Wall Street digested the news that Estee Lauder Cos. acquires the Tom Ford the brand and investors seem to be taking it head-on.
After months of speculation, the beauty giant announced on Tuesday after market close that it had agreed to acquire Tom Ford in a deal valuing the brand at $2.8 billion.
As part of the deal, Ermenegildo Zegna Group and Marcolin SpA will enter into long-term license agreements for Tom Ford Tom Ford fashion and eyewear, respectively. Marcolin has been a glasses licensee since 2005, while Zegna has held the license for Tom Ford menswear since around 2006. From now on, she will be responsible for all of Tom Ford’s fashion activities.
In aftermarket trading, shares of Lauder fell slightly, but early Wednesday afternoon investors seemed relatively out of step with the company’s biggest acquisition to date – shares fell slightly, down less than 1%, to $224.88.
It was a similar story for the publicly listed Ermenegildo Zegna Group, which becomes a long-term licensee of the former for all fashion products, accessories, underwear, jewelry, children’s wear, textiles and interior design for Ford men and women. Zegna’s 20-year license agreement with Lauder allows for automatic renewal for an additional 10 years. As part of this transaction, Zegna will acquire the business of Tom Ford’s fashion business. Shares of the company rose 2.24% to $10.96 after the news.
Commenting on the deal, Raymond James analyst Olivia Tong said: “This is EL’s largest deal to date, with now full control of a fast-growing brand, critical to what we anticipate will be EL’s eventual recovery in China and travel retail. Importantly, we expect minimal disruption to the transition in the non-beauty parts of Tom Ford, as Marcolin continues as the brand’s eyewear licensing partner and fashion brand Ermenegildo Zegna will continue as fashion, accessories the brand [and] underwear partner.
Given Tom Ford’s super premium positioning in beauty, she believes the brand should continue to be a growth engine for Lauder, with the brand’s fragrance line ranking 15th in the US and the Ranked 10th in China, while increased door expansion and consumer mobility are expected to support makeup growth.
“Unlike previous M&A transactions, [Estée Lauder] already works [Tom Ford] beauty, enabling a smooth transition, giving EL the ability to unlock the brand’s full profitability potential and increasing exposure to the attractive luxury beauty market. As expected, TF fashion and eyewear will be outsourced,” said Jefferies analyst Ashley Helgans.
In particular, she noted that the acquisition will allow Lauder to propel Tom Ford into new channels and markets. “Currently, the Tom Ford beauty brand is 47% cosmetics, 50% fragrance and 3% skin/other. Skin makes up 50% of the EL portfolio, so we think it’s likely that they will leverage their expertise in prestige and luxury skin care to grow the TF brand skin segment. skincare products show the highest operating margin, followed by perfumes, then make-up.
A luxury consultant based in Milan, Italy, who asked to speak on condition of anonymity, told Zegna that the acquisition of Tom Ford’s fashion business is a new way to bring different businesses together. “It seems the IPO has made Zegna more courageous in its choices, creating synergies as each company does its best in each area of specialization.” Zegna is listed on the stock exchange New York Stock Exchange in December last year.
As well as being a longtime licensee of Tom Ford menswear, Zegna was also a shareholder, with a 15% stake in the company, so this new development is seen as “a natural step”, the consultant said. , which “will allow Zegna to strengthen”. its womenswear segment and the group as a whole. Zegna has a strong supply chain built over the years and its textile or knitwear pipeline can be leveraged. The sky is the limit, everything must be shaped and formed and [chairman and chief executive officer] Gildo Zegna will surely create an appropriate structure to fuel the development of the brand.
Another Milan-based analyst saw it as a “natural evolution”, as Gildo Zegna is building the business on the basis of a network of personal relationships cemented over the years. “I don’t think he’s adding Tom Ford for fun, and Gildo said at the time of the IPO last year that he was aiming high,” he said. “Two American luxury brands will increasingly be Made in Italy and Gildo will surely be proud of that.” As for Ford’s possible exit after a year, the analyst was not worried. “The foundations are solid,” he said.
Jefferies stock analyst Flavio Cereda partly agrees, saying the Tom Ford brand will face no hurdles in the beauty market without the namesake founder, but said: “The question mark, c how will the brand be without Tom Ford, how sustainable is it? in ready-to-wear and accessories? It’s less clear. »
Ford still has the option of renewing its contract after a year or remaining a consultant, said Armando Branchini, executive chairman of the luxury goods consulting firm InterCorporate, who is more confident in the future with or without Tom Ford. “It’s a great opportunity for Zegna, and the deal spanning more than two decades gives him the freedom and time to help develop Tom Ford as he did Thom Browne“, said Branchini. “I believe that Fabrice Freda [president and CEO of Lauder] was reassured by the presence of Zegna and Marcolin, which guaranteed Lauder the management of areas of activity located outside its core perimeter.
Italian eyewear maker Marcolin, a longtime licensee of Tom Ford, signs a perpetual agreement with Lauder for the production and distribution of the brand’s eyewear collections. Marcolin will pay 250 million dollars via available cash, as well as a capital increase of at least 50 million euros. Marcolin has been a Tom Ford eyewear licensee since 2005.
Branchini noted that, in addition, Lauder and Zegna have the retail expertise that can help Tom Ford grow its own store network.
“Fabrizio and Gildo are two managers with great experience; they are both rigorous and they get along, so they will maintain the same positioning of the brand, but improve its performance. It’s a win-win situation for everyone, starting with Tom, who provides a long-term future for his brand,” said Branchini.