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Versace family may consider outside investors for growth

A model displays a creation from the Versace autumn/winter 2013 collection at Milan Fashion Week. Photo: Reuters

A model displays a creation from the Versace autumn/winter 2013 collection at Milan Fashion Week. Photo: Reuters

Italian fashion house Versace, one of the last family-owned luxury groups, may consider opening the company to outside investors to help fund expansion in overseas markets such as Asia, its chief executive said.

Versace has 93 stores worldwide, 66 of which are for its top line, whose evening gowns are priced over €6,000

Founded in 1978 by the late Gianni Versace, the group faces the same dilemma as peers such as Missoni, Roberto Cavalli and Giorgio Armani – keeping the business in the family or giving up some control in return for the investment needed to catch up with rivals which have already taken that path.

Italy, whose economy relies heavily on family businesses, has failed to create conglomerates like France’s LVMH and PPR because of owners’ reluctance to cede control.

“The family is now aware that we need to seize the moment and fund our growth,” chief executive Gian Giacomo Ferraris told Reuters in an interview.

“We are asking ourselves how fast we could go if instead of a Mercedes we owned a Ferrari,” Ferraris told Reuters.

Ferraris, a retail veteran of Gucci and Jil Sander, said the company has set no deadline for any deal and can meet its existing growth targets without outside help.

A company spokesman said “a sale is an option not a necessity”.

Versace, whose glittering gowns are worn by stars such as Lady Gaga and Madonna, raised the prospect of an imminent sale last May when it hired investment banks Goldman Sachs and Intesa Sanpaolo’s Banca Imi as advisers.

But concerns over control of the company, owned by chief designer Donatella Versace, her 26-year-old daughter Allegra and Donatella’s brother Santo, have delayed progress, investment sources close to the matter said.

Ferraris said a stock market listing, mirroring those of larger peers Prada and Salvatore Ferragamo, could be a way to fund more aggressive store openings.

“We are aware that it could be a road but not immediately,” said Ferraris, who joined Versace in 2009 to revive the then loss-making company.

He hired new staff after cutting a quarter of its 1,300-strong global workforce, revamped loss-making stores and expanded into fast-growing Asia, which now makes up over 40 per cent of revenues.

Versace has since returned to profit and on April 4 said it expected to hit its 2014 revenue target of €500 million ahead of schedule.

Debt has fallen to €25 million, around a third of the level at the end of 2009, excluding investments in new stores.

At current EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation), Versace may be worth more than €690 million on the basis of its 2012 core earnings.

That valuation would rise to over €1 billion in 2014, making an investment a better option for the company.

The company said earnings before interest, tax, amortisation and depreciation rose 20 per cent to €46 million last year.

Versace has 93 stores worldwide, 66 of which are for its top line, whose evening gowns are priced over €6,000.

Total sales rose 20 per cent to €408.7 million last year, above the industry average.

Sales from its own stores maintained that growth rate in the first three months of this year, helped by its focus on Asia and the US. Sales in Europe rose seven per cent despite the recessions in Italy and Spain.

Global luxury sales growth is estimated to have approximately halved in 2012 from the previous year to five per cent, measured at constant exchange rates, according to US consultancy Bain.

Analysts forecast the sector will grow at between seven and nine per cent per year from now on.

Ferraris said it was too early to speculate about the size of any eventual sale and declined to comment on what the family may want to do with their holdings.

Allegra Versace, who inherited her uncle’s 50 per cent stake when she was only 11 and joined the board in 2011, could be crucial to any deal.

She is working as a stylist with no exclusive contract with Versace.

Donatella owns 20 per cent of the company and her brother owns 30 per cent.

The investment sources said the family may prefer to sell a minority stake on the stock market.

One of the sources said Versace has a brand value similar to Valentino, which was bought by Qatari investors last July for a whopping €700 million, or 31.5 times the 2011 EBITDA valuation.

But that valuation now appears to be a one-off, sources said.

Ferragamo and Prada were valued at 16 times and 12 times core earnings respectively when they joined the market in 2011.

Notebook maker Moleskine was valued at nearly 15 times its 2012 earnings when it debuted on the Milan stock market recently, broadly in line with the average of the European luxury sector.

“The main hurdles are valuation, governance and, if the seller remains invested, exit options,” Umberto Nicodano, partner of Italy-based law firm Bonelli Erede Pappalardo, told Reuters. He is not advising Versace.

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