Private equity interest in luxury brands
It may seem anomalous when consumer spending remains generally depressed, courtesy of macro-economic conditions, that the luxury goods market has remained comparatively resilient. There have, of course, been victims (think Jaeger and Acquascutum), but the sector continues to attract investment, in particular from private equity.
For a start, well managed luxury brands often achieve higher valuation multiples than regular consumer goods companies, given their propensity for greater customer loyalty, so each pound of earnings growth potentially converts into more value for investors when it comes to exit. And with less leverage generally available, the private equity community is having to work its assets harder than ever to create that value.
Those companies with luxury brand appeal can be ripe with value creation prospects. Periods of private (often family) ownership may have constrained exploitation of the key growth opportunities, including those arising from globalisation and digitalisation of sales strategies. Private equity can provide not only the investment needed to take a company from one stage to the next, but also the necessary expertise in overseas expansion and implementation of new routes to market…
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