July 7, 2022

Volume XII, Number 188

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2022 M&A Outlook

Despite the challenges presented by COVID-19 over the last two years, including its significant impact on supply chains and the economy, 2021 was a banner and record-setting year for M&A and fundraising transactions. In general, M&A activity in 2021 was strong across many industries, and the fashion and beauty industry was no exception. In 2021 we saw combinations and equity investments into some of the biggest brands in the fashion and beauty industry, including:

  • LVMH Moët Hennessy Louis Vuitton’s acquisition of Tiffany & Co. for $16 billion;

  • A $1.1 billion investment in Farfetch by Alibaba Group and Richemont;

  • Louboutin’s sale of 24% of its equity interests to Exor Group (the largest shareholder in Ferrari); and

  • GOAT Group’s $195 million equity financing that pushed its valuation to $3.7 billion.

Now the question is whether 2022 can keep the same energy? Early results in 2022 indicate the answer is yes! We have already witnessed Kim Kardashian’s SKIMS raise $240 million (pushing its valuation to $3.2 billion), Farfetch’s entry into beauty with its acquisition of LA-based Violet Grey, and the highly anticipated IPO of Rihanna’s Savage X Fenty lingerie brand.

So how did we get here? One reason is that prior to the global pandemic there was a shift towards online shopping, particularly from new entrants. However, some retailers had anticipated a resurgence of in store shopping and made investments in brick and mortar locations. As you could imagine, physical retail has been upended and continues to struggle as a result of the pandemic, while online/digital shopping rebounded and increased significantly during 2021. The growing gap in success between digital vs. physical shopping has led to acquisition opportunities and increased M&A activity that is expected to continue through 2022 for a variety of reasons.

One explanation for increased M&A activity is that a number of strategic retailers and financial sponsors have been sitting on cash that can be used to acquire distressed brands and assets with attractive specialties, customers and/or digital capabilities. For example, in early 2021 Nike acquired Datalogue to assist Nike’s direct-to-consumer and digital efforts. So in addition to brand consolidation, many industry participants are engaging in M&A activity to boost their e-commerce and digital capabilities.

In addition, there is an expectation that many industry participants will reassess their overall strategy as we recover from COVID-19, ultimately resulting in the disposition of certain non-core assets with proceeds reinvested in high-growth sectors. Such a strategy makes sense given the increase in valuations in 2021 resulting from competition for assets and efforts to grow by acquisition. Also, valuation levels increased significantly as a result of the improved equity markets starting the second half of 2020 and through all of 2021. Although there appears to be an initial break in the equity markets during the first quarter of 2022, the expectation is that valuations should stay generally high, thus attracting the attention of many potential sellers.

As we emerge from the pandemic, M&A activity (on the buy side and sell side) will be top of mind as companies reassess their overall strategy. Opportunistic buyers will continue to evaluate opportunities to strengthen their e-commerce and direct-to-consumer channels and strategic sellers will look for opportunities to maximize value for underperforming assets, brands and divisions. In order to catch this wave, companies should pay close attention to their acquisition and disposition strategies so that opportunities are not missed. Without a proactive and detailed M&A strategy, including the engagement of knowledgeable internal and external advisors, certain brands may be caught with their pants down.

© 2022 Foley & Lardner LLPNational Law Review, Volume XII, Number 90
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About this Author

Steven R. Cade Partner Foley & Lardner LLP
Partner

Steve Cade is a partner and business lawyer with Foley & Lardner LLP. He represents clients in a broad range of general corporate law and transactional matters, with a focus on mergers and acquisitions, commercial transactions, venture capital financings and securities matters. Steve represents clients across a range of industries, including manufacturing, technology, financial services, food and beverage, and health care. Steve is a member of the firm’s Transactions Practice, and also a member of the firm’s Manufacturing and Technology Industry Teams.

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