French luxury goods giant LVMH has added Italian cashmere group Loro Piana (LP) to its large portfolio of brands, spending €2bn on an 80% stake. Described as “one of the most elitist brands in the world” by LVMH’s communications director Christopher Hollis, LP is renowned for clothes made from vicuña, rare wool harvested from a relative of a llama. Vicuña items sell for tens of thousands of dollars. Sales at the family run firm – led by sixth-generation descendants of the founder – are expected to hit €700m this year.
What the commentators said
LVMH “could give its customers a lesson in how to splurge”, said John Jannarone in The Wall Street Journal. It is paying around 19 times earnings for this “trophy asset”, nearly twice the average valuation across the luxury sector. Still, LVMH has “a clear vision of how to accelerate” LP’s sales growth. It has money and infrastructure to roll out new shops, while its experience with handbags and wallets will help expand LP beyond jumpers and coats. LP is also growing much faster than its peers, said Lex in the FT. Earnings are expected to expand by a 18% a year over the next two years.
This deal provides a sobering insight into the state of Italy Inc, noted Rob Cox on Breakingviews. That “a jewel of Italian family capitalism like LP thinks its future nestled inside a French conglomerate is brighter than if it remained independent is a jarring signal”. Family ownership militates against giving up control, and it is widespread in this sector. That explains why Italy’s luxury firms never merged and pooled their resources, thus forming their own big national conglomerate, as Lex pointed out. “Italy’s loss is definitely the French luxury conglomerates’ gain.”