Consumer

Brooke Sutherland is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Ferragamo CEO Michele Norsa says the Italian luxury-goods maker is getting too big to be susceptible to a takeover. Is it, though? 

Norsa, in an interview this week with Bloomberg TV,  said he no longer feels vulnerable to an acquirer's approach, given the company's 1.5 billion euros ($1.7 billion) in sales power. Analysts on average are projecting Ferragamo will post about that much in revenue this year, almost double what the maker of high-end hand bags and belts brought in six years prior.

Big, But Not Too Big
Ferragamo's sales have been steadily rising.
Source: Bloomberg

That threshold is significant relative to other independent brands such as cashmere sweater seller Brunello Cucinelli or outerwear company Moncler. But it's not really that big relative to the overall luxury market, where companies including Prada, Christian Dior and Hermes rake in much more.

So will Ferragamo's revenue really be a deterrent for would-be buyers?

Norsa's broader point is that the relatively small companies in an industry, or those in a weaker financial position, are the ones that tend to draw interest. While that may have been true in the past, buyers have been increasingly willing to gobble up bigger targets as they turn to M&A to combat weak global growth. In 2015, there were around 80 takeovers of companies with more than 1.5 billion euros in revenue -- the second most on record. In terms of volume, last year set a new high because of the number of mega-mergers.

Bigger Targets
Even companies with large revenue bases are drawing deal interest.
Source: Bloomberg

So far this trend hasn't caught on in the luxury industry. Among the larger transactions, Bulgari had just over 1 billion euros in sales when it agreed to sell itself to LVMH in 2011; fellow jeweler Harry Winston had more than $400 million in revenue when it was bought by Swatch Group in 2013; cashmere sweater maker Loro Piana was on track for 700 million euros when it struck a deal with LVMH in 2013.

But the luxury market hasn't had the same growth concerns of other industries. That's about to change as the Chinese tourists that have plowed so much money into high-end purses, belts and shoes curb spending. Profit warnings and cautious sales outlooks have put a darker cloud over the sector. That will force companies to think about new strategies, whether that's targeting a customer base a few notches below the ultra-rich, expanding online capabilities, or striking deals to add scale and take out costs.

Much bigger companies than Ferragamo have been mentioned as takeover targets recently, including Prada and Burberry. The latter gained attention earlier this month when a mystery investor built up a stake, sparking speculation of a suitor or activist shareholder. It was later reported that HSBC was executing trades for a number of clients that briefly took its total holdings above the 5 percent threshold, triggering regulatory disclosures. But the idea of a takeover was at least plausible enough to send Burberry -- and Prada, for that matter -- soaring. And if they're plausible targets, Ferragamo might well be too.

Ferragamo has a lot of things a buyer might want: Sales will grow at a steady annual pace of about 5 percent for the foreseeable future, there may be some room for improvement in its margins and it's gotten much cheaper. Last month, the company's's market value dropped to about 2.2 times its sales, the lowest multiple since 2012.

Less of a Splurge
Ferragamo is trading at a cheaper revenue multiple than it has historically.
Source: Bloomberg

Granted, that's still not exactly the bargain bin. And any buyer would still need to pay a big premium because the company does have other protections: The Ferragamo family still owns a controlling stake and has indicated in the past it's not willing to sell. But that hasn't stopped M&A speculation from bubbling up. LVMH, for one, has lots of experience buying family-owned or founder-run luxury chains -- see Bulgari, Loro Piana, Fendi, Donna Karan, BeneFit cosmetics. Norsa's latest comments won't permanently dispel the M&A talk, either.  

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. He's espoused this position before, saying in 2013 that "if you become big enough, you can survive alone."

To contact the author of this story:
Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net