Analysing this ‘Hypebeast’ Acquisition: Moncler agrees to acquire Stone Island for 1.15 billion EUR

In a deal that sees one illustrious luxury goods brand acquire another equally eminent trademark, Italian luxury jacket maker Moncler has agreed to buy Stone Island for 1.15 billion EUR. What is immediately striking is the deal’s value, which is 16.6 times Stone Island’s EBITDA in 2020. The deal, which is expected to be completed in the first quarter of 2021, was overseen by two giants in the investment banking industry: Moncler by Citigroup, and Stone Island by the esteemed Rothschild & Co.

 

The deal comprises of two parts: the first will see Moncler acquire 70% of Stone Island from Owner Carlo Rivetti and his family and 30% from Singaporean state-backed investor Temasek Holdings. Like any acquisition, the owner of the acquired company will be able to opt between gaining Moncler’s shares or receiving cash. The Rivetti family have already chosen to subscribe for 10.7 million newly issued Moncler shares equal to over 50% of the cash consideration valued at €37.51 a share ($45.31), totalling around €401 million ($485 million). Temasek will also have the option to be paid in Moncler shares but can choose instead to accept only cash as payment for its 30% stake. Should the latter be chosen, Moncler will pay out €748 million ($904 million) in cash overall.

 

The deal will bring various benefits and synergies to both parties. Moncler’s owner, Mr Rufetti has asserted that the main reason behind the deal was to help Moncler place more emphasis on the younger demographic which has driven a shift in market trends toward “casual wear” in fashion. By acquiring Stone Island, Moncler will establish a larger presence and reputation amongst younger generations and various popular cultures such as hip-hop culture to diversify its consumer base. This will also provide a younger, more youthful sportswear brand in which to invest and grow globally. Unsurprisingly, the luxury industry is one of the various industries striving to recover from the impacts the virus has had on retail. Through the acquisition, Moncler seeks stability and to gain a foothold in the recovery process. Notably, Stone Island was one of the few companies that saw a 1% increase in sales during the turbulent 2020, to around 240 million EUR, articulating the motive for Moncler’s pursuit of the firm.

 

On top of the influence that Stone Island possesses among Generation Z, there are other areas from which Stone Island will benefit. Moncler’s strengths lie in its distribution. Thus, via their 218 global stores, Moncler will unquestionably improve Stone Island’s ability to distribute by building upon the 24 stores that currently exist. Stone Island will also be able to take advantage of Moncler’s universal reputation in skiwear and outerwear as it searches for emergence from the European market. This will be fundamental to the success of the joint firm, especially given the anticipated contribution from Chinese consumers purchasing of luxury goods in the near future.

 

However, there are risks associated with a deal of this size, notably during this unprecedented and difficult period where household incomes have plummeted and demand for non-essential items have taken a hit. One potential risk is Stone’s Island market presence, or lack thereof, in the US and China. Although this issue is not immediately paramount, a Bain & Altagamma report has anticipated that by 2025, 50% of all global luxury goods purchases are expected to come from Chinese consumers – a rather worrying statistic for Moncler. However, the company is working to improve that aspect, as Moncler recently announced it would be focusing its flagship yearly show on the digital experience while also moving it from Milan to China from next year – an astute move for the company looking ahead.

 

Following the deal announcement, Moncler’s shares rose as much as 6.5% within the first week of the deal’s announcement and have pushed their value up 19% over the past month which is suggestive of benefits brought upon by this acquisition. What is remarkable about the deal is that it comes after Swiss luxury goods company Richemont’s 1.1 billion investment USD in the online fashion retailer Farfetch to strengthen its operations in mainland China and LVMH’s acquisition of Tiffany and Co. This reflects the impending rebound of luxury good makers as they envisage the rise of demand for such products from an emerging target audience – Chinese consumer shopping from home.

 

In an age where the pandemic has accelerated digital transformation, a company’s digital presence has never been so significant. Therefore, it would be interesting to see how Moncler, equipped with this new artillery, will fare as many of their competitors have also invested heavily in their online retail capacity and services before the pandemic, allowing them to benefit from their more diverse revenue streams. This acquisition must not distract the Italian firm from what should be their primary focus: generating as much sales revenue from online stores as new variants of the virus continue to emerge.

 

From an outside perspective, the optimism and vision manifested by Mr Rufetti are admirable. However, it remains to be seen whether this acquisition is enough to resolidify Moncler’s eminence as a fashion industry giant. This could turn out to be an example of his willingness to make a statement obscuring the reality of current market conditions that, despite some recovery, remain subdued. The firm needs to remain wary of the present weakness in demand within the luxury goods industry, particularly as full recovery is not likely to occur until 2022 at the earliest. Thus, it is most advisable for Mr Rufetti to take steps to bolster his comapny’s digital presence as its competitors have done.

 

By Jesper Chin

Sector Head: Venkat Rajasingham

Posted in

Leave a Comment