Italy’s M&A Evolution

MILAN — Ahead of Milan Men’s Fashion Week, the mergers and acquisitions scene in Italy has been picking up speed, but it is also evolving from the traditional big-fish-eats-small-fish deal making into more nuanced partnerships and platforms meant to support a manufacturing pipeline that is increasingly relevant, yet more at risk in the wake of the COVID-19 pandemic.

More run-of-the-mill acquisitions are still making headlines, such as the recent takeover of 100 percent of Sergio Rossi by Fosun Fashion Group, but there are new players in the fashion industry, such as Ferrari owner Exor taking stakes in Shang Xia and Christian Louboutin, or Gruppo Florence, which buys Italian producers with the goal of developing a platform to supply high-quality Made in Italy products to major luxury fashion brands, working with the founders and the existing management of those specialist manufacturers.

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Similarly, the Ermenegildo Zegna Group has been steadily building its own textile supply chain, most recently by buying 60 percent of Tessitura Ubertino, a leading manufacturer of high-quality women’s fabrics, based in Prativero, near Biella.

Chief executive officer Gildo Zegna pointed to additional acquisitions and one in particular this summer, but underscored that “we never enter these companies as dominators but as partners. We let the founders manage the business and we are by their side, respecting them as we deal with the commercial services, logistics and marketing. The companies we partner with are not financially troubled.”

In addition to its own Lanificio Zegna, the group’s textile supply chain includes Lanerie Agnona, Tessitura di Novara, Bonotto and Dondi, all acquired over the years, helping to raise its position in the country in terms of variety and size. In 2018, the family-owned group also finalized the acquisition of a controlling stake in Pelle Tessuta, which specializes in the weaving of leather, and bought a majority stake in Cappellificio Cervo, a historic men’s hat brand based in Biella.

Zegna said these acquisitions are made to protect suppliers and their unique know-how and specialization, and to gain scale and competitive advantage at the same time.

“We are now working more on projects rather than seasonal collections, depending on the moments and the wishes of consumers, with dedicated events, promotions and limited editions,” said Zegna, noting that this is even more demanding given the group’s international network of stores. Flexibility has become key and better control of the pipeline also helps now that customization has become so important for a brand. Also, speed is essential and this can be more effective when a company is in control of its suppliers.

“You can no longer wait six months for a collection, and an innovative and faster flow is even more relevant in formalwear,” he contended.

The acquisition of Tessitura Ubertino comes at a particularly delicate time for Italian textile firms, which have increasingly joined forces by way of acquisitions and collaborative ventures in light of declining sales, shortages of financial resources and more difficult access to credit lines, as reported.

Zegna trumpeted Tessitura’s “spectacular” jacquards, as this agreement helps Zegna strengthen its standing in women’s fabrics.

In a different kind of takeover, seeking external growth, Zegna in 2018 bought a majority stake in the Thom Browne company, and the executive touted that acquisition, praising not only the namesake designer, but also the brand’s CEO, Rodrigo Bazan. “The brand is now fully integrated and growing significantly. They buy our fabrics and I see other opportunities to consolidate and develop the label,” Zegna offered.

Also very active on the M&A front, Renzo Rosso has been consistently expanding OTB’s portfolio through a slew of acquisitions, from Maison Margiela and Marni to Jil Sander last March, and he told WWD that he is also now eyeing specialized manufacturers. This strategy allows a company to “become more solid and build know-how,” he explained.

Consolidation comes in many different forms, and Rosso also sees significant changes in the attitude of Italy’s Camera della Moda members. “There is more cohesion among executives and brands, joining forces to speak up and present industry issues to the government,” requesting investment following the health emergency, Rosso noted. “Competing brands used to be seen as the enemies, but now presenting a united front is a must or you are dead because big investments are needed and information must be exchanged. The French teach us — they are compact across the board, even in the wine arena.”

Concurring with Rosso, Carlo Capasa, president of the Camera della Moda, sees a true “cultural change in the mentality” of entrepreneurs and executives of Italian companies and brands, which is not merely a result of financial troubles. “In the past, joining forces was seen as a taboo, but that’s over, as they realize they must work together not only for business reasons but to share and exchange ideas, to train the new generations of artisans and to develop the digitalization of their companies, for example.”

Capasa believes that this cultural change is an opportunity to “take a major leap” into the future.

Size matters more than ever at this complicated moment and joining forces allows companies to have more power in negotiating rents, for example, or to band together to draw the government’s attention, continued Capasa. “I have never seen such a strong response in finding ways to help the fashion system from within, with big brands leading the smaller ones, supporting the pipeline and its suppliers. If we keep this up, it could lead to a real revolution,” he contended.

Armando Branchini, deputy chairman of Milan-based consultancy InterCorporate, said controlling the manufacturing pipeline has become key since timely deliveries and flexibility are increasingly essential for companies. “In men’s wear in particular, given the kind of fabrics employed, time-to-market is about 11 months and this is penalizing, so it’s important for brands to be able to plan ahead and be in control without being too dependent on outside suppliers,” observed Branchini.

“M&A will be a popular sport between the second half of the year and 2023, and we’ll surely see a consolidation of brands,” he predicted, emphasizing how digitalization is having the same impact that tourism had for more than 30 years.

Tomaso Galli, founder of JTG Consulting, also believes there will be additional consolidation in the future, although he thinks it’s “too late for an Italian luxury group that could rival the three existing ones,” referring to LVMH Moët Hennessy Louis Vuitton, Kering and Compagnie Financière Richemont.

“Some companies are struggling to survive in the current pandemic-affected world. And the new world in which we shall live post-pandemic requires a long-term vision, financial resources and talents that are difficult to put together for many medium-size, family-owned Italian companies,” Galli said. “Therefore, it is understandable that some companies think about consolidating resources or forming surprising alliances, whilst others need to find investors or sell in order to save their brand. In the meantime, new ideas and new formations emerge.”

Among these, for example, is Moncler taking over Sportswear Company SpA, owner of the Stone Island brand, in a deal valued at 1.15 billion euros. However, at the time Remo Ruffini, chairman and CEO of Moncler, shied away from the idea that he was setting up a fashion group, saying that “to be an aggregator has never excited me. I would rather create uniqueness beyond the market logics, and create strong synergies. I don’t see a pole [in the future]; I want to create value for the brand,” offering to new generations “a new concept of luxury, far from the traditional stereotypes in which young people no longer recognize themselves.”

Lifestyle Investment Capital Fund, which was launched last year by private equity fund Antares Advisor, is aimed at supporting Italian luxury fashion and lifestyle companies with the goal of creating a platform that will protect “the incredible know-how of the manufacturing pipeline,” explained managing partner Giovanni Mannucci, also in light of the polarization of the bigger fashion groups.

The scope of the project has grown with the global pandemic as the fund offers an opportunity for midsized brands that have a more family-driven culture to join forces and form new entities to be more competitive. Mannucci believes it makes sense for companies to create a vertical structure, bringing specific skills in-house, for additional competitive advantage. While underscoring the importance of this strategy, Mannucci sees “very low interest” in Italy’s men’s wear segment from investors, given the country’s tradition in classic and formalwear, which is not on trend now.

In this context, impacted by COVID-19, bigger scale allows firms to be more resilient. From his point of view, many entrepreneurs are still unprepared to tackle the changes sweeping through the fashion industry. “The business model is changing, you need to invest in digitalization, sustainability and internationalization. If you don’t, you are no longer competitive.”

Mannucci, who is a former CEO of Isaia, Boglioli and Pal Zileri, said the fund has identified two categories of entrepreneurs, those who have adapted to the times and are more open, also helped by their children, who have a contemporary take on the changes affecting the industry today, and those who are in “a haze,” confused and worried because they don’t know how to respond to the new world. “They view the company they have founded as their child and they reason instinctively and not thinking things over.” However, he admitted that, in some cases, selling did not lead to “brilliant results.”

Financial aid can help but there must be a strategic vision to support the development of the company and entering with a minority stake makes it harder to reach pre-set objectives and is a limit for investors, he continued.

The gap with the smaller brands has accelerated and he sees this as a concern for those companies that are in danger of being swept away. “The fashion industry used to be ahead of the curve, but in this rapidly changing moment, it has lost ground,” Mannucci believes. “We aim for brands with a purpose to see how much value we can add, and help them with a managerial structure.” Fashion veteran Isabelle Harvie-Watt has recently joined the fund as part of the management team with former Calvin Klein and Ralph Lauren executive Gaetano Sallorenzo and Isaia board member Guido Vesin.

Francesco Trapani, chairman of luxury production pole Gruppo Florence, believes luxury brands need to know they can depend on their network of highly specialized suppliers — more today than ever — and these need to be protected for the long-term.

The group was established last October, as reported, with the goal of developing a platform to supply high-quality Made in Italy products to major luxury fashion brands, leveraging competitive prices, guaranteeing prompt and flexible deliveries and solutions, while safeguarding the technical and cultural know-how of small and medium-sized family-owned Italian companies.

Trapani is also chairman of VAM Investments, the private equity fund that together with Fondo Italiano d’Investimento and Italmobiliare created Gruppo Florence, acquiring four storied Italian manufacturers that have long worked for major international brands: Giuntini SpA, Ciemmeci Fashion Srl and Mely’s Maglieria Srl, all based in Tuscany, and, most recently, Manifatture Cesari, based in Umbria and specialized in the production of jersey apparel since 1988.

Gruppo Florence, which is eyeing the acquisition of another six to eight more firms at the moment, is not looking to buy companies that are financially troubled. On the contrary, these are all solid and technically advanced companies that “are starting to understand it’s good to be part of a bigger group” but whose size can represent a risk for big brands that need to feel safe, Trapani explained. Brands demand a level of service increasingly more sophisticated and controlling their suppliers can help them achieve this. Also, a more established brand can help overcome generational change by setting up or supporting training courses and academies.

In December, Onward Holdings Co. Ltd. sold its European subsidiary Onward Luxury Group, and, through a management buyout, entrepreneur Franco Pené, together with Fabio Ducci and Antonello Orunesu Preiata, CEO and chief financial officer of OLG, respectively, took full control of the company, renaming it HIM Co SpA — High Italian Manufacturing. Under the agreement, the new company also became parent of handbag and small leather goods manufacturer Frassineti Srl and fine knitwear manufacturer Erika Srl.

At the time, further elaborating on the rationale behind the OLG buyout, Pené said he sees “an increased interest in manufacturing activities in Italy. I believe the industrial part of the business has a future, if it is well organized. I have always believed in this.”

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