M&A AND FASHION: IF THE DEAL FITS. . . BUY IT!
M&A AND FASHION: IF THE DEAL FITS. . .BUY IT!
Over the course of the last three decades, the fashion industry has undergone enormous change. Formerly, the industry was characterized by high fragmentation and smaller, family-owned enterprises. Companies sold to wholesalers rather than directly to consumers. More recently, increased consolidation and growth have led to the creation of massive international luxury corporations. The e-commerce revolution has freed many brands from reliance on wholesalers. As a result of these factors, today, fashion and apparel is one of the largest sectors of the global economy.1
Increased globalization and advances in technology, manufacturing and distribution have changed nearly every aspect of the industry, especially the attitudes and appetites of consumers themselves.2 Indeed, while today’s Americans spend nearly the same amount (adjusted for inflation) on apparel as they did in 1965, they buy nearly twice as many articles of clothing.3 Amidst all of this transformation, many fashion companies4 have undertaken strategic mergers and acquisitions (“M&A”) to consolidate risk and capitalize on opportunities.5
M&A has historically proven enormously successful for the world’s leading fashion companies,6 which, by most critical accounts, have been able to successfully exploit their size without diminishing the value of their brands.7 Smaller companies have also turned to M&A to improve brand awareness and gain market share.8 Companies seeking to grow through M&A have “chosen vertical integrations in order to strengthen their positions inside the pipeline; others have implemented horizontal growth by acquiring competitors or companies with related product lines.”9 Private equity funds and entrepreneurs have also been involved in acquiring fashion companies, with mixed levels of success.10
This Article will focus on the specific aspects of M&A that are unique to the fashion industry.11 Part One provides a high-level discussion of the M&A process within the fashion industry and some of the distinctive valuation metrics that go into determining targets, then turns to some of the challenges of due diligence. Part Two of this Article outlines transaction structures and describes the negotiation and documentation process, as well as the elements that go into a successful closing. The Article concludes with an exploration of the post-closing goal of achieving the synergy-driven results that motivate the M&A process.