The finances of the Valentino fashion house will withstand the economic crisis, according to a partner in Permira, the private equity fund that owns the group. But current market conditions mean the investor will be sticking around longer than planned.
Paolo Colonna, a partner in Permira, the $29 billion European private equity firm that bought the Valentino Fashion Group, said in an interview on Wednesday that the fund normally seeks to exit its private equity investments after four or five years, typically through a market listing or sale to another private buyer.
Permira paid €2.6 billion for the company in September 2007, near the peak of the credit bubble. That price now strikes many analysts as too high. Valentino Fashion Group includes the house of Valentino, based in Milan, and Hugo Boss, the German high-end menswear maker.
Mr. Colonna said Permira had financed the deal with total borrowings of €1.3 billion to €1.5 billion from three banks: Citigroup, Unicredit and Mediobanca. Recent U.S. media reports have suggested the banks — particularly Citigroup — did not expect to be fully repaid and were impatient to recoup whatever value could be had, possibly from a sale of the group’s assets.
But Mr. Colonna said Valentino Fashion Group faces no capital payments until 2014, and has had “absolutely no trouble” meeting interest payments from cash flow. He acknowledged, however, that the terms of the bank loans require the group to meet certain performance requirements, including a certain ratio of profit to debt.
The Permira deal has been rocky in other respects. The label’s founder, the legendary designer Valentino Garavani, announced his resignation a few days after the completion of the deal in 2007. Last October, Alessandra Facchinetti, was forced out as designer after public criticism from Mr. Garavani and his partner, Giancarlo Giammetti. She was replaced with Maria Grazia Chiuri and Pier Paolo Piccoli, two inhouse accessories designers.
In early 2008, Bruno Sälzer was fired as chief executive of Hugo Boss following disagreements over strategy. He was replaced with Claus-Dietrich Lahrs, a former Christian Dior Couture executive. Permira owns about 72 percent of Hugo Boss, which is listed on the Frankfurt exchange. The German company contributes 75 percent of total group sales and more than 90 percent of earnings before interest, taxes, depreciation and amortization.
Analysts say Hugo Boss has been able to weather the crisis relatively well, as top-end consumers traded down to its “accessible luxury” menswear, even as Valentino’s own luxury lines have suffered.
from New York Times
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