PPage 48age 48 DCF and valuation pIndustry oaramevervieterws I Points of view from EY’s global sector The Italian luxury market from an M&A and investor perspective specialists and outside experts Emerging market investors are heavily looking for In fact, the execution risk of an investment in the A recent survey that compares the major European opportunity, but so far, only a very limited number of fashion and luxury sector, although potentially very countries clearly shows that if, on average, family- transactions have taken place, mainly driven by rewarding, is perceived as high, particularly by owned businesses are often led by a CEO member of Middle-East investors (Valentino being a landmark financial investors. The level of complexity is growing the family, when it goes down to the key transaction). Overall, they usually act through local in terms of consumers, purchasing behaviors, management team, Italy changes the situation. contacts that sometimes have a limited knowledge of distribution models, geographies. Executing an In fact, in family businesses in Italy, 66% of the the market, like to invest in minority stakes with the appropriate development strategy that would management is composed of family members, a big strategy of working closely with the entrepreneur in envisage internationalization, brand/product difference if compared to 10.4% in UK, 25.8% in order to plan credible growth strategies, identify extension, retail investments and distribution rollout France, 28.0% in Germany and 35.5% in Spain. value creation levers and deploy resources to in various channels is very challenging and needs This could at least partially explain why Italian fashion accelerate developments in local markets such as vision by entrepreneurs and management capabilities companies have always excelled in growing and China, Japan, Korea and Russia. by key executives. extending a single brand name (usually the family If brand and uniqueness of products is usually the key Management can be a value multiplier when coupled name), but more rarely have successfully achieved a driver for acquisitions and values, for strategic, with high brand recognition and products. The recent conglomeration/portfolio strategy through financial and alternative investors, recent experience Versace and Pomellato transactions are a clear acquisitions and the integration of different brands shows that the presence of an experienced example for this: good management coupled with under the same umbrella. management and an adequate organization is able to exceptional brands. And investors pay for that! In this Summarizing, Italy remains the place to be, where command much higher valuations. respect, Italy has great room for improvement. brands, craftsmanship and product innovation lie. However, to grow in such a competitive industry, companies and entrepreneurs need to reinforce their structures to bring their own organizations to the next phase of growth. This will pay off and not only in terms of value paid by investors. The luxury and cosmetics financial factbook 2015