The next big luxury M&A targets in 2014

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Whoopee: the very fun holiday game of “Who’s Going to Buy Who Next Year?” has officially begun with a launch entry from Bernstein Research, an arm of AllianceBernstein. Well, it is that time of year when we all have consumption on the mind. And what are they thinking? Watches. Watches and jewellery galore (see Chopard gems left).

In a new note, Mario Ortelli, an analyst at Bernstein Research, suggests hard luxury will see increasing movement in 2014, with acquisitions likely by Richemont and Swatch, and possibly a biggie from LVMH and some medium-sized moves from Kering. In fact, they even suggest likely targets – many of which may spark a possible LVMH/Richemont rivalry. Specifically:

1. Chopard: this is the biggie, “the only mega brand privately owned target with expertise in both watches and jewellery and with a very strong heritage”. Also, I might add, a mega presence at Cannes along with its related celebrity ambassadors. Together that adds up to a potential valuation, according to Bernstein, of €3bn. It is a potential target for both Richemont and LVMH, which could make for a very interesting battle in the months to come.

2. H. Stern: also suggested for both Richemont and LVMH. As a global Brazilian brand, a natural segue into that potentially lucrative Bric market.

3. Patek Philippe and Audemars Piguet: again, both potential LVMH and Richemont targets.

4. Buccellati: the Italian jewellery brand, a possibility for Kering. If the French group did buy it, it would make Buccellati their second Italian hard luxury brand after Pomellato, giving them critical mass in the area.

5. Damiani: another Italian possible target for LVMH, Richemont AND Swatch. It’s the tall blonde in the room. Everyone might want her.

Interestingly Tiffany, often mentioned as a potential hard luxury acquisition target in the past, was not included in the report.

Of course, none of the above-mentioned brands are necessarily for sale, but there’s no question, given the consolidation of the sector that began occurring over the past two years with Swatch buying Harry Winston, Kering Pomellato and Qeelin, LVMH Bulgari, and Investcorp Georg Jensen, it’s getting harder to go it alone. And, as Mr Ortelli points out, there are a lot of attractions on both sides, including:

“- Revenue synergies occur around new product lines and regions as well as the development of channels of distribution;

- Cost synergies include mostly lower A&P and production costs;

- Access to capital (financial resources) and infrastructure (distribution platforms, etc) are other advantages for the brand acquired by a luxury group;

- Retail operations can be optimised thanks to the negotiation power for better locations and the expertise in the selection of retail properties, in store management, and productivity provided by the luxury group to the acquired brand.”

Now the question is: when is Paddy Power going to start offering odds?