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Italian Fashion Brings in the Big Bucks: Zegna Going Public, Etro Sells Majority Stake

In a big week for Italian luxury fashion, two top-name brands unveiled significant news on the financial front.

Italian luxury house Ermenegildo Zegna Group is going public in the U.S. via a SPAC in a deal that values the men’s wear company at $3.2 billion through its initial public offering (IPO).

In partnership with Investindustrial Acquisition Corp. (IIAC), a special purpose acquisition corporation sponsored by investment subsidiaries of private equity firm Investindustrial VII L, Zegna will raise $880 million and launch on the New York Stock Exchange (NYSE) later this year.

“Over 111 years ago, my grandfather and namesake founded Zegna with the belief that caring for both the natural environment and for people was the bedrock for creating the finest textiles and a successful brand,” Ermenegildo “Gildo” Zegna, CEO of Zegna Group, said in a statement. “Since then, we have proudly followed in his footsteps to become one of Italy’s true luxury houses. Today’s announcement underscores the success of our strategy of continuously focusing on the group’s brand equity while also continuing to build upon our heritage, our ethos of sustainability, and the unique craftsmanship that has made our name synonymous with quality and luxury around the world.”

The Zegna family will remain at the company’s helm following the transaction’s completion with an approximately 62 percent stake in the company, with the CEO indicating that it will continue to invest in creativity, innovation, talent and technology as the company goes public. Investindustrial will hold an 11 percent stake in the Italian luxury brand, with the remaining shares open to public investors.

Excluding the debt included in the $3.2 billion deal, Zegna expects to start trading on the NYSE with a market capitalization of $2.5 billion.

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The boards of directors of both IIAC and Zegna have each unanimously approved the proposed transaction, which is expected to close by the fourth quarter of 2021, subject to customary approvals and conditions and to IIAC’s shareholders’ vote.

The Italian fashion house expects 2021 sales to decline 8 percent from 2019 sales, according to a company presentation revealed in the IIAC S-1 filing. This would be an improvement on 2020’s 28 percent revenue dip, with Zegna anticipating revenue to jump at a compound annual growth rate (CAGR) of approximately 9 percent through 2023 to 1.18 billion euros ($1.39 billion). Profits dipped from 37.5 million euros ($44.2 million) in 2019 to a loss of 45.1 million euros ($49 million) in 2020 during the Covid-19 pandemic, but Zegna has not given estimates for its end-of-year 2021 net income.

In 1991, Zegna was the first luxury men’s wear brand to open in China, and it appears the market has paid dividends throughout the pandemic. China has been a significant growth driver for Zegna, increasing to 51 percent of apparel, accessories and textile revenue for the company this year through July, a 35 percent increase over 2019.

Additionally, Zegna has grown the luxury leisurewear segment to over 50 percent of sales in 2021 year-to-date, from just 38 percent in 2016, all while the company says it has maintained a leadership position in the heritage formal wear segment.

Zegna’s grandfather, also named Ermenegildo Zegna, founded the group as a textiles and men’s wear manufacturer and producer in 1910, with the family-owned fashion house evolving over the next century. In 2018, Zegna acquired the majority stake in American luxury fashion brand Thom Browne, which now encompasses 19 percent of total sales at Zegna. Total revenues from Thom Browne have doubled since the acquisition.

Overall, Zegna sells both major brands in 80 countries across 296 directly operated stores (DOS) and 241 franchised or wholesale locations. The company plans on increasing its DOS footprint to 312 by the end of 2023.

Beyond its stores, Zegna has sought to fortify its business via vertical integration, particularly its “Made in Italy” luxury textile, clothing and knitwear laboratory platform, through the acquisition of Italian textile manufacturers such as Bonotto in 2016, Cappellificio Cervo in 2018 and Dondi in 2019. The textile division not only manufactures clothing for Zegna’s brands, but also top luxury players including Gucci, Parada, Chanel and Dior.

The platform is positioned as a key competitive advantage alongside the group’s ready-to-wear and made-to-measure offerings.

In June, Zegna struck a partnership with Prada to invest in Filati Biagioli Modesto S.p.A., an Italian cashmere maker, as both luxury companies want more direct control of the supply chain within their home market. As part of the agreement, the Prada Group and the Ermenegildo Zegna Group each took on 40 percent ownership in the company.

UBS is advising Zegna on the IPO, while Deutsche Bank AG, Goldman Sachs Group Inc., JPMorgan and Mediobanca are advisers to Investindustrial.

Etro sells majority stake to L Catterton

Zegna’s IPO fits in with a recent trend among Italian family businesses: capturing the attention of outside investors to fund expansion, scale globally and compete with bigger players like LVMH that are already experiencing rapid bounce backs from the pandemic.

Etro, another Italian luxury fashion house with 140 stores across 58 countries, is selling a majority stake to private equity giant L Catterton.

Under the terms of the agreement, announced Sunday, the founding Etro family will retain a “significant minority” of ownership. Etro founder Gerolamo Etro will be appointed as chairman of the company.

The partnership will allow Etro to enhance its digital presence and—like Zegna—drive global expansion, with a focus on what the company calls “a significant opportunity” in Asia.

Founded in Milan in 1968 as a textile company, Etro is known for its iconic paisley motif and bold patterns inspired by travel. A company statement refers to its “rich heritage of interpreting iconic aesthetic beauty on precious fabrics with a distinctive Italian footprint in terms of both style and craftsmanship.”

The company operates a number of product categories, including women’s and men’s fashion, accessories, beauty and fragrances, and home goods.

“My family and I take great pride in having established Etro as a strong luxury brand that resonates with consumers around the globe,” the founder and soon-to-be chairman said in a statement. “L Catterton has a shared vision and a unique appreciation for our business, and the firm takes the same approach to partnership our family does. After nearly 55 years under our stewardship, we believe that together with L Catterton, Etro can enter its next chapter of growth and solidify its place as one of the great, lasting luxury houses. We are thrilled to work with L Catterton’s team as they bring their extensive knowledge of the fashion category, along with a proven track record of supporting the international development of distinctive brands, allowing Etro to reach new heights.”

L Catterton was founded by LVMH and Bernard Arnault ’s VC firm Groupe Arnault, also giving the brand access to insights from the European luxury giant related to investment expertise, category knowledge and consumer insights.

The private equity firm has invested approximately $30 billion of equity capital across its fund strategies, recently scooping up a majority stake in Birkenstock and leading Savage X Fenty’s $115 million Series B funding round. With a track record of over 30 years of partnering with luxury and fashion brands across the globe, L Catterton said it will support Etro in enhancing its brand strategy to grow its customer base, reach younger generations of consumers and expand into new categories.