Yes, it’s true. Micheal Kors has bought the inimitable (or highly imitable depending on how you look at it) Versace for 2.12 billion dollars. This news has sent shock waves around the world not only because of Micheal Kors audacity - did he buy Versace? But because Versace is one of the most valuable fashion brands in the world, perhaps even the strongest - the rope link design is synonymous with playful yet decadent luxury. So what on earth does an all American, breezy, high street leather brand like Kors have in common with an Italian institution that makes everything from cushions to cutlery? This is the ABC of M&A Synergy, so let’s try and understand what it means.
What does Micheal Kors want to do?
Micheal Kors is trying to create an American powerhouse equivalent of LVMH (Moet Hennessy Louis Vuitton) Kering and Compagnie Financière Richemont SA. That’s exactly why he bought Jimmy Choo in 2017 for 1.2 billion. But one brand does not a make a great holding company.
Why acquire brands at all though? A recent report suggested
That LVMH, owner of over 70 luxury brands, cuts almost 30 per cent of commercial costs including rent, advertising and shop assistants while allowing the companies to focus on brand marketing. But for every Loewe, you need a Louis Vuitton, a luxury powerhouse to underpin your advertising clout. You need a Dior if you want to negotiate ad space with Conde Nast for Celine and Thomas Pink. Not everyone knows who Loewe is, but a real estate company in Mumbai will be more interested in cutting rental costs if it knows LV might end up in his premises too, increasing overall footfall. The Jimmy Choo acquisition was great, but it didn’t create the behemoth he envisioned - he needed heritage and luxury. For that you need something, and someone, extraordinary. In comes Versace, and of course Donatella. Versace is the epitome of Italian luxury and Donatella, is a brand herself, and make no mistake- she’s not going anywhere as this post, as well as the fine details of the transaction suggest. https://www.instagram.com/p/BoO8ExtHZhW/?taken-by=donatella_versace. She remains in full creative control of the collections, and the family will become shareholders in the holding company, Capri Holdings which has acquired the brand it needs to make it attractive to both other brands as well as to investors. (https://www.cnbc.com/2018/10/03/citi-research-says-buy-michael-kors-shares-after-its-versace-deal.html)
What does Versace gain?
From Versace’s perspective, Capri Holdings brings deeper pockets that will help build Versace’s runway momentum - collections are now sold based on catwalks seen on Instagram, and Capri has promised a 100 new stores around the world - 47 Versace stores closed in 2017.
There are worries of course and these are not unfounded. One, you have the loyalists who worry about brand dilution by association. Versace’s die-hard fans have stormed Twitter with pitchforks heralding the death of the label.
Two, Versace was one of the last bastions of independent fashion creativity not controlled by Private Equity. How will it impact creativity in the long run? Does this mean there is no space for the independent brand? Kering owns Even Alexander McQueen. What we do know is the world is getting smaller and smarter. Any whiff of Kor influence on the Versace brand will mean a massive loss in loyal customers, and loyalty is the ultimate luxury in today’s market, it doesn’t matter whether its luxury or high street, so Donatella is going to be working overtime making sure ‘MK’ stays as far away as possible from her Medusa.
Authored by: Reshma Krishnan