Another Foot in the Fashion Door: LVMH’s Acquisition of Birkenstock
Since the beginning of the pandemic, the number and value of worldwide mergers and
acquisitions has decreased significantly. However, this hasn’t stopped the LVMH Group in
their procurement of the biggest luxury brands.
LVMH acquired luxury Houses, providing them with resources to create, produce and market
their products whilst preserving their individual identities through a decentralised
organisational structure. The Parisian Group was formed in 2016 and now has
approximately US$23 billion of equity capital, with 75 Houses in six sectors. LVMH employs
163,000 people globally and reported sales of €44.7 billion in 2020. They leverage the
collective strength of the Houses and create ‘intelligent synergies’ by sharing resources
between their partners. Bernard Arnault, the chairman and CEO of LVMH and the richest
person in fashion, is best known for converting smaller luxury brands into global fashion
powerhouses. Key names in the Group’s portfolio include Louis Vuitton, Christian Dior and
Celine. Recently, they acquired Tiffany & Co and 50 percent of Jay-Z’s champagne brand
Armand de Brignac.
The latest addition to the conglomerate is Birkenstock, a German family-owned sandal
brand founded in 1774, which is one of the top five global footwear brands. Their main USPs
are that most of their products are produced domestically in Germany, and their footwear is
orthopedically inspired. The raw materials used in production come from sustainable
natural resources and where possible, they’re sourced in Europe. While 2020 financial
results haven’t been published yet, a spokesman for the firm said that despite factory
closures during lockdown, revenues in the year to September 2020 aligned with the €721.5
million made in the year prior. Therefore, it comes as no surprise that LVMH’s subsidiary
equity firm L Catterton placed a bid for the company.
In a deal said to be worth £3.5 billion, LVMH acquired a majority stake in Birkenstock. L
Catterton was in competition with CVC Capital Partners for the acquisition, but Birkenstock
chose to work with LVMH due to its track record with family-backed consumer brands. The
company is hoping for a reputational boost that would see them as a more current and stylish brand, shaking off the image of unfashionable products designed only for the elderly and hippies. Birkenstock is also hoping to gain traction in the Asian market. LVMH’s operations in Asia account for 49 percent of their overall revenue in the fashion and leather goods industry, making them highly qualified to achieve Birkenstock’s expansion goals. Although, Birkenstock CEO Oliver Reichert states that even though global expansion is their objective, there will be no delocalisation of production.
Before the pandemic, consumer preferences were transitioning towards casual ‘athleisure’
fashion. Since Covid-19 hit, this ‘casualisation trend’ has been further accelerated, with
comfort becoming increasingly important as we spend more time at home. Reichert stated
that Birkenstock products had become “the official home-office shoe”, explaining their
success in 2020. Consumer trends are expected to remain relatively consistent in the short
to medium term, but it will be interesting to see whether the firm’s success continues as life
returns to normal.
According to Refinitiv, the value of British businesses sold to overseas buyers has grown
significantly since Brexit, reaching nearly £20 billion. Overall, the UK has become the second
most popular destination for cross-border investment after the US, and resultantly, the UK
is likely to lose some of its best-known businesses. It will therefore be interesting to keep an
eye on LVMH’s next moves and see whether it decides to jump on the trend by adding more
UK businesses to its portfolio.