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In November, The Estée Lauder Cos. has become the new owner of Tom Ford, marking the beauty giant’s first venture into the world of fashion and its biggest deal ever.
The acquisition also paved the way for the iconic designer to potentially exit the industry.
Paying $2.3 billion to acquire the luxury fashion, beauty and eyewear brand, Lauder outbid rival Kering, which was reported earlier that month as a front-runner for the company.
As part of the deal, Ermenegildo Zegna Group and Marcolin SpA entered into long-term license agreements for Tom Ford fashion and Tom Ford eyewear, respectively. Marcolin has been the eyewear licensee since 2005, while Zegna has been the licensee for Tom Ford menswear since around 2006. Today, it is responsible for all Tom Ford fashion businesses, marking the further expansion of Italian menswear powerhouse group in women’s fashion.
The deal values Tom Ford’s total business at $2.8 billion. The amount Lauder will pay for the acquisition is approximately $2.3 billion, net of a $250 million closing payment to Lauder from Marcolin SpA.
While the deal is a big step for Lauder, it also represents a big step by Ford and his partner and chairman Domenico De Sole — potentially paving the way for their exit from a fashion scene they’ve become a staple of. for almost three years. decades.
Under the agreement, Tom Ford, founder and chief executive officer, will continue to serve as the brand’s creative visionary after closing but only through the end of calendar 2023. De Sole, chairman of Tom Ford International, will remain as a consultant to through this also period. It is unclear at this stage whether Ford will extend his fashion designing career beyond next year or instead leave the scene to focus solely on his other vocation, film directing.
“As a proprietary brand, this strategic acquisition will open new opportunities and strengthen our growth plans for Tom Ford Beauty,” said Fabrizio Freda, president and CEO of Lauder, in a statement on that time. “It will also further help to advance our momentum in the promising luxury beauty category for the long term, while reaffirming our commitment to being the leading pure player in global prestige beauty.”
Tom Ford said, “I couldn’t be happier with this acquisition because The Estée Lauder Companies is the perfect home for the brand. They have been an exceptional partner from day one of my creation of the company and I am excited to see them be the luxury stewards of the next chapter of the Tom Ford brand.”
For its part in the deal, Ermenegildo “Gildo” Zegna, CEO of the Ermenegildo Zegna Group, which also owns Thom Browne, described Tom Ford as one of the most “iconic and unique ultra-luxury brands in the world” and said the next step. together perfectly aligned with his strategy.
“This transaction is our first since our listing on the New York Stock Exchange in December 2021, and confirms our commitment to use our platform to create value for all our stakeholders,” he added.
Although the deal marks the cosmetics giant’s first foray into fashion, it has had a licensing partnership with Tom Ford Beauty since around 2005.
At a Deutsche Bank conference earlier this year in Paris, executive vice president and chief financial officer Tracey Travis said: “Tom Ford and Jo Malone are two of our biggest midsized brands that are knocking on the door beyond at that $1 billion threshold. big brands in the next two years.”
But not all parts of the beauty arm perform equally well. Lauder previously announced in November in its first quarter fiscal year earnings that Tom Ford Beauty makeup was negatively impacted by a decrease in retail traffic and travel due to restrictions related to COVID-19. But on the positive side, net sales of Tom Ford Beauty fragrances grew by strong double digits, boosted by launches such as Noir Extreme Parfum and Ébène Fumé.
As for market reaction, investors appeared to take the news in their stride.
In after-market trading, Lauder’s shares fell slightly, but the day after the deal, investors seemed relatively unfazed by the company’s biggest acquisition to date — shares fell slightly, by 1.8 percent, to close at $222.91.
It’s a similar story for the publicly listed Ermenegildo Zegna Group, which is becoming a long-term licensee for all men’s and women’s fashion, accessories, underwear, fine jewelry, children’s clothing, textiles and designer goods. Ford product. Zegna’s 20-year licensing agreement with Lauder allows for automatic renewal for an additional 10 years. As part of this transaction, Zegna will acquire operations of Tom Ford’s fashion business. The company’s shares ended the day up 2.3 percent to $10.97.
Regarding the deal, Olivia Tong, an analyst at Raymond James, said: “This is EL’s largest deal to date, which now takes full control of a fast-growing brand that is important to what we expect. is EL’s recovery in China and travel retail. Importantly, we expect little disruption in the transition to the non-beauty side of Tom Ford, as Marcolin continues while the brand’s eyewear license partner and fashion brand Ermenegildo Zegna will continue as the brand’s fashion and accessories [and] underwear partner.”
Given Tom Ford’s super-premium positioning in beauty, he believes the brand should continue to be a growth driver for Lauder, with the brand’s fragrance line ranking number 15 in the US and number 10 in China, while the rise of door expansion and consumer mobility should support makeup growth.
And in a recent deep dive on the deal, Ashley Helgans, an equity analyst at Jefferies, said: “We remain positive on the deal as we look at little or no risk given that EL has been operating TF Beauty since 2006. The biggest takeaway from The opportunity is the expansion of the beauty biz online and into other categories, along with royalties from fashion and eyewear.”
He projects that Tom Ford Beauty will reach $1 billion in revenues in the next few years, adding that the push into skin care will be viewed as a positive.
“EL lists creative management, increased speed and agility, and online penetration as key synergies of the deal. We’re optimistic the change will pay off, but we want more clarity from management before baking it into our model. Having said that, we will view the push into skin care as a positive given the lower penetration of TF Beauty,” he added. “We also support increasing TF Beauty’s online penetration, which is minimal at the moment. Launching a brand.com will be margin accretive as sales will be recorded at retail value as opposed to selling through wholesale/in stores.
For Zegna, which owns Thom Browne, Luca Solca, senior research analyst of global luxury goods at Bernstein, said it was a good deal. “It allows the license to be consolidated and further developed after the acquisition of Tom Ford. I don’t believe that the release of Tom or Dom is a concern — it’s in the nature of things.
A Milan-based luxury consultant, who asked to speak on condition of anonymity, said for Zegna, the acquisition of the Tom Ford fashion operations was a new way to bring together different businesses. “The IPO appears to have made Zegna bolder in its choices, creating synergies, as each company does its best within each area of specialization.” Zegna was publicly listed on the New York Stock Exchange in December 2021.
In addition to being the long-time licensee of Tom Ford menswear, Zegna is also a shareholder, with a 15 percent stake in the company, so this new development is seen as “a natural step,” said of the consultant, which “will allow Zegna to strengthen its womenswear segment, and the group in general. Zegna has a strong supply chain built over the years and its textile or knitwear pipeline will be put to good use. The sky is the limit, everything must be shaped and developed and Gildo Zegna will surely create an appropriate structure to stimulate the development of the brand.
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