to the previous year was mostly 29% Fragrances 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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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 16% to strategic 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 25% Acquisition capital +1 to sponsor 9% There was a strong growth in Growth capital +24 investments through Consolidation 39% 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 45% 57% 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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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% 18% 21% 15% Minority

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

25%

Apparel & Watches & Cosmetics & FurnitureHotelsPrivate 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

16 Fashion & Luxury Private Equity and Investors Survey 2019 | Private Equity and Investors Survey 2019 Private Equity and Investors Survey 2019 Fashion & Luxury market outlook

2018-21 F&L sales index outlook Market outlook: (index on sales 2010=100) rising sales forecast Index 280 PLG idx growth: 1.1x

Other lux idx 260 Investors expect PLG top players to achieve 1.1 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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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 confirming last year’s sentiment. (5-10% 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 N/A in sentiment 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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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% annual base. per year) 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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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). The main drivers that will influence exits will 100% 100% 100% 100% 100% 100% 100% 100% 100% 6% 12% Other drivers 6% 13% Other > 10x be: Market trends mismatches (50%) and 18% (EV/Ebitda) 19% 37% Second High returns opportunity (38%). 12% 35% Closing of the 19% 33% investment buyout 44% 0% < 10x In 63% of cases, the exit will be completed 50% period 19% 55% (EV/Ebitda) 29% 19% IPO 24% Market trends through operations of trade sales, in mismatch Trade sale which 33% of investors will pay an EBITDA expectations 56% 63% 67% 50% 56% multiple higher than 10x, a further decrease 41% 35% 38% 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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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 (57%) and Watches & Jewellery (36%). Watches & 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 asset in 2019? Personal Luxury Goods Other F&L sectors

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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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

40 Key findings

35 Cosmetics & ) 30 Fragrances 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 (percentage points 10 the two sectors that remain the primary choice for investors, Watches 5 attracted by higher margin performances. Other1 & Jewellery 0 Both sectors represent around 80% of the investment -5 propensity in 2019. -10 Apparel &

Change in 2018-19 Accessories -15 Digital Luxury Goods -20 General investor propensity -25 0% 5% 10% 15%20% 25%330%55% 40%45% 0% 55% 60% 65%770% 5% 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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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% Attractive sectors for General investor propensity 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 (percentage of respondents) 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. Watches 20% Restaurants & Jewellery 10%

0% Digital Luxury Selective Attractive sectors for Goods Retailing current investors

New F&L investor’s propensity -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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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 % +14 +17 +20 pts 2018-19 +4 -16 -0.4

Source: Elaboration on Deloitte survey

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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% 27% Investments in 2019 oriented towards medium and 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 50% +10 46% 40% Digital tend to be medium and large sized (>$50m). 25% 10% App & Acc Cos & FraWat & JewSel RetFurniture Digital Total F&L

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

Source: Elaboration on Deloitte survey

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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% bonds 29% 4% Shareholders’ loan have been increasing 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). Most deals focus on acquisitions of 46% 47% 44% 33% majority stakes, even if minority stakes 28% 25% 23% 21% 19% share has increased.

2017 2018 2019 2017 2018 2019 2017 2018 2019

Source: Elaboration on Deloitte survey

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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% On average, funds expect an IRR from their investments 9% 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% 28% 18% 25% 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

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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% 76% of investors expect an IRR >20%, causing also a 15% Big company 20% (> $250m) high competition in investing in the F&L sector for the incoming years. 31% Medium company ($50 - $250m)

(percentage) 75%

Target Turnover Size 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% 14% impact on portfolios relevant to Personal Luxury 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 43% Things Analytics Intelligence Tech Considering other luxury sectors, the main disruptive 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

Fund strategy Funds’ key features 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% 19% Retail, Consumer ranging less than 11% $501m - $1 bn & Leisure 15% $100m - $500m $100m, while 11% have 22% Fashion & Luxury full net assets greater Private Equity Fund % of than $1bn 63% < $100 m respondents

% 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%

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 & FurnitureSelective 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 stakeDuration (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

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]

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