The American designer’s brand will be acquired by The Estée Lauder Cos., and Zegna will have a long-term fashion licence for the Tom Ford brand.
The Estée Lauder Cosacquisition .’s of the Tom Ford brand has been absorbed by Wall Street. Their investors seem to be handling it well.
After months of rumours, the global beauty powerhouse said that it has reached an agreement to purchase Tom Ford in a deal valued at $2.8 billion after the market closed on Tuesday.
Ermenegildo Zegna Group and Marcolin SpA will enter long-term licence arrangements for Tom Ford clothing and eyewear, respectively, as part of the partnership.
Since 2005, Marcolin has held the licence for Tom Ford eyeglasses. Zegna has held the licence for Tom Ford apparel since roughly 2006. It will now be in charge of managing the entire Tom Ford fashion enterprise.
Lauder’s shares decreased somewhat in after-market trade, but in early-afternoon trading on Wednesday. Investors didn’t seem to be overly concerned by the company’s largest acquisition to date; shares slid by less than 1% to $224.88.
The publically traded Ermenegildo Zegna Group experienced a similar situation as it transitioned into a long-term licensee of the former for all of Ford’s apparel. They cater to men and women, accessories, underwear, fine jewellery, childrenswear, textiles, and home design items. The 20-year licence deal between Lauder and Zegna includes an automatic 10-year extension clause.
Zegna will take over the Tom Ford fashion company’s operations as part of the deal. Following the information, the company’s shares increased 2.24 per cent to $10.96.
Olivia Tong, a Raymond James analyst, commented on the transaction: “This is EL’s largest sale to date, giving them complete ownership of a fast-growing brand. It is essential to what we anticipate will be EL’s ultimate comeback in China and travel retail. We expect little interruption throughout the changeover in the non-beauty aspects of Tom Ford. Due to Ermenegildo Zegna and Marcolin continuing to be the brand’s partners for fashion, accessories, and undergarments.
Given Tom Ford’s super-premium status in beauty, she thinks the brand should keep driving growth for Lauder.
The company’s fragrance line currently ranks number 15 in the U.S. and number 10 in China, while further door expansion and consumer mobility should help make up for growth.
Unlike prior M&A transactions, Estée Lauder already oversees Tom Ford’s beauty division, allowing for a seamless transition, giving EL the freedom to realise the full economic potential of the brand, and increasing exposure to the alluring beauty market. As anticipated, TF clothing and eyewear will be outsourced, according to analyst Ashley Helgans at Jefferies.
She made particular note of how Lauder’s ability to expand Tom Ford’s reach into new markets and distribution channels as a result of the acquisition.
The Tom Ford beauty line now comprises 47% cosmetics, 50% fragrance, and 3% skin/other. Since skin accounts for 50% of the EL portfolio. We anticipate that they will employ their expertise in eminent and high-end skin care. It will allow them to increase the skin section of the TF brand. Expansion of the skin care category helps to increase margins because skincare has the highest
This new development is considered “a natural step,” according to the consultant. It will “enable Zegna to improve its womenswear division and the group at large.
” Zegna has been a longtime licensee of Tom Ford menswear and also owned a 15% investment in the company. Zegna has a reliable supply chain that it has developed over time. Its pipeline for textiles or knits can be used effectively.
The possibilities are endless; everything needs to be moulded and formed, and [chairman and chief executive officer] Gildo Zegna will undoubtedly establish a suitable framework to support the growth of the brand.
Another Milan-based analyst described this as a “natural evolution” because Gildo Zegna is constructing the company on the back of a network of long-standing personal relationships. Gildo stated that he was aiming high at the time of the IPO last year.
Gildo will undoubtedly be pleased with the increasing Made in Italy presence of two American luxury brands. The expert seemed unconcerned about Ford’s potential departure after a year. He said, “The foundations are strong.”
The Tom Ford brand won’t encounter any obstacles in the cosmetics business without the namesake founder, according to Jefferies equity analyst Flavio Cereda.
Still, he added: “The question mark is how will the brand be without Tom Ford, how sustainable is it in ready to wear and accessories? This is less obvious.
Armando Branchini said that Ford always has the choice to extend his contract after a year.
He was more optimistic about the future with or without Tom Ford.
Zegna has a fantastic chance, and the multi-decade contract offers him the time and freedom to assist Tom Ford. This will allow him to succeed like Thom Browne did, according to Branchini. The presence of Zegna and Marcolin assured Lauder of the management of business sectors outside its main perimeter, “I believe Fabrizio Freda [president and CEO of Lauder] was reassured.”
With Lauder, Italian eyeglasses manufacturer Marcolin, a longtime licensee of Tom Ford, will produce and distribute the brand’s eyewear collections. Marcolin will make a $250 million payment using cash on hand and at least a 50 million euro capital increase. Since 2005, Marcolin has been authorised to sell Tom Ford eyewear.
Branchini added that Lauder and Zegna both had the retail know-how. This will benefit Tom Ford in creating its own network of stores.
“Fabrizio and Gildo are two managers with extensive expertise. They get along well and are both strict, so they will keep the brand’s positioning while enhancing its performance. Everyone benefits, starting with Tom who is ensuring the long-term viability of his brand, according to Branchini.