Bit of Polish

Breitling Finally Hits Some Good Timing

A test for private equity's capabilities in watches.

Sold: one vintage Swiss watch. Still keeps pretty decent time. Could do with a bit of a polish.

Private equity firm CVC Capital Partners is buying a controlling stake in Breitling. The deal values the company at more than 800 million euros ($874.6 million), Bloomberg News reported on Friday.

The family owners put the company up for sale late last year, and as Gadfly noted, for a watchmaker, their timing looked off. It was well past the Chinese-led peak of watch demand. So the sellers found themselves searching for a buyer amid the worst downturn for their product since the financial crisis.

Clocking On

Investors' appetite for luxury has driven valuations higher

Source: Bloomberg

CVC is paying about 2 times trailing 12-months sales, a discount to both Swatch Group AG at 2.7 times, and Richemont's 3.8 times. That looks about right, as Breitling is much smaller than the industry leaders and in need of some renovation.

Ticking Up

Breitling sales rose in 2016 after flatlining for several years

Source: Bloomberg, Vontobel

Watchmakers' valuations have jumped over the past six months on expectations of recovery. In fact, across the luxury industry, ratings are so high that the big groups have not felt the need to pay up for acquisitions. 

So, Breitling's family owners have done well to get a deal at all. At least by keeping a 20 percent stake, they won't be shut out from all the upside.

As for the new owner, it has picked a more favorable moment to strike. As luxury valuations have rebounded, so have the industry's prospects.

On Thursday, the Federation of the Swiss Watch Industry reported the first increase in Swiss watch exports for 21 months. Exports rose 7.5 percent in March, although that was boosted by two extra trading days. Excluding the calendar effect, exports would have fallen 2.6 percent. That's an improvement on previous months, and should bode well for sales as the year progresses.

Good Timing

Swiss watch exports rose for the first time in 21 months in March

Source: Federation of the Swiss Watch Industry

But CVC can make money here by doing more than just ride an upturn in the watch market.

Breitling may be a recognized name, with a distinctive look and a strong following. However, its image -- particularly its advertising --- has become rather tired.

It is also one of the smallest of the Swiss watch brands by sales, according to Vontobel. So there is plenty of room to grow, particularly in Asia, where it hasn't made a serious effort to crack this market. 

Room To Grow

Breitling is one of the smallest Swiss watch brands so has capacity to expand

Source: Vontobel Equity Research

Top 20 Swiss watch brands by sales, 2015

This, together with improving digital distribution and bolstering marketing efforts rather than relying on a band of devotees, could help expand sales and margins.

The buyer has some obstacles to confront. Private equity has little track record in watches. CVC owns perfume retailer Douglas and was an investor in luggage maker Samsonite, which listed in Hong Kong in 2011. Still, the rarefied world of Swiss watches is a far cry from fragrance and suitcases. And the Breitling product range may need updating to cater to Asian tastes. 

Not only are watches an unusual market for buy-out groups, but this deal seems to rest on establishing growth rather than an easier game of tackling a neglected and bloated cost base.

At least with the typical private equity holding period of around five years, CVC has got time to make the deal tick. 

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

    To contact the authors of this story:
    Andrea Felsted in London at
    Chris Hughes in London at

    To contact the editor responsible for this story:
    Jennifer Ryan at

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