Hospitality Drove M&A Deals in Luxury Sector in 2022, Deloitte Says
MILAN — Personal luxury goods are driving growth and profitability for the luxury sector but in 2022 other luxury categories, which include furniture, automotive, yachting, cruises and hospitality, fueled mergers and acquisitions.
According to the eighth installment of the Global Fashion and Luxury Private Equity and Investors Survey 2023 issued by Deloitte and presented Wednesday here, although rising inflation, geopolitical instability, fear of recession in China and supply chain troubles are pressuring the luxury sector, the market was healthy enough to be a strong M&A target in 2022, especially in light of its high profitability.
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Assessing about 300 companies globally, the survey highlights how 2021 margins for personal luxury goods companies doubled those of other luxury sectors, with apparel and accessories’ average margins standing at 36 percent, followed by cosmetics and fragrances at 20.9 percent.
By comparison, the best-performing category in the other luxury sectors segment was furniture, posting average earnings before interest, taxes, depreciation, and amortization of 23.6 percent.
Overall, the survey assessed 292 deals in 2022 — a 2.7 percent increase compared to the previous year — finding that 43.2 percent of them targeted personal luxury goods companies.
The best-performing category in 2022 was hospitality, with 16 more deals last year compared to the one prior, followed by apparel and accessories and cosmetics and fragrances.
Tommaso Nastasi, partner Value Creation Service Leader at Deloitte, said the majority of deals happened in Europe. Both North America and the Asia Pacific regions experienced a slowdown in the fashion and luxury M&A compared to 2021.
“The main value for M&A is synergy, either with a financial partner that has other adjacent investments or industrial investors who can leverage their scale to grow business for the acquired entity,” Nastasi said adding that this reflects what’s already happening in the market, as strategic and financial investors were evenly split across the 292 assessed deals.
His remarks opened up to discussions on how Italian companies, oftentimes small and medium-sized, can keep up with competition and be attractive to investors.
“Our companies are big in terms of brand value, awareness and ultimately brand equity, but very small in terms of scale,” said Stefania Lazzaroni, general director of luxury industry association Altagamma. “At the same time luxury companies outside Italy have grown into powerhouses…[so] size and scale are an issue,” she added.
Alessandra Gritti, vice president and chief executive officer of Tamburi Investment Partners, acknowledged the overall sentiment and touted the role played by private equities in lightening the burden related to the size issue and allowing companies in the luxury sector to focus on industrial capabilities.
“In its proactive side, private equity [firms] have worked to scale up the size of sectors where fragmentation was an issue,” she said. “We have started to talk about industry again thanks to private equities, that is the main accomplishment, when the financial sector supports the industry especially size-wise.…We have given confidence to sectors that lacked standing to be in discussions with big groups,” she offered.
Although not all companies in the surveyed panel were ready to share their 2022 financials, Nastasi offered that profitability for the luxury sector is on the rise, inching up year-on-year for personal luxury goods companies to 30.6 percent versus 28.7 percent in 2021, driven by apparel and accessories brands with profits accounting on average for 36.4 percent of their sales.
“The top trends affecting the sector in the past few years have been ESG, secondhand, which is also linked to sustainability, digitalization — the latter confirmed by many of the chief executive officers we interviewed,” Nastasi said. In spite of inflationary pressure, demand for luxury and experience is solid and luxury goods are increasingly viewed as value-holding assets, he offered.
Although Lazzaroni contended that ESG mandates have slightly lost priority for the industry in the past couple of years, Gritti stressed that European regulations are expected to further increase their centrality.
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