A French investment company, Eurazeo, has agreed to buy a 45 percent stake in Moncler, the leading Italian producer of luxury down jackets and outerwear, for €418 million. The deal, which is scheduled to close in the third quarter of 2011, puts an end to Moncler's plans to hold an initial public offering (IPO) on the Milan stock exchange later this month. The IPO had already been approved by the Italian authorities and the subscription period was largely expected to start on June 20.
Before the completion of the transaction, Moncler will pay an extraordinary dividend of around €150 million, which will boost its net debt to about €300 million. The deal is based on a total enterprise value of €1.2 billion including this debt, representing 12 times earnings before amortization (Ebitda) posted in 2010.
In a conference call, Eurazeo said that the feedback from investors during the pre-marketing phase of the IPO was “extremely positive” but the current situation on the financial markets did not enable Moncler's shareholders to obtain the price they were targeting. Another source said that the IPO would have required a significant discount on the asking price to be successful.
During the preparation of the IPO, Moncler's shareholders were in talks with Eurazeo since the beginning of the year. Eurazeo stressed that it supports the idea of a possible IPO in the future as a way of reducing or selling its stake in Moncler.
Eurazeo studied the possibility of investing in Moncler in 2008, and remains interested in other investments in the luxury sector in the future because it believes that the industry will continue to grow irrespective of the difficulties of the European economy. It indicated that luxury outerwear, especially the down jacket segment, has outpaced the growth in luxury apparel, which has risen at an average 10 percent rate per year since 2009.
Remo Ruffini, the Italian designer who built up Moncler, did not want to sell out to a luxury goods group and wanted the company to remain independent, said Eurazeo. He will remain chairman and a leading shareholder of the company.
Moncler was created in 1952 in France and the name is a contraction of Monastier de Clermont, a village close to Grenoble. A pioneer in the development of down-filled jackets for skiing, it started as a medium-priced technical brand of outerwear and was the official sponsor of the French ski team at the 1968 Olympic Games. In the 1980s, the brand became very popular among Italian youth, and in 1999 Ruffini was appointed creative director. In 2003, Ruffini acquired the Moncler brand and repositioned it as a premium fashion label with the launch in 2006 of the Gamme Rouge collection.
Like several other Italian brands of outerwear, Moncler is a sports-inspired line of lifestyle sportswear with a distinctive look and little distribution in the sporting goods retail circuit, where margins are lower than in the boutiques. While the brand has been mainly adopted by women, men's products represent 45 percent of the brand's sales. Eurazeo feels that this is critical to penetrate Asian markets, which are more male-driven.
The Moncler brand is mostly sold in Italy, Germany and Japan. It also has a strong presence in France and other Western European countries and it recently entered the big Chinese and American markets, two countries where the brand intends to continue expanding. Italy represented 43 percent of the brand's sales in 2010, but its share is expected to drop to below 30 percent in the next two to three years thanks to the growing importance of emerging markets and North America.
The brand has 55 directly operated stores (DOS) and is present in more than 2,000 shops run by third parties. DOS increased their share of total sales to 25 percent in 2010 from 7 percent in 2007 and are forecast to represent more than 50 percent of turnover in the medium term. Moncler will pursue its selective policy in the wholesale channel to boost brand exclusivity. Between 2008 and 2010, the brand cut by 20 percent the number of wholesale doors. The brand plans to launch an e-commerce site this year.
In 2010, the brand reached sales of €278 million, or nearly 65 percent of the total revenues of the Moncler group. On top of the Moncler brand, the group owns the Henry Cotton's, Marina Yachting and Coast Weber & Ahaus brands. It also holds a license for Cerruti. Consolidated group sales rose by 15 percent to €429 million in 2010. Since 2007, the annual turnover increased on average by 18 percent. In the first half of the year, group revenues rose by about 20 percent.
Last year, the Ebitda margin widened to 23.8 percent from 20.7 percent in 2009 and 15.5 percent in 2007. The Ebidta margin of the Moncler brand is significantly higher than the group figure. The group's production is outsourced to Italian and Eastern European suppliers, and raw materials represent about 6 percent of the sales price.
The Moncler group is currently owned at 48.0 percent by the investment fund Carlyle, 38.0 percent by Ruffini, 13.5 percent by Brand Partners and 0.5 percent by Sergio Buongiovani, a company manager. Following the transaction, Eurazeo will have 45.0 percent, Ruffini 32.0 percent, Carlyle 17.8 percent, Brand Partners 5.0 percent and Buongiovani 0.3 percent. Eurazeo will have the right appoint five of the company's 10 members of the board of directors.
Eurazeo said that it has no plans to sell any of the group's brands and that it is a long-term investor in Moncler.