Fosun-owned Lanvin’s future hangs by a thread

Guo Guangchang’s Fosun acquired a controlling stake in Lanvin in 2018, promising to revive the fortunes of one of France’s oldest fashion houses hit by a decline in profits and a revolving door of creative directors.

Four years later, the Chinese billionaire is planning to take Lanvin public as he battles to pay down a $36bn debt pile, while the 133-year-old brand remains far behind rivals Chanel, Dior and Hermès in the world’s biggest consumer market.

The share sale, which Guo hopes to push through via a special purpose acquisition company in the US, initially gave Lanvin Group an enterprise value of $1.5bn. However, in October the valuation was lowered to $1bn and the Spac deal is being criticised by a minority shareholder.

Lanvin’s choppy ride under Fosun’s control is emblematic of a turbulent period for formerly aggressive dealmakers such as Guo and the international marquee companies they acquired during an explosion in offshore acquisitions in the mid to late 2010s.

After being acquired by heavily indebted Jining-based conglomerate Shandong Ruyi in 2017, British label Aquascutum, Israeli tailor Bagir and Savile Row tailor Gieves & Hawkes have ended up in liquidation. In 2020, debtors took over French luxury brand Baccarat as Chinese owner Fortune Fountain Capital, which had acquired it in 2017, struggled with defaults.

Eric Young, founder of upscale Shanghai boutique Le Monde de SHC, said the problem was that Chinese consumers remained mostly unaware of Lanvin, which lacked a clear identity. “The quality is still there, but they don’t have a story now,” he added. “When people want to buy luxury, they don’t think of buying Lanvin.”

Lanvin loses ground to rivals

Founded in 1889 by Jeanne Lanvin in Paris, Lanvin is among France’s oldest surviving fashion houses and the most prestigious among the companies acquired by Fosun’s fashion division, which also include Italian shoemaker Sergio Rossi and American knitwear company St. John.

In October 2021, Fosun Fashion was rebranded as Lanvin Group to increase its international appeal and recognition. The group expects to turn profitable by the second half of 2024 and triple its revenue to €989mn by the end of 2025.

That plan, however, depends in large part on success in China, where it expects a 400 per cent increase in sales to lift its share of group revenue from around 14 per cent.

Industry insiders are sceptical about the growth forecast after Lanvin notched sales growth of 32 per cent year on year in the first half of 2022.

“The story is always about expanding in China, but in the end, it is a very competitive market,” said Jonathan Yan, a principal at consultancy Roland Berger.

Mainland China currently accounts for 17 per cent of global luxury spending on personal goods and is forecast to become the world’s largest luxury market by 2030, according to consultancy Bain & Co.

But the region is challenging. Conglomerates such as LVMH, the world’s biggest luxury group, and Kering, a French rival, have consolidated their position, acquiring market share at the expense of smaller brands including Lanvin, which have struggled to win over shoppers.

Management turmoil

Lanvin’s future has been clouded by management issues and rising questions about Fosun’s long-term commitment to the brand.

Fosun bought Lanvin from Chinese newspaper magnate Shaw-Lan Wang and Ralph Bartel, who owned 75 per cent and 25 per cent of Arpège SAS, the holding company that owns the “Lanvin” name in 2018.

But two sources close to Arpège SAS complained that Fosun hadn’t been respecting the shareholders’ agreement signed in 2018, which they said included clauses such as the need to agree on chief executive appointments.

“Fosun is deciding everything,” one of the sources told the Financial Times. “As soon as Fosun becomes controlling [stakeholder], they are trusting no one any more, they are changing all the people. They are all Fosun people and everything is very strictly controlled.”

In a statement to the FT, the Lanvin Group said that while the contents of the shareholders’ agreement were subject to strict confidentiality, “we can emphatically state that this assertion is wholly incorrect”.

After the acquisition, Lanvin appointed Jean-Philippe Hecquet as CEO, but he left after less than two years. Joann Cheng, who is also chair of the Lanvin Group and senior assistant president of Fosun International, Guo’s main Hong Kong-listed vehicle, has been acting as interim CEO.

Lanvin creative director Bruno Sialelli, who joined in 2019, has yet to return Lanvin to the critical esteem it enjoyed under Alber Elbaz, the late Israeli designer who rejuvenated the brand. The label reported a 108 per cent year-on-year global sales increase to €73mn in 2021, a little more than a third of its 2011 revenue.

Spac deal jitters

The Spac deal, to be handled by Primavera Capital Acquisition Corporation and up for a vote on December 9, is expected to raise up to $544mn for the Lanvin Group to grow its existing brands, especially in the US and China, and for potential acquisitions. Existing shareholders of Lanvin Group are expected to hold 55 per cent of the listed group after closing.

People close to Arpège SAS said they were concerned that Fosun’s financial turmoil had hit the Lanvin brand.

They pointed to an amendment filed by Lanvin Group to the US Securities and Exchange Commission that showed if the conglomerate went through with the Spac deal but was later forced to reduce its stake to shore up liquidity, Lanvin Group might have to cease using the brand Lanvin.

Fosun insists it remains in a healthy financial position with debts of Rmb100bn ($14.4bn) — a third of Moody’s calculation — against total assets of Rmb270bn. Despite those assurances, the company has increased asset sales to nearly $5bn this year from $100mn in 2021. On Monday, the group sold a $110mn stake in a Shenzhen-listed utility group, in its latest divestment.

Fosun said it had no plans to sell shares of Lanvin Group after listing. According to the SEC disclosure, the group and its affiliates are under a 12-month lock-up arrangement, which prohibits them from disposing of their Lanvin Group shares for the 12 months after the closing date.

Some sources close to Arpège SAS are not convinced. “In all my life as a professional, I have never seen something like this,” they said, adding that management turnover was “unbelievable”.

Additional reporting by Edward White and Cheng Leng

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *