Birkenstock’s Buyout: A Foothold for Growth?

The private equity firm L Catterton, backed by Bernard Arnaud’s LVMH (Louis Vuitton Moet Hennessy), agreed to buy a majority stake of Birkenstock, a German-based shoe-making company best known for its quirky sandals. According to Kaye Wiggins, from The Financial Times, the deal values Birkenstock at 4 billion USD.

Due to confidentiality agreements, the details of the deal and acquisition price have not been disclosed. However, Birkenstock revealed in a statement that the two brothers, Christian and Alex Birkenstock, who prior to the deal, held equal majority stakes in the business, have sold over half of the business and will remain minority stakeholders. German newspaper, Der Spiegel, reported that the brothers have sold 60-70% of the business. For months building up to this deal, Birkenstock had been exploring a sale with the help of Goldman Sachs. Aaron Kirchfield from Bloomberg states that the global private equity firm CVC Capital Partners was close to securing a deal to purchase Birkenstock earlier in the year. Ultimately, he writes that the owners preferred L Catterton because of its track record and its ability to grow the firm in Asia.

Founded in 1774, and selling shoes which are said to have orthopaedic benefits for the consumer, Birkenstock is a family-owned company. Today, the firm sells shoes in over 100 countries around the world and employs 4,300 people, according to Forbes. This will be its first entry into private equity ownership. Therefore, although the firm is already sizeable, L Catterton clearly believes that it still has large potential for growth.

The company said in a statement that 2020 had been a “record year” despite the pandemic. It also stated, despite its financial records not being released, that its revenues from September 2019 to September 2020 were “in line with” the 721.5 million EUR it had made it the previous year. Moreover, several of the firm’s factories were closed in 2020 due to COVID-19. The fact that the company has still managed to produce impressive financial figures in inhibitive circumstances makes its future look bright, especially with a large investment from L Catterton.

As for L Catterton, it is the largest global consumer-focused private equity firm in the world. It has 18 offices across the globe and manages over 23 billion USD in assets. It was created in 2016 by combining US private equity firm Catterton with the private equity department of LVMH, a French-based multinational corporation which sells luxury goods. Its owner is Bernard Arnault, France’s richest man and third in the world according to Lauren Debter from Forbes. Since 1989, Catterton has made over 200 investments in leading consumer brands. Thus, it is clear that Birkenstock has a lot of experience coming in with its new management teams, along with substantial wealth to be invested in the firm.

Regarding Birkenstock’s future, L Catterton will be looking to both improve the firm in its existing markets and to expand it into new ones; Birkenstock said in a statement that L Catterton will pursue growth specifically in China and India. These countries have massive populations of 1.398 and 1.366 billion people respectively and so have plenty of potential customers for Birkenstock. However, the GDP per capita for China was forecasted in 2019 to be 8130 USD by the end of 2020 by The World Bank. Furthermore, Trading Economics, an online platform which provides economic data, predicted that the GDP per capita of India would reach 1900 USD by the end of 2020. These values are considerably lower than the GDP per capita in the countries where Birkenstock currently sells it shoes which ultimately have wealthier citizens. For example, The World Bank predicted that Germany’s GDP per capita would reach 46500 USD by the end of 2020. Therefore, since Birkenstock usually sells luxury sandals at high prices to its consumers, it must supposedly sell less luxurious products at lower prices if it is to address a wide variety of consumers in its proposed markets in India and China.

However, according to a report by Bain & Company on 16th December 2020, China’s luxury goods market is predicted to have achieved a 48% growth in 2020, reaching nearly 346 billion RMB. In addition, a report from Statista forecasts that the luxury goods market in India will grow annually by 5.8% from 2020-2023. Therefore, perhaps Birkenstock will choose to retain its focus on selling expensive sandals to richer citizens in these new markets as there is potential for growth.

Birkenstock’s CEO, Oliver Reichert, recently launched an investment project which focuses on expanding its production capacity at its largest manufacturing site in Gorlitz, Germany, along with strengthening other production sites in Germany too. Therefore, it is likely that L Catterton will be looking to contribute to expansion and improvements in Birkenstock’s existing markets too.

With this recent deal being completed, the future of Birkenstock looks very positive. L Catterton is undoubtedly a proven contender in the private equity industry with both the experience and the capital to deliver promising development for the shoe-making company. It will however be interesting to see whether L Catterton focuses more on development in Birkenstock’s existing markets, especially in Europe or into new ones such as China and India. In the case of the latter, it will also be intriguing to see the company’s approach to these markets which have a very different economic situation to Birkenstock’s existing markets.

By Robert Armstrong-Jones

Sector Head: Gregor MacDonald

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