Last summer has been very busy for Roberto Cavalli, the owner of the homonymous fashion company.
In fact, as the “Leopard King” announced the intention to sell a majority stake of its company, the first offers started to arrive.
Investcorp Bank BSC made the first official proposal on June the 27th. A majority stake of 60% has been valued €450 million, that is 18 times the EBITDA of €25 million. The valuation in absolute terms is aligned to the analysts consensus, but the offered EBITDA multiple is lower than the 31,5 that has been paid by Qatar’s royal family to buy Valentino from Permira in 2012.
According to a confidential source, Investcorp decided to withdraw from the deal because there was a significant gap between the asking price and the cost associated with the renovation process.
Other two offers were registered in the first half of July: one from VTB Capital PLC (subsidiary of VTB Group) and the other one from Permira Advisers LLP.
According to Russian newspapers, VTB Capital is willing to raise the price offered by Investcorp by €50 million. In contrast with the normal practices, the major obstacle seems not to be the offered price, but the recent economic sanctions elevated by the EU against the state-owned Russian company.
The uncertainty related with the difficulty to find a satisfactory political solution in Ukraine and the threats of new sanctions can delay the execution of the deal.
On the other side, Permira, after the success registered with the acquisition of Valentino, is conducting a close negotiation with Roberto Cavalli. Both parties have disclosed no details about the transaction.
After Roberto Cavalli’s declaration: “The deal will be executed, all that is missing is the sign”, we are very likely to think that the operation will be successful.
However, the company’s valuation is not an easy task for more than one reason: first of all the company is not listed (so there isn’t a reference price determined by market participants to be used as starting value), moreover a significant part of the value is related to the designer’s future role inside the company. Roberto Cavalli, despite his 73 years, declared his intention to maintain the role of fashion director, but his effective collaboration is dubious in the next years.
Finally, a technical consideration: given that the potential investors are private equity firms (by definition not diversified), they should perform the valuation with an higher cost of capital in order to have an adequate return to the risk undertaken. Consequently the new valuation model will yield lower equity value.
Our opinion is that Permira is going to be the acquirer; infact, the fund has already dealt with the criticalities listed above in the acquisition of Valentino and this will make it easier for it to be able to formulate a better proposal compared to the one made by VTB Capital.
Our company valuation will soon be published in the section “single company analysis”.