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Private Equity’s Not Done with Apparel Yet

Private equity has been a central character in the apparel retail saga over the last couple of years—and thanks to leveraged buyouts, more often than not, it’s played the villain.

Even so, investors are undaunted.

A recent report by Deloitte revealed that more funds polled in the “Fashion & Luxury Private Equity and Investors Survey 2018” are considering investing in apparel and accessories than any of the other nine categories making up the sector. In fact, 73 percent of investors expressed interest in firms that specialize in clothes and related items. Sixty percent said cosmetic and fragrances were on their radar, followed by 45 percent for furniture and 19 percent for watches and jewelry.

“The appeal of Apparel & Accessories has fallen, yet the sector remains the primary choice for investors, attracted by higher margin performances,” Deloitte said, adding the majority (65 percent) are looking at small targets, those worth less than $50 million.

As a group, which also includes private jets, yachts and luxury cars, investors anticipate the fashion and luxury sector will grow by 5 percent to 10 percent annually over the next three years. Digital luxury and cosmetics and fragrances, specifically, are expected to grow by more than 10 percent.

When it comes to technology, 63 percent of respondents have plans to invest in IoT technologies and AI.

Forty-four percent of those polled see international growth as a main driver going forward, followed by performance improvement and change management.

“Investors expect the Asian and the Middle Eastern areas to stimulate growth of the F&L [Fashion and Luxury] industry, also affecting the expectations on Japan, which has notably increased since the previous year. Latin America is expected to consolidate even though sentiment has improved.”

The interest in apparel follows an upward trend.

Deloitte’s M&A Deal Monitor shows the category experienced 77 deals in 2017, up from 69 the previous year. The biggest transaction was LVMH’s takeover of Christian Dior for $13.7 billion. Other notables included Coach adding Kate Spade and Jimmy Choo being picked up by Jag Acquisitions. No other sector added as many deals last year.

Europe lead M&A activity last year in the apparel and accessories space with 47 deals; North America was a distant second with just 14.

“Of the M&A deals completed, 47 percent were carried out by strategic investors, a decrease of 43 deals compared to 2016. Financial investors, on the other hand, carried out more deals compared to 2016 (+44 deals),” Deloitte said.