The luxury holding owned by Bernard Arnault acquired Tiffany for 16.2 billion dollars. This deal was the largest operation in its history.
Luxury’s throne wrapped in a blue box. LVMH ended in 2019 the largest operation in its history, the acquisition of Tiffany, which not only made it the owner of one of the last independent American luxury companies, but also added geographic and product diversification and, above all, more distance with its rivals on the global podium.
After months of negotiations, the group finally agreed to pay 16.2 billion dollars to take over all Tiffany’s shares, valuing the company’s total at 16.6 times its ebitda. The agreement broke the historical record in the sector, marked by LVMH itself, when it acquired Christian Dior Couture from Groupe Arnault for 13 billion euros.
Tiffany’s profile is just as Bernard Arnault likes: volume, global presence and, above all, a great story that sustains the brand. In the statement announcing its purchase, LVMH highlighted five Tiffany keys to justify the acquisition: that it is a “legendary”and historical American brand, which has a “rich” cultural heritage, a diversified portfolio, a controlled and global distribution and an integrated and increasingly sustainable value chain.
LVMH finally agreed to acquire Tiffany for 16.2 billion dollars
Tiffany ended its fiscal year 2018 with sales of 4.4 billion dollars and an ebitda of 1 billion dollars. The company generates more than half of its turnover with fashion jewelry collections, another 26% with rings and the rest with designer collections. Tiffany’s distribution is global, with 321 stores in more than 20 countries. About 44% of its sales come from America, another 28% from Asia Pacific and 15% from Japan.
In addition, as LVMH points out, Tiffany has a strong link with the history of jewelry, which dates back to when Charles Louis Tiffany, its founder, bought the jewels of the French crown to make a necklace for JP Morgan. Since then, the brand has transcended its sector to become an icon of popular culture: from Truman Capote’s novel adapted to the cinema Breakfast at Tiffany’s, to its blue boxes, whose color is registered, or its flagship store on Fifth Avenue.
The goal of LVMH is to continue the strategy of Alessandro Bogliolo, who was appointed by Tiffany in 2018 coming from Diesel, and which includes: amplifying an evolved brand message; renew the offer and improve the presentation in store; offer an omnichannel experience; improve the competitive position; create a more efficient operating model and an agile organization.
The goal of LVMH is to continue Alessandro Bogliolo’s strategy
If for Tiffany the operation is an opportunity to accelerate its growth, leveraged in the resources and structure of LVMH, for the French group it will be a boost for its watchmaking division, composed of Chaumet, Tag Heuer, Zenith, Bulgari, Fred and Hublot. According to the forecasts of the group, this business division, which currently accounts for 9% of its sales and 7% of its operating profit, would advance that of alcoholic beverages after the purchase of Tiffany, representing 16% of turnover and sales, 13% of the operating result.
“LVMH will become a global operator in high jewelry,” the group said in the statement, in a direct nod to one of its rivals, Richemont, which concentrates most of its portfolio in this category.
With this acquisition, LVMH also reinforced its commitment to the American market. In 2019, and in the middle of trade war between China and the United States, the luxury holding opened a new bag and leather goods factory in Texas, which began construction in 2017, a few months after Donald Trump arrived at the White House. At the opening, Trump himself and his daughter and advisor, Ivanka Trump, were present, as well as Louis Vuitton chief executive officer Michael Burke.
The acquisition of Tiffany eclipsed other relevant corporate operations of LVMH in 2019: the launch of its first brand with Christian Lacroix, the relaunch of a historic firm and the joint venture with one of the jewels of its rival, Kering.
The luxury holding opened a new bag and leather goods factory in Texas
After the successful launch of Fenty Beauty in 2018, channeled through the group’s cosmetic incubator, Kendo, the company wanted to capitalize on the pull of singer Rihanna with a new signature, this time in fashion. The brand, which started in May, distributes clothing, footwear and accessories and is only available online, although for its launch it also opened a pop up store in Paris. It was the first brand that LVMH created from scratch in more than three decades, since the launch in 1987 of Christian Lacroix.
Stella McCartney, a pioneer in sustainability in luxury, broke her alliance with François Henri Pinault’s group in 2018 and, less than a year later, moved to Arnault’s team. The company created a joint venture with LVMH, which acquired a minority stake, and McCartney joined the group team as a sustainability advisor.
At the same time, LVMH continued with its usual acquisitions strategy, both for emerging and historical brands. After taking control of Jean Patou at the end of 2018, the holding relaunched the firm in 2019 under the name of Patou and with Guillaume Henry as the new creative director. The group also acquired a stake in Uruguayan brand Gabriela Hearst in 2019, founded in 2015 based in New York, and in the start-up MadHappy, specialized in unisex garments. Both investments were made through his LVMH Luxury Ventures arm.
The company launched Aura platform, which uses blockchain to verify the authenticity of its brands’ products
LVMH also kept its commitment to digitalization. The company launched Aura platform, which uses blockchain to verify the authenticity of its brands’ products and track the entire supply chain. The system, developed by Ethereum ConsenSys and Microsoft Azure, has already been tested in Louis Vuitton and Christian Dior Parfums.
In addition, the company renewed its multibrand ecommerce platform, 24Sèvres, which changed its name to 24S to boost its internationalization and diversified its offer with the introduction of menswear collections.
LVMH ended its fiscal year 2018 with a turnover of 46.2 billion euros, up 10%, and a profit of 6.3 billion euros, up 18% year-on-year. Despite the crisis in Hong Kong, one of the main luxury markets in the world, the company continued to grow during 2019, up 16% in the first nine months, to 5 billion euros, although in a statement the group acknowledged that the environment was “uncertain.”
Kering and Richemont, considering acquisitions to stay in control
Its rivals reacted to Louis Vuitton owner’s acquisitions with more acquisitions. Kering, owner of Gucci and Saint Laurent, began negotiations to acquire Moncler, after a few years of divestments to turn to the luxury business. The company, led by Remo Ruffini, is one of the biggest phenomena in the sector in recent years and is valued at 9.8 billion euros.
LVMH ended its fiscal year 2018 with a revenue of 46.8 billion euros, up 10%
Richemont, on the other hand, continues its journey with a portfolio composed mainly of jewelry brands, such as Cartier and Van Cleef&Arpels, and the largest ecommerce group in the sector, Yoox Net-a-Porter. In 2019, the company acquired historic jewelry company Buccellati, until then controlled by the Chinese group Gangtai Group.
But the king is still far away: Kering ended 2018 with a revenue of 13.6 billion euros, up 26.3%, and kept pace in the first nine months of 2019 with an increase of 27.1%. Richemont, on the other hand, reached a revenue of 13.9 billion euros in 2018, up 27% year-on-year, boosted by Asia and Yoox Net-a-Porter.