Trophy investments: Fashion and gadgets

When it comes to the luxury market, successful branding is paramount and can often depend on the company founder or a key designer. A clear example of this, and the dangers of a brand reliant on an iconic figure, is luxury shoe-maker Jimmy Choo. The brand was co-founded by ex-Vogue editor Tamara Mellon in 1996 and it was through her encapsulation of the brand, and the engagement of her celebrity network, that Jimmy Choo shoes were most typically found strutting down red carpets at film premieres and fashion events.

Jimmy Choo is no stranger to the asset class, having been acquired by Phoenix Equity Partners in 2001, then sold to Lion Capital in 2004 for £101m and then picked up by Towerbrook Capital Partners in 2007 for £185m.

Despite Towerbrook's impressive exit to Labelux for around £500m in November 2011, which awarded Mellon a reported £85m in cash, the fashionista was determined to besmirch the rapid growth and expansion of her brand.

Do investments in trophy sectors such as fashion and high-end gadgets ultimately deliver?

Mellon left Jimmy Choo shortly after its sale to Labelux and then launched an attack on private equity. In April last year, Mellon spoke to the Financial Times and criticised the asset class for its short-termism, having discussed exit routes shortly after acquisition. She also spoke of disagreements with Lion, which had removed new designs from the range, and of not ever meeting a woman in the industry.

The reliance on previously Permira-backed Valentino's founder caused its former private equity supporter difficulties, resulting in a restructuring and recapitalisation. Following Valentino Garavani's retirement in 2008, the founder was succeeded by Alexandre Facchinetti, who left after less than a year and was replaced by an in-house team made up of Maria Grazia Chiuri and Pier Paolo Piccioli.

The confused leadership impacted the brand and eroded sales. Falling revenues forced Permira to pump fresh equity into the iconic fashion retailer. By late-2009, the buyout house had spent more than six months negotiating a new deal with lenders Citigroup to reduce its hefty debt pile from €2.2bn to €1.5bn in order to ease repayment liabilities in the face of weak sales.

Fortunately, Permira's commitment to the business saw its sale to Mayhoola for Investments in a deal thought to be worth €700m in July 2012.

Gadgets
The explosive success over the last decade of upmarket gadget companies, notably Apple and Samsung, has undoubtedly piqued investor interest as consumers fall over themselves for the latest and slickest handheld devices.

When it comes to luxury gadgets there are few status symbols to rival the handcrafted and jewelled phones made by Vertu. The company was carved out of Nokia in June last year by EQT, which picked up a 90% stake in the business in a deal thought to be worth €200m.

The Nokia sell-off attracted a good deal of attention and at one point Permira looked set to buy the company. Vertu's appeal lies in its exposure to the growing global luxury market in China. According to Bain's research into this field, the European luxury market is expected to remain stagnant, but markets including Brazil, Mexico, China, south-east Asia and the Middle East are booming, and Vertu's global outlook offers a neat in-road into these exciting geographies.

Just one day after the EQT deal, Vertu's boss Perry Oosting was ousted by the buyout house and replaced by Max Pogliani, previously the phone-maker's chief marketing officer.

Over the last year, EQT has completely overhauled Vertu's procurement department, halving the number of its suppliers from 2,000 to 1,000. The Swedish-based firm has also established a Vertu Sourcing Academy to improve efficiencies in its buying activities. As well as improving its bottom-line performance through optimising its supplier-base, the newly launched academy is also looking at setting up partnerships with Ferrari, Bang & Olufsen and American Express.

It is far too early to tell how EQT's investment will pan out but the launch of a new model earlier this year incorporating up-to-date operating systems and a procurement overhaul are all signature EQT growth mechanisms. Coupled with the encouraging luxury market growth forecasts, there is little to cast the Vertu investment aside as just another trophy investment.

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• Topics
• Consumer
• Phoenix Equity Partners
• Lion Capital
• Towerbrook Capital Partners
• Permira
• EQT
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