LVMH’s acquisition of iconic jeweller Tiffany for $16.2 billion – the biggest-ever in the luxury sector – could trigger more industry consolidation.
The deal will add another big American name to LVMH Moët Hennessy - Louis Vuitton’s portfolio of 75 brands, which includes Dior, Givenchy, Fendi and Dom Pérignon. The French multinational’s Chairman and Chief Executive, Bernard Arnault, has emerged as the most acquisitive deal maker in the luxury sector. Last year LVMH acquired hotelier and travel company Belmond for $3.2 billion. In 2016 it made luggage firm Rimowa its first “German Maison.”
LVMH is the world’s biggest luxury goods conglomerate and one of the global big three of luxury goods, along with Kering and Richemont. With so many big luxury brands in the hands of only a few companies, analysts see more deals in the near future. “We expect this to be the starting gun for a further round of industry consolidation in the luxury sector over the next 12 to 18 months, with the significant polarization we continue to see between the stronger and weaker brands,” said Swetha Ramachandran, an investment manager at GAM Global Luxury Brands Fund.
New York-based Tiffany will expand LVMH’s presence in the U.S., while giving Tiffany a boost in China, where LVMH has significant expertise. While Chinese tourist spending has been hit by depreciation of the renminbi, trade war with the U.S., and protests in Hong Kong, China remains a key market. According to The New York Times, the two companies will look to bring more goods to mainland consumers. Arnault believes Tiffany could expand its reach in Europe as well. The American firm is “strong in the U.S. and Japan, but weak in Europe and not up to growth in China,” he said. “There we can help a lot.”
The Tiffany acquisition will also give LVMH a higher profile in hard luxury, which includes jewellery and watches. The group currently owns Bulgari, Chaumet, TAG Heuer and others, but jewellery and watch sales account for just 7% of its earnings. Retail analyst Charcy Evers notes that owning Tiffany “puts them in a better place to compete with Richemont, who owns Cartier and Van Cleef.” Pending the approval of Tiffany’s shareholders, the deal is expected to close in mid-2020.
LVMH has had strong results in 2019, with its stock rising 58% since the beginning of the year, and sales up by 11% in the third quarter. Shares in Tiffany have faltered, but were bolstered in October by news of the deal talks with LVMH. For the 12 months that ended January 31, the company reported $586.4 million in net income, up 9% from the year before.
