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Head of Italian luxury shoe and bagmaker teams up with LVMH-backed private equity firm L Catterton

Early last year Diego Della Valle, one of the giants of Italian business, had an important topic to discuss with his family at his 17th century estate: their vision for the future of Tod’s, the luxury shoe and bagmaker founded by his grandfather more than a century ago.

After an attempt to take the group private had failed, he and his younger brother Andrea wanted to talk to their children at the villa in Italy’s hilly Marche region about their commitment to managing the business famous for its leather bags and suede loafers.

Over several Sunday lunches they were reassured by the responses of Diego’s eldest son Filippo, 26, who works in Tod’s marketing department, and Andrea’s son Leonardo, 24, who works at Schiaparelli, one of its other brands. Eventually they also decided they needed a partner to help revitalise the group’s performance, according to an insider.

That partner has now arrived in the form of LVMH-backed private equity firm L Catterton and a deal that will bring down the curtain on Tod’s more than two decades as a public company on the Milan stock exchange.

Under the proposal, announced last weekend, the Della Valle family will retain their majority but reduce their stake from 64 to 54 per cent, while L Catterton will take a 36 per cent stake in Tod’s and LVMH will retain its 10 per cent holding. The deal values Tod’s at about €2bn including debt.

At its heart is Diego Della Valle, one of the most flamboyant and outspoken personalities in Italian business and chief executive and chair of the family business since 2000.

Formerly an investor in NTV, Italy’s private railway operator, other past investments span the sports, banking, media and design industries.

Known for his staple silk cravats and forthright manner, he is proud of being Italian and has not held back from openly criticising other Italian family-owned businesses for moving their headquarters abroad and cutting local jobs. Tod’s headquarters remain in the small town of Casette D’Ete and it was the first Italian luxury group to go public in its native country, with Gucci having chosen New York for its IPO.

Della Valle is confident, however, that Connecticut-based L Catterton will boost Tod’s desirability and allow it to focus on investments in marketing and R&D, he told the Financial Times.

“This deal will help the group develop through investments and face new challenges,” Della Valle said in a statement after the delisting plans were announced. “I think this is the best choice strategically.”

Although sales at Tod’s, whose brands include shoe label Roger Vivier and clothing and accessories labels Schiaparelli, Fay and Hogan, increased 11.9 per cent last year to €1.13bn, its share price has remained stubbornly low. At around €43 per share, the stock is about 9 per cent below its IPO price in 2000.

Analysts have argued that improvements in Tod’s product offering and earnings have not been reflected in the share price and that it is complicated for small luxury groups to execute turnarounds as listed companies.

L Catterton — established in 1989 but launched in its current form in 2016 through a partnership between a private equity firm, French luxury group LVMH, and founder Bernard Arnault’s family investment vehicle — has restructuring experience and specialises in consumer brands.

The group has a record of profitable exits — such as 2023’s $8.6bn listing of German sandal maker Birkenstock — and Tod’s has a good potential to turn into another success story, say analysts.

Della Valle and Arnault have been friends for more than two decades and the deal with Tod’s deepens the already strong links between the two at a time when LVMH ’s sales and share price are storming ahead. LVMH has been a long-term investor in Tod’s, first taking a stake in 2000, while Della Valle has sat on the board of the world’s biggest luxury group since 2002. The Italian was a guest at the wedding of Alexandre Arnault in Venice in 2021 while the LVMH boss has vacationed at Della Valle’s summer home on the island of Capri.

The deal with L Catterton has revived speculation among industry insiders and analysts that LVMH could eventually buy Tod’s, adding to its stable of clothing and apparel brands which also include Christian Dior and Céline.

“It could be seen as an hors d’oeuvre to a future sale to the French at a higher price than what they would have obtained now,” said one analyst who asked not to be named.

But Della Valle, who has always refused to relinquish control, pushed back against the suggestion. “I’m used to this kind of speculation . . . but it makes no sense as we could have sold the group directly to LVMH if that’s what we wanted,” he said.

Paris-based conglomerate Kering owns brands including Gucci, Loro Piana and Bottega Veneta while LVMH bought Bulgari in 2011. The issue of succession has been a recurring theme within Italian family-controlled luxury businesses.

One senior Italian luxury executive suggested it would be disappointing if “Della Valle of all people” ultimately ended up selling to the French — nodding to the 1 per cent of Tod’s profits he donates annually to local Marche communities and his appearances on Italian television touting the benefits of giving back to workers and disadvantaged groups — although they added that smaller luxury groups “struggle” in an industry dominated by conglomerates.

Unlike in 2022, when the Della Valle family attempted a delisting by offering minority shareholders €40 a share but failed to reach the 90 per cent threshold required, the current attempt is expected to go through.

If the parties involved in the deal cannot reach the 90 per cent ownership threshold needed to delist the company, L Catterton has said it will take the group private by merging it into the vehicle it used to launch the offer, which does not require an ownership threshold but must be put to a shareholder vote.  

This would probably pass as the Della Valles and LVMH’s combined 64 per cent stake would be enough to satisfy the requirement in Italian law that at least 50 per cent of the share capital be represented at such a vote, and receive at least two-thirds backing of this.

Bernstein analyst Luca Solca said that for the time being the partnership with L Catterton would “allow [Tod’s] to reap many of the benefits that being part of a conglomerate like LVMH could offer, but without giving up the opportunity to create value independently.”

Della Valle added: “Our new partners will benefit us . . . it lightens my responsibilities toward my family, workers, our whole group which is indeed an Italian group.”

Check the calendar — is it 2021 again? Sure seemed that way this week, as there were 10 rounds of $100 million or more raised by U.S.-based startups. That may not have happened since the early part of 2022 — if then. Not just that, but three rounds were for a quarter-billion dollars or more. Not exactly sure what was in the water this week, but AI and biotech led the way as happens often.

1. Lambda, $320M, artificial intelligence: In a big week, this was the biggest round. Lambda hit unicorn status after a $320 million Series C at a $1.5 billion valuation. The company offers cloud computing services and hardware for training artificial intelligence software. The startup is a provider of Nvidia’s latest GPUs, which are highly sought after by AI developers. The round was led by Thomas Tull’s US Innovative Technology Fund. The San Jose, California-based startup’s customer list includes Microsoft and Amazon. The round marks the largest by an AI startup this year, per Crunchbase data. In general, the sector seems to be picking up after a slow start to the year with AI startups now raking in more than $3 billion for the current calendar year.

2. Freenome, $254M, biotech: This is just the first of many big biotech raises this week. Blood-test developer Freenome raised a $254 million round led by drugmaker Roche. The South San Francisco-based startup is developing tests that can potentially detect multiple early-stage cancers — currently focused on colorectal and lung cancers. Founded in 2014, the company has raised $1.4 billion, per Crunchbase.

3. Cinq Music, $250M, music: It’s weird to say a $250 million funding round may have slipped through the cracks, but this one may have. Los Angeles-based Cinq Music, an independent record label and subsidiary of GoDigital Media Group, locked up $250 million in funding to acquire music rights. The company plans to use the cash to grow its diverse catalog, including in the genres of reggaeton, Música Mexicana, Afrobeat and country. Cinq has previously raised $160 million since 2017, per the company.

4. (tied) BioAge Labs, $170M, biotech: You didn’t think we were done with biotech for the week did you? This week continued with multiple big rounds for the industry. BioAge Labs, a Richmond, California-based firm taking on obesity and metabolic diseases, raised a $170 million Series D led by Sofinnova Investments. The company will use the cash infusion to help advance the Phase 2 clinical development of its weight-loss drug Azelaprag. The oral drug has been shown to decrease body mass but not make the patient lose muscle. Founded in 2015, the company has raised nearly $294 million, per Crunchbase.

4. (tied) Lilac Solutions, $170M, advanced materials: This round is interesting for a couple reasons. First, while a lot of companies from San Francisco and Silicon Valley make this list, we don’t get a lot from the East Bay of the Bay Area. However, Lilac Solutions — which raised $145 million this week — is based in Oakland, California. Another interesting thing is just what the company does. Lilac is one of a growing handful of startups specializing in lithium extraction technology. Of course, efficient, low-cost and environmentally friendly lithium extraction is needed for the exploding EV market. That’s likely why while the round was led by Mercuria, Lowercarbon Capital and Breakthrough Energy Ventures, it also featured BMW i Ventures and Mitsubishi Corp. With the close of the Series C, Lilac says it has now raised $315 million since being founded in 2016.

6. Latigo Biotherapeutics, $135M, biotech: Thousand Oaks, California-based Latigo Biotherapeutics locked up a $135 million Series A financing co-led by Westlake Village BioPartners, 5AM Ventures and Foresite Capital. Founded in 2018, Latigo is a clinical-stage biotechnology startup developing nonopioid pain medicines. The company has raised $150 million, per Crunchbase.

7. ProfoundBio, $112M, biotech: Seattle-based ProfoundBio, a clinical-stage biotechnology company developing antibody-drug conjugate therapeutics for patients with cancer, raised a $112 million Series B led by Ally Bridge Group. Founded in 2018, the company has raised $247 million, per Crunchbase.

8. Sierra, $110M, artificial intelligence: San Francisco-based Sierra, a conversational AI company, raised $110 million led by Sequoia Capital and Benchmark at a reported valuation of nearly $1 billion. This is the company’s first announced fundraise.

9. Bugcrowd, $102M, cybersecurity: Hackers-for-hire platform Bugcrowd locked up $102 million in fresh funding led by General Catalyst. The San Francisco-based platform allows companies of all sorts to hire freelance hackers and coders for “bug bounty” programs, helping those companies find problems in software code. The company plans to use the new cash to accelerate growth across the globe — including in the U.S. — and leverage opportunities for strategic M&A. Founded in 2012, the company has raised more than $180 million, per Crunchbase.

10. Alys Pharmaceuticals, $100M, biotech: Investment firm Medicxi merged six of its dermatology-focused portfolio companies to launch Alys Pharmaceuticals this week with $100 million in funding. The immunodermatology-focused startup is based in both Boston and Geneva, Switzerland. Alys will concentrate on dermatological advancements, including programs focused on mastocytosis, cutaneous T-cell lymphoma, and prevention of skin side effects of oncology therapies.

While it was hard to keep up with all the big deals in the U.S., things were quiet elsewhere. In fact there was just one raise of $100 million outside the country.

A peek inside Alphabet’s $7 billion growth-stage investing arm, CapitalG

The jeans company and the brand management firm are joining forces to acquire Rag & Bone.

Rag & Bone is headed in a new direction.

The brand — which started in premium denim and aspired to a more designer or luxury positioning — agreed to sell itself to Guess Inc. and brand management firm WHP Global.

Under terms of the deal, Guess will buy all of the operating assets of the New York-based business. Separately, a 50/50 joint venture controlled by Guess and WHP will acquire the brand’s intellectual property.

The full purchase price was not disclosed, but Guess’ portion of the deal tallies $56.5 million, plus an earn out that could add as much as $12.8 million to the purchase price.

That puts the full price to buy the business well below its sales, which last year came in at $250 million, driving adjusted earnings before interest, taxes, depreciation and amortization of $18 million. The brand has 34 stores in the U.S., two doors in the U.K. and numerous wholesale accounts.

The sale is the latest major development at the brand in the last eight months: Marcus Wainwright, who cofounded the business with David Neville in 2002, stepped down as chief brand officer last July.

Rag & Bone has continued to evolve and last month hired the well-respected Robert Geller to design its menswear.

But now the table is being reset.

One source familiar with the company said: “This is not an elevation of where Rag & Bone was a decade ago or where the market expected it to go when Robbert Geller was named” to his design role.

But another source — who said Rag & Bone got a “good price” but not a “great price” — said the business is being positioned to win.

“You don’t buy this brand and dumb it down, you buy it to invest in and grow it and that’s really the objective,” the source said. “This should be a $500 million brand and I think they see that.”

Much remains to be seen.

Guess executives were not available to comment on Friday, but under the company’s umbrella, Rag & Bone will certainly have new resources and access to new skill sets to realize its potential.

Investors liked the deal and traded shares of Guess up 3.9 percent to $25.01.

Eric Beder, an analyst at Small Cap Consumer Research, said: “Guess looks at this as a premium denim brand they can leverage in terms of expanding it internally, in terms of expanding the assortments and in terms of actually expanding in the U.S., in terms of having more stores, maybe in some malls or beyond where they are right now.

“They’re going to let the Rag & Bone guys do their thing,” Beder said. “The Rag & Bone people are going to be independent in the organization.”

The structure of the deal — with an operating company teaming up with a brand management firm — is becoming more common, with WHP similarly working with Express to buy Bonobos from Walmart last year.

“This is a very easy way for a brand licensor to buy a brand without having to get their hands dirty and own stores,” Beder said. “Brand licensors don’t want to own the assets. It’s also a way of founders to cash out.”

The deal, the first in Guess’ 43-year history, shows just how the market for smaller fashion brands is evolving. The traditional buyers, including private equity companies, were already shying away from the space before higher interest rates made everything more expensive.

Now, there are more sellers than buyers in the market, but the bankers who play matchmaker say they’re keeping busy as players on both sides feel their way forward. Rag & Bone was advised by investment bank Solomon Partners while Guess worked with The Sage Group.

Paul Marciano, cofounder and chief creative officer, of Guess, said: “Rag & Bone is a brand I have always loved and respected. It is a brand well known for its preeminence in American fashion that over the years has stayed true to its roots and founding values, with an unwavering commitment to quality and authenticity.

“I look forward to working with Andrew Rosen and the talented team at Rag & Bone to pursue the brand’s product and market expansion internationally,” Marciano said.

Rosen, a fashion and investment veteran who is chairman of Rag & Bone, said: “Today marks the beginning of an exciting new chapter as Rag & Bone joins forces with a much larger international fashion company. It’s a great opportunity for our team to take the brand to the next level, blending our unique styles and respective expertise to create new possibilities for Rag & Bone on a global scale.”

And Carlos Alberini, chief executive officer of Guess, said the transaction would diversify the company’s portfolio with complementary price points.

“We look forward to partnering with WHP Global to build on Rag & Bone’s heritage,” Alberini said. “Guess has an incredible platform with a strong global distribution network and outstanding licensee partners that will enable us to power the growth and expansion of the Rag & Bone business. We expect the transaction to deliver earnings per share accretion in the first year and strong value creation for our shareholders for years to come.”

Retailer JD Sports thinks it can conquer a depressed U.S. market with its sportswear-as-fashion concept

Americans’ waning demand for sneakers and sportswear has major players like Nike, Adidas and Foot Locker in a rut. British newcomer JD Sports JD 2.05%increase; green up pointing triangle Fashion sees the U.S. market’s weakness as the moment to pounce.

With a fashion-first approach that the company says sets it apart from its rivals, JD Sports is doubling down on American sports retail, opening hundreds of U.S. stores even as incumbents contend with disengaged consumers.

“The U.S. customer wanted something new. I think they’d gotten tired,” Chief Executive Régis Schultz said in an interview. “They have plenty of sneaker stores, which all look the same.”

JD Sports has bought a trio of U.S. retailers in recent years and is targeting more than 1,300 U.S. stores by 2028, up from about 900 today.

The retailer has established itself as Gen-Z’s go-to sportswear store in Britain thanks to its youthful vibe and exclusive drops of the latest sneakers. By Schultz’s admission, it sells much the same sneakers and branded clothing as other sports stores but has differentiated itself by marketing its products as youth fashion rather than performance sportswear.

JD Sports’ stores have a more contemporary, streetwise feel that is more akin to a fashion label than a typical sports shop. The music tends to be loud, the staff young, and the in-store imagery shows sneakers and apparel in a street context rather than being used to run or play sports.

It positions Nike and Adidas products alongside labels such as Juicy Couture, Hugo Boss and Polo Ralph Lauren, as well as its own brands that include Hoodrich and Supply & Demand.

The formula has resonated with younger consumers and big sports brands. Through an arrangement with Nike, for example, JD Sports secures exclusives or early releases of new sneakers and other products, which in turn generate buzz and drive sales.

“The music’s cooler, the staff are cooler,” said Jonathan Pritchard, an analyst at investment bank Peel Hunt, adding that JD Sports’ focus on casual wear over serious sports products has proved fruitful. “For every guy that runs past the pub, there are 10 that go into the pub,” he said.

Annual sales at the self-styled “Undisputed King of Trainers”—the British term for sneakers—more than tripled over five years to reach £10.1 billion, equivalent to $12.8 billion, in 2022. The company said sales for the financial year ended Feb. 3 likely grew about 8% over the year before.

That contrasts with its chief U.S. competitors. Foot Locker’s sales fell 10% in the first nine months of 2023 compared with the same period in 2022, having declined 2.3% the year before. At Dick’s Sporting Goods sales increased 3.8% in the first nine months of 2023, having fallen slightly in 2022.

Major athletic brands are also slowing. Nike recently downgraded its outlook to 1% sales growth for the financial year ending in May, citing cautious consumer spending. Adidas said it expects its 2023 revenue to have declined slightly, and Under Armour forecast a similar decline for its financial year ending in March.

While the sporting-goods market is weak globally, high inventory levels in the U.S. will make it especially tough for brands and retailers until at least the second half of 2024, according to analysts at HSBC.

JD Sports lowered its profits forecast in January, saying cautious consumer spending had led to more discounting than it anticipated. A warm end to 2023 also hurt sales of its cold-weather clothing, including its top-selling product, the Nike Tech Fleece.

Analysts said the new profit guidance, which prompted JD Sports’ shares to shed a quarter of their value, shouldn’t affect the company’s long-term ambitions. Its shares are now trading at roughly half the price of their peak in late 2021.

Though the U.S. market has recently been sluggish, retailers with edgier concepts are still doing well and that gives JD Sports scope to expand, said footwear industry analyst Matt Powell.

The British company’s youth-fashion identity is unique in the U.S., Powell said, contrasting with Foot Locker, which is “first and foremost a sneaker store,” and Dick’s Sporting Goods, which targets “younger and older customers—dads and their kids.”

With lifestyle a much bigger business than performance sports, brands have welcomed JD Sports as a means of accessing that side of the market at a time when their revenues are under pressure, Powell said. “Nike in particular has shown JD a lot of love,” he added.

Based in Bury in the north of England, JD Sports was founded in 1981 by John Wardle and David Makin. Its biggest shareholder is Pentland Group, a U.K. investment firm whose portfolio includes swimwear brand Speedo and outdoor label Berghaus, with a 55% stake.

The company operated 3,347 stores globally as of September. Its three big markets, the U.K., mainland Europe and the U.S., each constitute roughly a third of its business.

Last year Schultz, a 55-year-old Frenchman who joined JD Sports in 2022, outlined a five-year expansion plan focused on the U.S. and Europe. The strategy calls for the company to spend roughly $750 million a year opening around 350 stores annually.

JD Sports first entered the U.S. in 2018 when it acquired Indianapolis-based Finish Line for $560 million. Two years later it bought California sneaker chain Shoe Palace for $681 million. It agreed to pay $495 million for Baltimore-based lifestyle retailer DTLR in 2021.

The company said it would open three new JD Sports stores in the U.S. in February, in Toms River, N.J., Tacoma, Wash., and Hayward, Calif., having opened a dozen last month.

When opening new stores, the company looks for sites closer to clothing brands like Zara rather than near other sports stores. To raise awareness, it gives local influencers over $500 in store credit, in return for which they agree to post videos of their shopping sprees on social media.

JD Sports plans to open around 100 stores a year in the U.S. through 2028. Half of these stores will be new sites, with the rest converted from Finish Line locations. The company had initially planned to stick with the Finish Line name but its U.S. management team recommended switching to the British brand, Schultz said.

The company tested the name-change idea by updating some Finish Line stores and rebranding others as JD Sports. Stores operating as JD Sports performed better, reinforcing the company’s belief that the U.S. market was ripe for shake-up.

JD Sports plans to retain and grow the DTLR and Shoe Palace brands.

“The major brands fully support JD’s expansion in the U.S.,” Schultz said of its top athletic lines. A European partnership with Nike that links their loyalty programs is set to extend to the U.S. this year, as is a similar tie-up with Adidas.

Nike said it is increasingly focused on working with a small number of what it calls “top strategic partners,” which include JD Sports and Dick’s Sporting Goods.

One benefit: JD Sports can launch exclusive branded products. It carries more than 100 Nike exclusives. These are typically widely available products but come in colorways unique to the company, such as a newly released edition of the Nike Air Max 95 in black and white with blue trim.

A third-party retailer constantly needs to prove its worth to brands like Nike, Schultz said. “We give life to their products in a fashion way,” he said, “that’s why they value us.”

No cut, no problem—at least not for the stock market.

It should have been a bad week for an overextended market, one that had risen for 14 of the previous 15 weeks. A pair of stronger-than-expected January inflation prints forced investors to wake up to the realization that the Federal Reserve won’t be cutting interest rates as often or as soon as they’d expected, while a pair of shaky retail sales reports suggested that the economy wasn’t as strong as thought.

None of it amounted to much. The S&P 500 index lost 0.4% this past week, while setting a record high on Thursday. The Dow Jones Industrial Average dipped 0.1%, and the Nasdaq Composite fell 1.3%. Bond yields rose.

There were some harrowing moments. On Tuesday, the S&P 500 fell 1.4% after data showed the consumer price index had increased by 0.3% in January, a tenth of a point more than expected and up 3.1% from a year earlier. The core CPI, which excludes volatile food and energy components, rose 0.4% last month to stretch its 12-month gain to 3.9%—matching the December change and arresting a trend of declining inflation in place for most of the past year. Producer inflation data on Friday similarly topped expectations.

Those inflation readings suggest there’s still too much uncertainty over the direction of prices for the Fed to be loosening monetary policy. Markets are now assigning slim chances of rate reductions at the Fed’s March and May meetings, with June the new consensus start for the Fed’s cutting cycle.

“The January inflation data vindicate the Fed’s wait-and-see approach,” wrote BofA Securities economists on Friday. “Services inflation remains sticky, and the Fed would like to see more progress there to have confidence that inflation is returning to its 2% target on a persistent basis.”

A June start might also prove optimistic, even if January’s inflation jump was just a blip—something that investors will find out over the next four months, Despite last month’s disappointing retail reading, gross domestic product is on track for a 3% annual growth rate in the first quarter, the labor market continues to add jobs, and unemployment is below 4%.

“Investors are beginning to realize that macro conditions don’t warrant rate cuts soon, and if recent job-creation trends continue, there might only be two or three cuts in total this year,” wrote David Bianco, chief investment officer, Americas, at DWS Group.

Investors might even want to consider the possibility that there will be no cuts in 2024, according to Matthew Luzzetti, Deutsche Bank’s chief U.S. economist, offering three conditions for that to happen. First, the Fed’s estimate of the so-called neutral rate needs to be adjusted higher, to about 3.5%. Second, unemployment needs to remain below 4% while other economic data remain solid. Finally, inflation must remain sticky, with core personal-consumption expenditures, the Fed’s favored measure, finishing the year at 2.7% or higher.