(Bloomberg) -- High-end jewelry firm Richemont (SIX:CFR) and British raincoat-maker Burberry Group (OTC:BURBY) are among the luxury-goods firms being marked out as potential M&A targets this year in Europe.
With sales of $100,000 watches and designer handbags widely expected to withstand the darkening economic outlook and Chinese demand enjoying a post-Covid boost, the sector appears ripe for a mergers & acquisitions wave, according to an informal Bloomberg survey of 17 M&A desks, fund managers and analysts.
Richemont and Burberry were mentioned multiple times as potential takeover candidates in the survey, alongside Germany’s Hugo Boss (ETR:BOSSn), and Italy’s Tod’s SpA (BIT:TOD). That’s even after many stocks more than doubled in value since the early days of the pandemic, while a short supply of luxury assets means bidders will likely need to pay top dollar.
Dealmaking in the luxury industry “normally happens at punchy share price levels, as attractive acquisition targets are few and far apart,” said Luca Solca, senior research analyst at Sanford C. Bernstein.
Many expect France’s €415-billion luxury behemoth LVMH (EPA:LVMH) to be the one that ends up snapping up rivals. Its track record and balance sheet deleverage make it most likely to participate in a deal, Bank of America Corp. predicted in January.
With a tough competitive environment for smaller companies, “owners of rare assets may be tempted to fold and sell their brands to larger players, who would be more and more in a position to cherry pick,” Solca said.
The survey coincides with a worsening M&A outlook, as higher interest rates and recession bite. January-March European M&A totaled around $137 billion, about 60% below year-ago levels, and one of the worst quarters of the past 20 years, according to data compiled by Bloomberg.
Other survey highlights include:
- Temenos, Vivendi (OTC:VIVHY) and Atos SE (EPA:ATOS) also featured in the survey, after being named in the January poll
- Commerzbank (OTC:CRZBY) and Banco Bpm SpA (BIT:BAMI) were the only two lenders identified as M&A candidates
Representatives for the five companies with the most mentions in the survey either declined to comment or didn’t respond to requests for comment when reached by Bloomberg News.