Zegna’s SPAC deal offers discounted path to luxury

Reuters

Reuters


MILAN (Reuters Breakingviews) - Italy’s Ermenegildo Zegna is going public and going to America. The century-old maker of pricey men’s suits said on Monday it will list in New York by merging with a blank-cheque company led by former UBS boss Sergio Ermotti and private equity group Investindustrial. It’s a U-turn for the family-owned company at a time when revenue has yet to fully recover from the pandemic. At an enterprise value of $3.2 billion, it at least looks more affordable than most luxury rivals. 

Founded in 1910 as a textile manufacturer in Italy’s northern Biella province, Zegna is a global leader in high-end menswear. Yet the widespread cancellation of formal occasions in the past 18 months has hit it hard. The company’s core revenue, which includes U.S. fashion brand Thom Browne, dropped to 1 billion euros in 2020 from 1.3 billion euros in 2019. It expects sales to recover to just 1.2 billion euros this year, according to forecasts published on Monday. 

The uncertainty is reflected in the price. The deal puts Zegna’s enterprise value at about 2.3 times its expected 2021 revenue. Italian rival Salvatore Ferragamo trades at 2.9 times, while luxury groups Prada, Kering and Moncler are valued at more than 5 times sales. An enterprise value of around 18 times expected 2022 core adjusted EBIT of 142 million euros is below that of seven other major listed peers, company data shows.  

Listing in the United States is not exactly an endorsement of the “Made in Italy” tradition on which Zegna has built its name. But Chief Executive Gildo Zegna, whose family will retain a 62% stake, hopes the move will generate greater brand awareness in the Americas, which should represent 15% of apparel and accessories sales this year. He also wants to use the proceeds to boost digital sales and may consider acquisitions.  

Investors, including the undisclosed shareholders who have agreed to invest a further $250 million as part of the deal, will have to put faith in Zegna’s ability to stand up to a more trying environment. Though extensive lockdowns have accelerated a move away from formalwear, there are signs the group is adapting. Casualwear represented 51% of sales of Zegna-branded products until May this year, up from 38% in 2016. Despite the challenges, Zegna’s SPAC listing could represent an affordable path to luxury.  

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CONTEXT NEWS

- Italian luxury brand Ermenegildo Zegna said on July 19 it would go public in New York by combining with Investindustrial Acquisition Corp, a special purpose acquisition company (SPAC) launched by private equity group Investindustrial and chaired by former UBS Chief Executive Sergio Ermotti.

- The deal gives Zegna, founded in 1910, an enterprise value of $3.2 billion. The expected market capitalisation is around $2.5 billion.

- The transaction will raise gross proceeds of around $880 million, including $403 million raised by the SPAC. Unnamed investors will inject a further $250 million, while an Investindustrial subsidiary will invest another $225 million.

- The Zegna family will retain a 62% stake in the listed entity.

- For previous columns by the author, Reuters customers can click on [JUCCA/]

(Editing by Peter Thal Larsen and Karen Kwok)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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