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2024 has been a mixed bag for deals across fashion and beauty. From Mytheresa’s agreement to acquire (or rescue) Yoox Net-a-Porter (YNAP), to the Saks-Neiman Marcus mega-deal, economic moves that have the potential to change the landscape of luxury fashion have swept the industry. And fellow sectors like beauty have also felt the impact, with seats of power shifting under new ownership and the repositioning of key retail sectors.
The multi-brand space has been particularly susceptible to deal-making, compounded by the contemplated privatisation of Nordstrom as well as the sale of a 40 per cent stake in British retailer Selfridges to the Saudi Public Investment Fund. In Europe and the Americas, things have been especially volatile. While the impact of some deals, such as a prospective buyout of Nordstrom, will be largely regional, others, like the YNAP transaction, will have more global ramifications, given the retailer’s international reach. A level of consolidation will eventually be achieved, bringing not only stability, but also more dominant players — some of whom were virtually unknown 15 years ago.
Jonathan Dunlop, head of North American retail and disruptive commerce investment banking at J.P. Morgan, says the multi-brand sector has been facing headwinds for years, noting changing consumer behaviour, the direct-to-consumer push of brands, a shift towards lower profit concessions and the rise of digital players as factors impacting profitability. “The M&A (mergers and acquisitions) activity of the last year is both an outcome of the new realities and a reflection of a future where many multi-brand players will balance investing in growth with prioritising cash flow and maximising existing asset value,” he says. “As these deals integrate and luxury’s challenges abate, we expect to see a more rational, less promotional environment.” When it comes to who will come out on top, Dunlop says these will be companies that are able to leverage new technology to enhance customer experiences, possibly at the expense of smaller retailers unable to keep up with the rapid pace of innovation.
Unlikely bedfellows
There is still a high level of uncertainty surrounding the market, characterised by the ongoing slowdown in China, rising inflation and incoming tariffs all creating further stress and leading several businesses to press pause on innovation as they seek immediate solutions to cash flow problems. “For some, it has brought about the opportunity to diversify into adjacent product categories through partnerships or the integration of new capabilities,” says J.P. Morgan’s global head of consumer and retail investment banking, Jeanette Smits Van Oyen. Italian-French brand EssilorLuxottica carried out a $1.5 billion acquisition of VF Corp-owned Supreme last July, which saw the eyewear leader take ownership of the New York label famed for its cult streetwear status. This in time could deliver considerable benefits for Supreme’s new owners, including access to a younger generation of shoppers, a fresh product niche and an additional revenue stream, which hedges against more fragile licensing agreements that could become casualties of an unpredictable climate.
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Public versus private
Alongside the many high-profile M&A deals of the past year, the IPO market has also proven compelling for luxury and beauty alike, painting an increasingly optimistic picture. In fact, the delta between top-tier public valuations and private sales creates a disparate sense of how businesses are valued, driving a dichotomy between the ‘haves’ and the ‘have-nots’. Amer Sports, for example, which launched on the New York Stock Exchange in February 2024 and closed its first trading day with an estimated enterprise value of $8.6 billion, has seen its share price more than double, prompting a recent follow-on offering of $1.1 billion. Others have determined that the public market is not for them, with notable take-private transactions in 2024 from the likes of Tod’s and L’Occitane. This holds particularly true for the beauty sector, where investors have become increasingly educated partly due to the IPO of Puig last summer, which launched slower than anticipated on the public market with stock closing the day flat.
Smits Van Oyen cites Dr Dennis Gross, Dr Barbara Sturm and Galderma among those to have successfully established brand heritage and DNA — considered must-haves by strategic investors willing to pay premium valuations. Yet, Smits Van Oyen says: “In terms of market valuations, if you look at the universe of listed peers there has been a broad derating in the beauty space during 2024 with really few examples of immunity. The magnitude of the impact though is highly correlated to the ability of companies to navigate uncertain times due to operational resilience and diversified product and channel exposure to the most attractive end markets.” At a product level, she highlights niche fragrances and premium skincare as the fastest-growing categories that will continue to drive the focus of investors.
The deal that wasn’t
While demand for strong beauty propositions is clear, the outcomes of brands seeking investment remain unpredictable, with several cases of busted auctions and IPO withdrawals last year. Most famously, the blocking of the Tapestry-Capri merger, which the US Federal Trade Commission (FTC) put in place to terminate the partnership between ‘accessible’ luxury’s biggest players. When the deal was announced, valued at $8.5 billion, Versace, Jimmy Choo and Michael Kors owner Capri was seen as complementary to Tapestry, which owns Kate Spade, Coach and Stuart Weitzman. During the interim, however, Capri’s shares took a nosedive, while Tapestry’s continued to climb — even more so following its withdrawal from the deal.
Though analysts agree that such a downturn may be a reflection of market conditions as opposed to the prospects of a business. For brands like Rare Beauty, which paused its sale process more than six months after going out to tender, it’s a case of ‘not now’ rather than ‘never’ — and nor is it an indication of waning consumer appeal. In 2024’s Vogue Business Beauty Index, Rare emerged as the top beauty brand for inspiring content as well as a strong contender in offering value for money. Meanwhile, scores concerning brand perception and quality were on par with long-established labels like Kiehl’s, Shiseido and Clarins.
Consumer appeal should not be ignored. J.P. Morgan’s Dunlop says that brands demonstrating strong customer loyalty result in high repeat purchase behaviour and measurably strong marketing performance, both of which are among the key indicators that buyers look for.
Yet it does beg the question as to what the best kind of ownership looks like for scaling brands. For Dunlop, there’s no magic formula. “Some companies have succeeded on their own with strong founders and minority investors, others have done so with majority ownership from private equity and others have developed under the ownership of strategics applying expertise from other parts of their business,” he says. “Fundamentally, the most important aspect is a shared vision and a thesis; a seller’s natural instinct is to go with the highest bidder but it is critical to find someone who truly believes in the management team and their brand vision.”
Smits Van Oyen adds that investors are becoming increasingly educated and discerning in how they scrutinise and value businesses, further evolving the algorithm employed by analysts. Views vary, but while the traditional 12-month multiples approach remains prevalent, it may be viewed as an oversimplification given assets such as licences, retail media and white-label platform solutions all represent potential revenue streams beyond gross merchandise volume. Smits Van Oyen adds: “We see investors are very much seeking to construct and sensitise their own granular valuation models in order to have the ability to adjust risk by segment.”
Returning to normal
As we head further into 2025, the market is still an evolving picture. But if 2024 brought consolidation, this year is likely to be countered by a return to ‘normalisation’, and, with it, continued innovation. Nik Johnston, J.P. Morgan’s co-head of consumer retail M&A, thinks the prospects for fashion and luxury are promising. “Overall, retail M&A but particularly luxury and softline M&A in 2025 could see a significant uptick with continued consumer strength and more receptive capital markets given declining interest rates combined with a softer regulatory outlook for the sector,” he says. Johnston also expects that further stability will see brands refrain from the relentless promotional activity that has, in some cases, affected brand exposure. A focus on selling at full price and re-establishing a premium positioning will not only minimise risk and criticism, but also encourage more attractive deals going forward.
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