Luxury goods companies are a target for mergers

British raincoat maker Burberry and German fashion brand Hugo Boss are among the luxury goods firms marked as potential 2023 merger & acquisitions (M&A) targets in Europe.

With sales of luxury goods widely expected to withstand the darkening economic outlook and Chinese demand enjoying a post-Covid reopening boost, the sector appears ripe for an M&A wave, according to an informal Bloomberg survey of 17 M&A desks, fund managers and analysts. As the initial public offerings window remains largely shut, companies and investors look to dealmaking and consolidation instead.

Hugo Boss and Burberry were mentioned multiple times as potential takeover candidates in the survey, alongside Italy’s Tod’s. That was even after many stocks more than doubled in value since the early days of the pandemic, while a short supply of luxury assets means bidders are likely to have to pay top dollar.

Among other industries, media company Vivendi topped the survey list amid speculation that billionaire Vincent Bollore will seek to increase his 29% stake after closing the €5.7bn sale of his group’s African ports business to MSC.

Dealmaking in the luxury industry “normally happens at punchy share price levels, as attractive acquisition targets are few and far apart”, said Luca Solca, senior research analyst at Sanford C Bernstein.

Many expect France’s €415bn luxury behemoth LVMH to be the one that snaps up rivals. Its track record and balance sheet deleverage make it most likely to participate in a deal, Bank of America predicted in January.

With a tough competitive environment for smaller companies, “owners of rare assets may be tempted to fold and sell their brands to larger players, who would be more and more in a position to cherry pick,” Solca said.

The survey coincides with a worsening M&A outlook, as higher interest rates and recession bite.

January-March European M&A came to around $137bn, about 60% below year-ago levels, and one of the worst quarters of the past 20 years, according to data compiled by Bloomberg.