Breitling's Curious Sense of Timing

A sale doesn't quite make sense for it now, though buyers might bite.
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You would think a 132-year-old Swiss watch maker would have a better sense of timing. 

It doesn't look the case for Breitling, the privately owned firm that's weighing a sale, as Bloomberg News reported Tuesday. 

It’s a strange time to sell. Swiss watch sales should be turning the corner. Exports over the next few months will compare with the very difficult period a year ago, when Asian tourists abandoned trips to Europe after the terrorist attacks on Paris, and China experienced stock market gyrations on top of an anti-extravagance drive.

Awkward Timing

An October slump in Swiss watch exports extended the industry's longest losing streak on record

Source: Federation of the Swiss Watch Industry

Breitling should have sold out a few years ago, when Swiss watch sales were still surging on a wave of Chinese demand. Having missed the peak, it now finds itself grappling with an industry downturn. It also faces chunky fixed costs from its production facilities in the Jura mountains and about 45 retail stores, including in some pretty pricey locations.

Still, a Breitling sale could easily make sense for a buyer, particularly one who believes the watch market is about to emerge from a trough.

And the company looks like it's doing better than the broader industry -- Swiss watch exports fell 16.4 percent in October, the biggest monthly drop in seven years and continuing the worst losing streak on record. According to Rene Weber, analyst at Vontobel, Breitling sales were flat at 370 million Swiss francs ($365.3 million) in 2015, and he expects a similar result this year.

One of the Jewels

Breitling is one of the few big watch brands that's still independently owned

Source: Vontobel

Breitling is one of the few watch brands yet to be snapped up by an industry giant, and it would be a fairly substantial deal, though perhaps not quite at blockbuster level. John Guy, analyst at Mainfirst Bank AG, estimates that it could be worth between 600 million and 900 million Swiss francs.

At that sort of price range, the obvious buyers would be Cie Financiere Richemont, Swatch Group AG and LVMH. Unfortunately, they've all got good reasons for staying away.

Richemont has more than 5 billion euros ($5.3 billion) of cash on its balance sheet. But it's also grappling with improving sales at its high-end brands such as Piaget and Vacheron Constantin, as well as turning around Dunhill.


Breitling's sales growth has tailed off amid broader struggles for personal luxury goods

Source: Vontobel

Similarly, Swatch has 1.5 billion euros of net cash, and Chief Executive Officer Nick Hayek has been keen to keep investing during the luxury downturn. But even he might balk at spending a big chunk of the company's cash on buying another brand, when it has plenty of mid- to high-end names already.

LVMH also has the financial flexibility, but it already has TAG Heuer. Lately it has been buying niche, yet heritage brands -- it recently paid 640 million euros for an 80 percent stake in luxury luggage maker Rimowa. While Breitling's got the history, it's not obvious it fits this bill. 

That leaves Asian and Middle Eastern buyers, or a private equity group. While perhaps some may be interested, particularly if they want to take a bet on a luxury recovery, it's not yet certain that Breitling's exploration will lead to a sale. The process is at an early stage.

But as Gadfly has argued, brands' battle with the weakest market for personal luxury goods since the financial crisis has left the industry ripe for consolidation.

From that perspective, time might be on Breitling's side. 

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

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