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- 3 March 2021
This thread is for the general discussion of the Article Sole Trader: Birkenstock Agrees to Sell its Business to LVMH-backed L Catterton. Please add to the discussion here.
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Sole Trader: Birkenstock Agrees to Sell its Business to LVMH-backed L Catterton
- Thread starter Curtley Bale
- Start date
Okay, so I am not exactly the archetypal fashionista - so, I'll refrain from talking too much about the fashion itself!
I think this article prompts some thought about LVMH's plan and general business model. LVMH has appeared to come out of the gates storming regarding the pandemic - first, it bagged a $400m discount on Tiffany, second, it snapped up half of Jay-Z's Ace of Spades, and now, third, it secures Birkenstock. This is surprisingly aggressive expansion, considering the backdrop of the pandemic.
I personally would have thought that luxury goods' sales would have been down throughout this period - individuals being made redundant, pay cuts in the form of furlough, and so on. All of this, for me, would point to a large slump in the luxury goods industry.
However, I recognise that firms might be planning for the future, and so their behaviour is that of what one might expect 6-18 months in the future. Additionally, firms, especially PE houses, can make good use of the current economic environment to fund acquisitions - low-interest rates/cheap leverage, and anxious targets are prime conditions for those with the cash to splash.
What is also interesting is the slightly bizarre areas of investment - a celebrity champagne brand...and sandles (I know I said I wouldn't talk about the fashion, but I can't help it!). I can understand the acquisition of Jay-Z's champagne business - that makes sense given LVMH's portfolio, and I know enough about the world to recognise that the Ace of Spades champagne is highly coveted by some.
However, Birkenstock appears to be slightly outside of what LVMH is known for - the sandles aren't particularly flashy, and are (apparently) well-known for their comfort. I recognise that Vogue has praised these sandles and they are seen as fashionable, but again, I would say it doesn't really fit well alongside LVMH's Fendi, Louis Vuitton, and so on.
This is perhaps why it has been acquired by L Catterton, rather than LVMH directly. I suspect Birkenstock won't be integrated into the LVMH family and become Louis Vuitton-ised - rather I think L Catterton will restructure the business and attempt to capitalise off a post-pandemic, holidaying world to make the business into a money-printer. At which point, maybe they will hold onto it, maybe it'll be sold on - who knows.
I think this article prompts some thought about LVMH's plan and general business model. LVMH has appeared to come out of the gates storming regarding the pandemic - first, it bagged a $400m discount on Tiffany, second, it snapped up half of Jay-Z's Ace of Spades, and now, third, it secures Birkenstock. This is surprisingly aggressive expansion, considering the backdrop of the pandemic.
I personally would have thought that luxury goods' sales would have been down throughout this period - individuals being made redundant, pay cuts in the form of furlough, and so on. All of this, for me, would point to a large slump in the luxury goods industry.
However, I recognise that firms might be planning for the future, and so their behaviour is that of what one might expect 6-18 months in the future. Additionally, firms, especially PE houses, can make good use of the current economic environment to fund acquisitions - low-interest rates/cheap leverage, and anxious targets are prime conditions for those with the cash to splash.
What is also interesting is the slightly bizarre areas of investment - a celebrity champagne brand...and sandles (I know I said I wouldn't talk about the fashion, but I can't help it!). I can understand the acquisition of Jay-Z's champagne business - that makes sense given LVMH's portfolio, and I know enough about the world to recognise that the Ace of Spades champagne is highly coveted by some.
However, Birkenstock appears to be slightly outside of what LVMH is known for - the sandles aren't particularly flashy, and are (apparently) well-known for their comfort. I recognise that Vogue has praised these sandles and they are seen as fashionable, but again, I would say it doesn't really fit well alongside LVMH's Fendi, Louis Vuitton, and so on.
This is perhaps why it has been acquired by L Catterton, rather than LVMH directly. I suspect Birkenstock won't be integrated into the LVMH family and become Louis Vuitton-ised - rather I think L Catterton will restructure the business and attempt to capitalise off a post-pandemic, holidaying world to make the business into a money-printer. At which point, maybe they will hold onto it, maybe it'll be sold on - who knows.
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Hi everyone! As always feel free to chime in with your own thoughts. Like Neville, I'm not an expert in fashion at all (been changing in and out of pyjamas throughout lockdown 😅) so I'd be super interested in hearing from any of you that do actually buy luxury items!
So what’s most interesting to me about LVMH and L-Catterton is that the recent string of acquisitions by both point to a trend of consolidation within the luxury goods industry. There are a couple of reasons for this:
1. High fixed costs – The luxury goods industry doesn’t just sell bags, clothes, shoes etc. It sells the luxury experience. That luxury experience is really only something that can be delivered in person, whether that’s because you have champagne to keep you company while shopping or because you have a host of tailors on call to alter garments you want to buy. Add to that, the cost of moving to e-commerce platforms and the increased reliance on digital marketing (I’m thinking of the online fashion weeks we saw happening last year), I think its fair to say that the luxury goods industry suffers from the retail industries challenges, but on steroids. From LVMH’s perspective, my guess is that having more brands under its wing allows it to sell more and by sheer volume, create better profit margins. From these smaller brands’ perspective, having a large conglomerate and a large PE house back your business obviously helps deal with, as Neville has pointed out above, the shortfall in revenue due to recession induced reduced sales.
2. The Chinese market – According to the FT, Chinese tourists account for two thirds of the sales in Europe’s luxury goods market. Evidently COVID put a stop to that buying spree. I think it’s highly possible that while production of luxury goods brands may stay within Europe (to preserve authenticity, legacy etc.), these brands may start reducing their physical presence in Europe and instead open more up stores in China. If you’re a smaller luxury goods brand without quite as much international reach, this is just another reason that LVMH and L Catterton’s offer will be hard to turn down.
Thinking about the legal implications of this consolidation trend, besides the obvious increase in M&A activity, I think we’re likely to also see a lot of disposals. I’m of the opinion that one of the biggest risks with companies that seem to be buying everything and anything is that there is often less of an emphasis on synergies, fit and even potential upside. On the fit point, L-Catterton (focused on consumer retail since even before the LVMH tie up) made a $400m investment into Norwegian Cruise Line early last year, and it’s going to be interesting to see how that pans out. The other risk I foresee is that there will likely be many brands that continue to underperform even once COVID and recession related issues have passed. After all, the luxury goods industry is also suffering from scrutiny on the sustainability of its supply chain process (from making the goods to disposing them) and the changing tastes of younger spenders (see here on the boom in resale fashion). It seems to me like targeted investment on a few key brands would be a better strategy to deal with these long-term issues (which would potentially also allow conglomerates to benefit from greater long term upside).
The second legal implication I foresee is greater competition/antitrust scrutiny. Obviously, from a strictly legal perspective, an acquisition by LVMH of say another luxury spirits/alcohol producer could only be deemed anti-competitive if LVMH already owned a substantial share of that market. As it stands, it only owns Moet, Hennessey, Dom Perignon and now Ace of Spades. It would be interesting to see, provided this buying spree continues within the industry, if enforcing bodies start to take issue with the consolidation of the luxury goods market as a whole (beyond merely analysing market share within specific categories of goods).
So what’s most interesting to me about LVMH and L-Catterton is that the recent string of acquisitions by both point to a trend of consolidation within the luxury goods industry. There are a couple of reasons for this:
1. High fixed costs – The luxury goods industry doesn’t just sell bags, clothes, shoes etc. It sells the luxury experience. That luxury experience is really only something that can be delivered in person, whether that’s because you have champagne to keep you company while shopping or because you have a host of tailors on call to alter garments you want to buy. Add to that, the cost of moving to e-commerce platforms and the increased reliance on digital marketing (I’m thinking of the online fashion weeks we saw happening last year), I think its fair to say that the luxury goods industry suffers from the retail industries challenges, but on steroids. From LVMH’s perspective, my guess is that having more brands under its wing allows it to sell more and by sheer volume, create better profit margins. From these smaller brands’ perspective, having a large conglomerate and a large PE house back your business obviously helps deal with, as Neville has pointed out above, the shortfall in revenue due to recession induced reduced sales.
2. The Chinese market – According to the FT, Chinese tourists account for two thirds of the sales in Europe’s luxury goods market. Evidently COVID put a stop to that buying spree. I think it’s highly possible that while production of luxury goods brands may stay within Europe (to preserve authenticity, legacy etc.), these brands may start reducing their physical presence in Europe and instead open more up stores in China. If you’re a smaller luxury goods brand without quite as much international reach, this is just another reason that LVMH and L Catterton’s offer will be hard to turn down.
Thinking about the legal implications of this consolidation trend, besides the obvious increase in M&A activity, I think we’re likely to also see a lot of disposals. I’m of the opinion that one of the biggest risks with companies that seem to be buying everything and anything is that there is often less of an emphasis on synergies, fit and even potential upside. On the fit point, L-Catterton (focused on consumer retail since even before the LVMH tie up) made a $400m investment into Norwegian Cruise Line early last year, and it’s going to be interesting to see how that pans out. The other risk I foresee is that there will likely be many brands that continue to underperform even once COVID and recession related issues have passed. After all, the luxury goods industry is also suffering from scrutiny on the sustainability of its supply chain process (from making the goods to disposing them) and the changing tastes of younger spenders (see here on the boom in resale fashion). It seems to me like targeted investment on a few key brands would be a better strategy to deal with these long-term issues (which would potentially also allow conglomerates to benefit from greater long term upside).
The second legal implication I foresee is greater competition/antitrust scrutiny. Obviously, from a strictly legal perspective, an acquisition by LVMH of say another luxury spirits/alcohol producer could only be deemed anti-competitive if LVMH already owned a substantial share of that market. As it stands, it only owns Moet, Hennessey, Dom Perignon and now Ace of Spades. It would be interesting to see, provided this buying spree continues within the industry, if enforcing bodies start to take issue with the consolidation of the luxury goods market as a whole (beyond merely analysing market share within specific categories of goods).
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Really interesting thoughts Neville!
I've been monitoring LVMH Group for a while now - primarily because the Tiffany dispute was one of the major commercial issues during my application cycle. I am also a fan and (semi-)regular customer of several of the Group's brands and other similar brands, so I have quite a decent understanding of their client base and target market, etc (read as: my financial decision-making is highly questionable).
I agree that the aggressive expansion of LVMH group in this time perhaps points to an investment model comparable, or anecdotal, at least, of a counter-cyclical investment structure where they buy during bad times with the aim of strengthening the brands for when the good times are back.
I agree that logic would generally dictate that these luxury brands should be experiencing a downturn at present. However, the thing that is worth considering here is the primary clientele of many of LVMH Group's brands. Most people who are customers of these luxury brands are in roles which haven't been drastically affected by things like furlough - for example, my income from trading hasn't been hit by furlough/ job loss etc - and lack of travel opportunities/ ability to eat out, etc, mean that some people actually have a bit more cash in hand than they normally would at the end of the month. That, in turn, is what they're then spending on luxury goods. Dropping £250 on a bottle of bubbly for an occasion spent at home, for example, is more accessible when you've not spent ££££ on an international holiday etc.
I think your analysis of the Birkenstock deal is pretty much the exact way I thought of it! The use of L Catterton as the acquisition vehicle could, perhaps, mark a paradigm shift for how they use the outfit - a potential indicator that they plan on diversifying their standard portfolio into other brands with different qualities and selling points. I'd have to agree with you though, Neville, in that the Birkenstock trend is somewhat lost on me. I had a pair years ago, never had blisters like it!
The acquisition of a stake in Armand de Brignac is highly interesting as, in my opinion, it is one of an increasing number of brands of its type to be acquired by the Group in recent years: the Celebrity-backed, hype/ luxury brand. Almost all of LVMH's portfolio is brands with long heritage and massive respect in their particular industry: Möet & Chandon, Givenchy, Veuve Cliquot, TAG Heuer, etc.
Armand de Brignac, although tipped to be excellent champagne (I've not tried it myself!), has been helped massively by Jay-Z backing it as a personal brand. Similarly, Fenty was created by Rhianna before being acquired by the Group in 2019 (although it does appear that this relationship could be on the rocks). In a similar vein, while LVMH don't have Stella McCartney as one of their owned houses, they do have a business partnership.
Though this type of celeb-owned brand is not particularly new to the market (for example, Michael Jordan's "Air Jordan" in collaboration with Nike has been on the market since the mid-80s), but they have definitely spiked in recent years: Kanye West's Yeezy brand in collaboration with Adidas, Ryan Reynolds in Aviation Gin, Bob Dylan in Heaven's Door Spirits, Kylie Jenner with Kylie Cosmetics just to name a few. These brands have all achieved huge success and popularity, and, in my opinion, they present LVMH Group the opportunity to diversify into brands which resonate with a younger audience where this has not been the case in the past.
For applicants, I think a discussion of LVMH Group's recent moves provides a unique opportunity at interview to show a really good, in-depth understanding of how a very niche type of brand really works in terms of its market offering, client base, etc. Remember that a good commercial lawyer must be able to show genuine insight into the brands and industries they're advising, being cognisant of its nuances and foibles.
I actually think this is quite a smart acquisition. I have a few pairs and use them inside and out. They're also the only kind of footwear I'm aware of my friends purchasing during the pandemic - they're super handy for just running out to shops, etc. if you cba putting on shoes and also work for walking, etc. If more people are working from home in the future and athleisure/casual wear is an increasing market, it makes sense for LVMH to want a share of it without compromising on quality or brand recognition. They get a heritage (albeit not luxury) brand with Birkenstock.
I also think it points to wider trends within the fashion market of quality, sustainability, ethical considerations. I'm not saying Birkenstock fulfils those criteria, but as a brand it is adjacent to the consumers that value those things.
I also think it points to wider trends within the fashion market of quality, sustainability, ethical considerations. I'm not saying Birkenstock fulfils those criteria, but as a brand it is adjacent to the consumers that value those things.
Couldn't agree more! Your point about brand adjacency there is very interesting too, not an angle I'd considered!
Once it's featured in GQ you know you're hitting the sweet spot for men as well as women. Birkenstock has done some very canny collaborations recently and that's bound to have put them closer to the LVMH radar too. One of these articles also mentions the duty-free market - huge business.
LVMH’s Birkenstock acquisition could mean more for your wardrobe than you realise
The French super-conglomerate announced last week that it was acquiring a majority stake in the German sandal brand. We investigate what the step means for your wardrobe.
LVMH Investors Secure Majority Stake in Birkenstock
L Catterton, the capital firm with links to LVMH, has acquired a majority stake in Birkenstock. Here's what it means for the German sandal maker
www.highsnobiety.com
For anyone interested, this is an analysis of LVMH from a luxury brands thought leader:
jingdaily.com
Why No Other Luxury Company Compares To LVMH
Even though most key European markets are still in lockdown, LVMH just became Europe’s most valuable company. Daniel Langer explains how it happened.
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Hey guys, brilliant analysis by each one of you but I have one question regarding the point of it all. For some reason, I am unable to understand how knowing the reasons behind acquisitions like this one, help a lawyer to then help their clients. I mean, all the reasons behind the acquisition that everyone talked about made so much sense, but then ultimately, the lawyers are bound to work in the same manner regardless of the commercial angle that differs from deal to deal. They will try to structure the transaction in the most efficient way, do the due diligence in the same way etc.
I am not able to understand the bigger picture, the core reason as to when and where all the information that you guys talked about, could be applied as lawyers. I mean the PE houses already have their target in mind, so when can a commercially astute lawyer bring more to the table by knowing all this.
Thank you.
I am not able to understand the bigger picture, the core reason as to when and where all the information that you guys talked about, could be applied as lawyers. I mean the PE houses already have their target in mind, so when can a commercially astute lawyer bring more to the table by knowing all this.
Thank you.
This is a really good question - and something which I think a lot of people struggle to get their head around at this stage. I think the answer, here, is two-fold:
Firstly, there's no doubt in my mind that the way applicants have to approach commercial awareness (which largely boils down to the 5 or so minutes after being asked "tell me about something you've seen in the news recently") definitely means that it can feel quite contrived and without any real context. Certainly as far as I know, when you're a trainee, you won't have to look at the world through the same lens and there will be a natural paradigm shift into just keeping abreast of the things that naturally become relevant to you.
With that said, I don't want the above to sound like a caveat on the importance of commercial awareness at every stage - because it isn't. The best way I can compare it is anecdotally:
After I got my uni offer, I worked in warehousing for 6 months (within my family business, bathroom supply). It wasn't glamorous, but I genuinely really enjoyed it and took a hell of a lot from the experience. Anyway, I digress. As I said, I worked in the warehouse. Building and dispatching orders, organising deliveries, processing new stock, organising and consolidating existing stock etc. Nothing even vaguely technical. However, rather than just mindlessly stacking boxes all day, I went to an effort to learn about the industry, the different manufacturers, the products, the technical elements of how they work and what parts fit together etc. It meant, for example, that I could answer just about any question a customer would ever ask me - because the customer just assumes that, as you work for a bathroom company, you know about bathrooms, despite the fact that this isn't usually the case. It meant that I understood why certain components had to be put in orders in certain combinations, why some parts of a delivery might be late of XYZ factory has had stock issues etc. In turn, this meant a better service for each client I interacted with, as I could help them in a more rounded way with queries, and also it meant that I wasn't having to phone someone from another department to answer a question every time it was asked.
Now, while commercial law is very different (evidently!) to warehousing, the underlying principle here is the same: wider, more rounded knowledge will make you better at your job. If you really understand the industry you're advising a client in, you'll almost certainly spot details in due diligence etc that a colleague who doesn't have that same understanding will miss. It also means, if you're being told something from a Senior colleague which seems unusual or incongruous, you'll probably know why (as it will almost certainly be a nuance associated with a particular industry or client that isn't applicable elsewhere) so you will apply yourself more fully.
Thirdly, and a much more minor point, displaying this enhanced level of understanding - and accompanying it with the quality of work that should follow it - will also help your career progression as you'll stand out as someone who is willing to go above and beyond to have a better understanding of everything they're doing. At more senior stages, this is vital as you'll begin to develop your own real specialism and you'll need to know that specialism back to front and inside out to succeed when you're at the stage of developing relationships with clients and pitching for work.
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As usual @Jacob Miller giving a great answer. I'd just add along the same lines: the client is coming to your expensive firm (you) for advice. They don't only want the donkeywork. They could pay an agency paralegal to do that. In the end, what they want is for their purchase/sale/exploration not only to be legally correct but to generate opportunities, income, and to grow with their ideology. They want it to have been a good move.
Purchases and sales are strategic and that's why you need to be able to provide insight as well as paperwork. If you know what's going on, you can sort out their problems before they've even had a chance to unfold.
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