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 e o Apparel & Cosmetics & Watches & Global Global Consumers’ perception Ge Accessories Fragrances Jewellery Scop 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 5 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