The exclusive shoemaker Jimmy Choo has been purchased by Michael Kors Holdings in a record deal for the company; which values the firm at £896 million.
History of Jimmy Choo
Jimmy Choo Ltd is a high-end British fashion brand specialising in shoes, handbags, accessories, perfumes and aftershaves. The company, J. Choo Limited, was founded in 1996 by couture shoe designer Jimmy Choo and Vogue accessories editor Tamara Mellon. The Jimmy Choo brand traces its roots back to the East End of London in the early 1990’s where Choo catered for global icons, including Diana Princess of Wales. Jimmy Choo’s shoes also featured during the 90’s TV hit show, Sex and the City, and are still seen on the feet of the famous, including the Duchess of Cambridge, Beyoncé and Kendal Jenner.
(Wikipedia)
In 2001, Jimmy Choo sold his 50% share in the company to Equinox Luxury Holdings Ltd choosing to adopt a back-seat approach in the company. A few later in 2004, Lion Capital acquired the majority shareholding.
Lion Capital is a British private equity firm specialising in investments in the consumer sector. Lion Capital’s investment portfolio have included Weetabix, Wagamama, Kettle Foods and AllSaints. Lion Capital have invested approximately £5.5 billion in more than 30 businesses and over 100 consumer brands.
In 2007 Lion Capital then sold Jimmy Choo to TowerBrook Capital Partners for £225 million, in a 100% buyout. The TowerBrook company was formed in 2001, when TowerBrook Capital Partners L.P. launched its first fund. The fund launched raised a total of $9.4 billion from investors in four private equity funds and one structured opportunities fund.
TowerBrook is a prolific investor, to date the company has invested in 45 companies across a range of sectors in Europe and the US, one of which obviously being Jimmy Choo.
(TowerBrook Capital Partners)
In 2012, Jimmy Choo hired ex-Louis Vuitton executive Pierre Denis as its CEO to aid guidance and set out a clear strategy to dominate its existing and new market for the luxury brand.
The appointment successfully led to Jimmy Choo’s initial public offering (IPO) in September 2014. The company raised 140p per share in the IPO on the London Stock Exchange valuing the company at approximately £545.6 million. The share price rose to 142.5p in early trading on Friday of that week, strengthened by its performance on the UK’s FTSE market.
This initial share price offered, was lower than originally expected for Jimmy Choo – which external market evaluators conceived. They valued the company between the top of its initial IPO range, near 180p and as low as 160p. The publicly listed value at 140p per share resulted in the valuation depreciating.
(Boyle, 2014)
After the completed IPO JAB-Holdings will retain a 70 % stake in the business and senior executives at Jimmy Choo will own 2%, all other employees will own a smaller stake.
(Barber, 2014)
This was a poor performance for the company due to the IPO market especially in Q3 booming in 2014. Especially with the share prices of a few companies, including internet giant Zalando and Rocket, rocketing after their debut to the stock exchange.
The global initial public offering (IPO) market was at an all-time high, as companies sought to take advantage of the rising stock market and strong investor appetite as pictured below in appendix 4.
Appendix 4: IPO Activity
Jimmy Choo’s directors, who were advised by Merrill Lynch and Citi Group as to the financial terms of the acquisition late 2016, intend to recommend offer to Jimmy Choo shareholders. The company was put up for sale in April 2017 and immediately attracted interest in larger fashion companies. Much like the Coach and Kate Spade merger valued at $2.4. In July 2017, it was announced that Jimmy Choo would be bought by Michael Kors Holdings in a deal worth £896 million.
Michael Kors in mid 2017 received a final undertaking to vote in favour of scheme at the court meeting and the proposal at the general meeting from JAB Luxury, Jimmy Choo’s majority shareholder. “(In respect of £263.7 million Jimmy Choo Shares representing 67.66% of the existing ordinary share capital of Jimmy Choo in issue on July 21, 2017).”
The actual acquisition completed on November 1st, 2017 and was funded through a combination of borrowings under the company’s new term loan facility and the issuance of senior unsecured notes, with a weighted average interest rate of 3.1%, as well as cash on hand. The acquisition was affected by way of a UK scheme of arrangement, which became effective as of the day of purchase.
Research shows that an independent assessor – Piper Jaffray said “It is all cash but won’t be accretive on a GAAP basis till the financial year ‘2020’, noting that Michael Kors management wants to fuel the growth of Jimmy Choo to $1b or 2 times today’s basis by leveraging its luxury positioning across regions/categories. Citi Group bank sees the potential for Jimmy Choo to be a bigger luxury brand in time with right leadership, but it’s clear their reserves because of need to better understand the “path towards accretion.” It added that the timing of this bid comes as a bit of a surprise given Michael Kors new 2020 plan/aim. Especially as expected M&A to have come later; given the focus to turn around the namesake brand”.
(Durden, 2017)
Strategic Rationale of Michael Kors
The acquisition of Jimmy Choo is expected to deliver several benefits, including:
- The opportunity to grow Jimmy Choo sales to $1 billion
- A more balanced portfolio with greater product diversification
- An enhanced positioning in the attractive and growing luxury footwear segment
- Further expansion in the luxury accessories market
- Greater exposure to global markets, particularly the fast-growing market in Asia
- The opportunity to grow in the men’s luxury footwear category (Appendix 3)(Kors, 2017)
During and Post M&A
The purchasing company Michael Kors announced a turnaround program shortly after their purchased interest (into Jimmy Choo), part of which would involve closing 100 to 125 of its own full-price retail stores and renovate a few of its existing stores. The company also significantly cut the number of products it sends to department stores. The aim trying to combat high discounts and outlet stores, finally, it was trying to get more creative with its designs to get consumers to pay more.
The year proved evident that pressure had mounted on Michael Kors to find new avenues for growth after Coach Inc. (COH -0.39%) in May 2017 agreed to buy Kate Spade & Co. for $2.4 billion, in a bid to attract younger consumers to offset slower growth in the handbag market.
According to Craig Johnson, an analyst at Customer Growth Partners the market had slowed to about 2% growth from as much as 15% six years ago.
Jimmy Choo previously to the M&A has also struggled with the same problems in the market that Michael Kors is facing, although the brand has been helped by a stronger performance in comparison in the same markets like the UK, Chinese and Japanese. The only difference is that while women’s shoes remain its core business, in 2015 Jimmy Choo did try and branch out into men’s shoes as it looks for growth.
– Appendix 3: Pictured is vogue’s exclusive first look at Jimmy Choo’s ‘created for men’.
(Luxpresso, 2015)
Jimmy Choo & Michael Kors,
It is already clear that after the significant revamp of the Choo brand, Q4 of 2017 showed the shoemaker turning a £364 million figure in sales, up 15% from a year earlier.
And the women’s shoes of Jimmy Choo – whose shoes and boots sell for as much as £4,995 – were up 17% as of May 2018. It is worth noting that this has been on hold since April 2017, when European investment fund JAB Holding Co. said it was putting the luxury shoemaker up for sale as it looks to focus on its restaurant and coffee holdings.
Market Stability & Research 2017
In 2017 IPO volume totalled $257.7 billion – up 49% on the previous year and the highest total since 2010, according to preliminary figures from Dealogic.
(Harjani, 2014)