In 2017, Spanish fashion groups were valued at about 6.6 times Ebitda, compared to a multiple of 9.7x in the previous year.
Spanish fashion companies lose their luster for private equity. Despite the fact that local groups are increasingly looking at M&A’s and the number of deals continues to rise, the pearls of the country’s retail landscape have lost some appeal. In 2017, the average valuation per transaction was 6.6 times Ebitda, reaching its annual minimum since 2011.
The fashion industry ended three consecutive years with multiples above 9x, according to the reports Mergers and Acquisitions in the Consumer Goods Industry 2018, elaborated by EY. An annual maximum was reached in 2015, with an average valuation of 17.1 times Ebitda. The figure is as usual below the average rates registered in food (9.6x), restoration (8.7x) and home and personal care (11.1x).
The valuation reached by Spanish fashion companies is also far from Europe’s average for retail, which marked 10.5 times Ebitda. It was also below North America’s retail 8.6x Ebitda in 2017.
“Despite the greater number of deals observed in Spain in 2017 compared to the previous year, the available EV/Ebitda multiples of these operations have experienced a 20% drop,” says Cecilia de la Hoz, EY’s transactions area partner.
“This is mainly due to the trasactions of the food and beverage industry, whose multiple in 2017 was 9.6x, compared to 13.7x in 2016, when the figure was affected by two deals with unusually high multiples, something that hasn’t happened in 2017”, adds De la Hoz. Overall, EY analysed 101 M&A deals in Spain for around 1.57 billion euros across the consumer goods and distribution sector, compared to 78 deals with a total value of 1.25 billion euros in 2016.
The retail landscape’s transformation
Fashion has generally maintained a love-hate relationship with private equity: on the one hand, it’s an easily scalable sector with stores and a high cash generation rates. On the other hand, it has the so-called fashion risk, as what is popular today may not be in tomorrow.
In Spain, where the industry is mostly comprised of family SMEs, fashion groups has traditionally been reluctant to open their capital to new investors, although the successful deals achieved in the last decade led to a new wave of acquisitions. Pepe Jeans, Tous, El Ganso, Privalia or Desigual caused a call effect thanks to its high multiples.
But something has changed: retail has been questioned in all sectors, as expanding with brick-and-mortar stores is no longer strictly related to exponential growth. Fashion is especially dependent on the economy outlook, which is already being affected by a consumption slowdown in the Spanish market. In fact, so far this year, fashion sales already accumulate a 3.6% fall and, if the trend goes on, the sector will end its second consecutive year with decreasing revenues.
Private equity ‘waves goodbye’
Another reality that could ballast the valuation of Spanish fashion companies is that, only this year, three venture capital funds exited their investments. First, Bimba y Lola’s owners María and Uxía Domínguez decided to cancel the business sale last July, after Permira and The Carlyle Group placed their buying offers.
The decision was triggered by the fact that none of the offers reached the 500 million-euro price tag settle down by the brand owners. In August, Thomas Meyer, founder of Desigual, repurchased the 10% stake in the company owned by Eurazeo. The French investment vehicle paid 300 million euros in 2014 to become a shareholder.
The third divestment in the Spanish fashion scene came in September, when the Cebrián family took over 100% of El Ganso, roughly three years after L Catterton acquired a 49% stake in the business.