Valentino makes Permira look not shabby nor chic

July 13, 2012

By Neil Unmack

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

It had all the hallmarks of a boom-time finance disaster. Permira’s leveraged 5.4 billion euro acquisition of a controlling stake in Hugo Boss through Valentino Fashion Group was one of the biggest deals of 2007, the year that the sub-prime crisis kicked off in earnest and Terra Firma bought EMI Group. Five years on, the UK buyout firm is selling Valentino to the Qatar royal family for a punchy price. That leaves Permira’s fashion binge looking respectable, if not glamorous.

The original acquisition, alongside the Italian Marzotti family, got off to an inauspicious start when the high-end fashion firm’s founding couturier Valentino Garavani retired shortly afterwards. Then in 2009 Permira had to restructure the group’s 2.3 billion euros of debt, upping its bet by buying back loans at a steep discount from Citigroup.

The sale of Valentino brings Permira’s fashion spree to a respectable point. The new owners are to pay 700 million euros, a whopping 20 times this year’s EBITDA, for the enterprise. That’s in line with LVMH’s purchase of Bulgari last year, but far above the average sector valuations of 10 times. SVG, one of Permira’s investors, reckoned its stake in the group was worth just half the purchase price three months ago.

Add the Valentino sale proceeds to the far larger continuing stake in Hugo Boss and Permira’s various investments in the group are now worth about 1.6 times their original cost, according to a person with knowledge of the matter. That seems like a respectable outcome at this stage given the state of the world economy in the last few years.

But Permira still needs to find a suitable exit for Hugo Boss, which has a market capitalisation of 5.1 billion euros. It will need to steer its way through a probable global slowdown and protracted slump in Europe, which still makes up over half of its revenues. Sizeable exposure to Germany and growth potential in Asia provide some comfort: Hugo Boss’s 469 million euros of EBITDA last year is nearly double its level when Permira bought in. The target is 750 million euros by 2015. If that’s achieved, and a lucrative exit follows, Permira will be looking truly smart.

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