Italian luxury suppliers are persuaded by private equity that more is better.
When competition grew global, Italian businesses learned the limitations of their “small is beautiful” maxim. Private equity firms have prodded companies that supply the burgeoning luxury goods industry, and they are increasingly finding strength in numbers.
According to consulting firm Bain, Italy produces 50–55 percent of the world’s luxury apparel and leather goods, compared to 20–25 percent for the rest of Europe, thanks to its history of fine craftsmanship.
These enterprises, which are primarily family-owned and modest in scale, frequently struggle to adapt to the changing needs of the premium brands they work for.
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Luxury brands are looking to build strong relationships with suppliers in order to address the growing sustainability concerns of luxury consumers and ensure timely deliveries. However, suppliers need significant investments in order to track where they source materials and develop an adequate digital infrastructure.
Private equity firms have now focused on the supply chain issues facing the luxury market and adopted a “buy and build” strategy after running out of big brands to purchase.
Luxury coats and jackets are made by Nicola Giuntini’s Tuscany-based company for names like Celine, Burberry, and Stella McCartney. “Luxury brands have been developing exponentially: our customers needed us to grow with them,” said Giuntini.
When the Giuntinis joined a centre of upscale apparel producers in 2020, they sold their business to VAM Investments, which is run by former Bulgari CEO Francesco Trapani, as well as two other Italian investment businesses.
Together, we can ensure steady production levels and take on initiatives that would otherwise be too expensive, according to Giuntini.
Italian fashion has been greatly influenced by private equity. According to KPMG research, it has accounted for 40% of deals over the previous few years, including the acquisitions of Moncler, Versace, Roberto Cavalli, and Ermenegildo Zegna.
The COVID-19 epidemic, with its subsequent disruption of the supply chain, played a key role in persuading Italian baby-boomer business owners that it was time to allow others access to their closely held businesses.
The Giuntini company is currently a part of Gruppo Florence, an organisation controlled by funds and families that sold their companies and reinvesting some of the revenues.
The firm now consists of 22 businesses with a combined annual sales of more than 500 million euros ($542.00 million), and it intends to reach 30 businesses before considering an IPO.
After receiving attention from investment firms including Carlyle and Permira, it has begun collaborating with Bank of America (NYSE:BAC) and Citi to evaluate strategic options, according to two people familiar with the situation.
According to VAM CEO Marco Piana, “there are no listed assets that give investors exposure to the made-in-Italy supply chain in the luxury industry.”
This is one of the few industries where being Italian gives you a competitive edge because no other region has the same expertise in creating soft luxury goods.
According to Luciano Barbetta, whose apparel company in southern Italy this year joined Gruppo Florence, hubs can assist companies in making up for delays in raw material deliveries.
“Since we are numerous businesses, we can work together to complete orders on time.” “And it’s comforting to know that the burden is shared by everyone,” added Barbetta.
Niche for production
Large luxury brands looking to protect their supply chains have also been on the lookout for opportunities in Italy’s manufacturing industry.
Private equity investors and fashion industry titans might compete, but Stefano Cervo of KPMG noted supply chain niches where funds excel and luxury giants struggle.
He remarked, “For a huge brand, it makes sense to buy, say, a tannery specialising in rare leather, but I find it difficult to imagine they’d be interested in, say, the producers of golden coating for purse chains or buttons.”
“However, by bringing together manufacturers of golden coatings, value can be produced.” “Scale makes it simpler to recycle industrial waste or lessen the carbon footprint, just from a sustainability perspective.”
For instance, the Italian private equity firm XENON International has invested in manufacturers of materials and finishes for high-end goods, which it has gathered under the umbrella of MinervaHub.
The seven businesses it owns—manufacturers of metal accessories and surface treatment specialists—have combined sales of 180 million euros, which MinervaHub hopes to increase to 300 million as it evaluates another six businesses.
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MinervaHub helps its clients with legal, financial, and environmental, social, and governance (ESG) issues, according to Franco Prestigiacomo, founding partner and managing director of XENON.
That is crucial in a sector that, according to KPMG’s Cervo, is “obsessed” with ESG.
Suppliers can seriously harm a brand’s reputation, according to Piana of VAM.
It’s too risky to not have complete visibility over your supply chain in the world of social media.
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