How can big companies expect to make back their money after paying such high multiples?
Gucci — itself the target of an unsuccessful bid by LVMH — provides an example of how a small business with a great name can be transformed into a powerhouse. Five years ago the company, then known for leather bags and snaffle-bit loafers and not much else, was almost bankrupt on $200 million in annual sales. After a takeover by new management and the sizzling designer Tom Ford, Gucci re-established itself as a style maker. It increased sales to $1 billion, largely by expanding the range of merchandise to include ready-to-wear fashions and even perfumes. It also expanded sales globally, by greatly increasing the company’s retail presence in the United States and Asia.
Such a formula, of course, is far easier to describe than to carry out. There are few similar success stories and many disappointments. William Price, a founding partner of Texas Pacific Group, put a bid in on Manolo and is still on the prowl, acknowledging that such acquisitions do not always bloom as planned. "I don’t think I could cite one that has been an unmitigated success," he said.
Calvin Klein seems aware of the possible pitfalls of being acquired and is exploring many options, including an alliance. But a high price could be too tempting to turn down. (Mr. Klein declined to comment.)
Direct sales for Calvin Klein Inc. were $160 million last year, which, by the Manolo valuation of 7.6 times direct sales of $130 million, would make the American design house worth well over $1 billion. But since revenues from total products under the Calvin Klein label equaled about $2.5 billion, the brand may be too exploited to earn such outstanding multiples. Nowhere is the enthusiasm for building giants lower than at many of the brands that have been acquired by LVMH, which has been at this strategy longer than any company. These units feel that LVMH is not as committed financially to expanding their range and raising their profile as they had hoped. ",jimmy choo boots;Mr. Arnault is wonderful, but his pleasure and focus in life is battling and fighting," said Christian Lacroix, a designer in the LVMH stable for the last decade.