Price of luxury assets could go down
British fashion house Burberry‘s profit warning this week could put on ice potential acquisitions in the luxury sector as fears are growing that the industry’s growth forecasts could be cut further, a top corporate finance executive told Reuters.
Potential buyers gauging the value of luxury assets by their growth potential will want to wait to hear what rivals of the British brand have to say about the sector outlook before sealing any transaction, predicted Marco Belletti, global head of consumer retail and luxury at the corporate finance division of Societe Generale. “In the short-term, valuations (of luxury assets) will be affected,” Belletti told the Reuters Retail and Consumer Summit on Thursday.
“We are just seeing the first signs of this correction … The next month will be critical to understand what is happening in the (luxury) sector. We will see what other luxury brands have to say,” he told the summit, held at the Reuters office in Paris.
Mark Belford, co-head consumer and retail at the investment bank arm of Janney Montgomery Scott believes the first red flag for the luxury industry was waved a few weeks earlier, by Tiffany & Co. The U.S. jeweler late last month cut its sales and earnings forecasts for the second quarter straight, citing a tough global economic climate. “A lot of distress is coming out of the Asian markets, China in particular … and that reverberates into this country (USA) as well,” he told the summit in New York.
As the environment worsens, analysts predict the price of luxury assets could go down and high-priced deals such as the July sale of Permira’s Valentino to the Qatari royal family are unlikely to be repeated. The deal valued the Italian fashion brand at around 700 million euros ($903.49 million), or 31 times its 2011 EBITDA, more than twice the luxury sector’s average. Shareholders in luxury companies that want to sell their stakes on the open market via an initial public offering or a placing might also want to wait and see, Belletti said.