TheChek News Flow

Several high-profile watch brands, retailers and suppliers are now for sale or looking for investors, several senior industry sources say. Good luck raising funds in the current environment. Demand for luxury watches has fallen sharply in the past six months, particularly in Europe and China, and it’s unlikely to pick up soon, asMiss Tweed reported last week from the Geneva watch fairs.

Among those for sale is Hermès-backed movement provider Vaucher Manufacture Fleurier, the independent watchmaker Parmigiani Fleurier and several otherwatch component suppliers. On the market is also a 20 percent stake in the watch retailer The 1916 Company, which used to be called WatchBox. In addition, it is widely expected that Sowind — the company that owns watch brands Girard-Perregaux and Ulysse Nardin, once Kering properties —will need more cash in 2025, even though the company’s boss denies it.

“Sowind is not looking for investors or financing in the short or medium term,” Sowind CEO and shareholder Patrick Pruniaux told Miss Tweed in an email on Thursday. That’s not what industry sources toldMiss Tweed. Pruniaux is understood to be quietly sounding out shareholders and touting interest from potential new investors for a cash injection should Sowind need more capital to finance its growth next year, industry sources have said.

Sowind shareholders include retailers Bucherer, now part of Rolex, The Hour Glass in Singapore and Ahmed Seddiqi & Sons in Dubai, who host of the biennial fair Dubai Watch Week. None of them have been willing to confirm that they have invested in Sowind but many people in the industry have been gathering evidence that they have.

“Pruniaux has been telling people he’s got enough cash for 12 months,” the CEO of a major luxury watch brand toldMiss Tweed at Watches & Wonders last weekend on condition of anonymity. This echoed similar comments by other watch executives at the watch fair. When Kering offloaded the two lossmaking watch brands through a management buy-out in 2022, the French group injected tens of millions of euros and backed their loans. Kering wanted the company to stay financially afloat for a few years.

“At the time, Kering was worried about its reputation,” a former Sowind employee said. “They did not want to sell the brands and then see them go under because they ran out of cash.”

Pruniaux has been telling industry executives that Sowind enjoyed good growth in 2023 but watch retailers are having hard time believing it. They see that the two brands’ expensive timepieces are not exactly flying off the shelves. Pruniaux, Sowind’s boss since 2018, declined to comment on the brands' turnover and profitability.

Kering took a non-recurring charge of more than€200 million on the disposal of Girard-Perregaux and Ulysse Nardin, according to the group’s 2022 annual report. Kering disbursed more than€1 billion acquiring and developing the two brands over more than a decade. That figure included the more than€700 million Kering spent on buying Ulysse Nardin in 2014. Critics say Kering’s heavy corporate structure, lack of investment and obsession with cost-cutting held back the watch brands’ growth. That transaction did not improve Kering’s M&A track record.

DOWNTURN

The luxury watch industry has been through a painful downturn in the past 12 months as consumers seek better value for money after the pandemic-led shopping euphoria. They are less inclined to invest in brands that are perceived as weaker and riskier investments than what many call the “Big Four” Swiss watch makersRolex, Patek Philippe, Audemars Piguet (AP) and Richard Mille.

Earlier this month, analysts at Morgan Stanley said the Swiss watch industry overallcould suffer a double-digit decline in exports in 2024, while the Big Four are set to continue gaining market share. The investment bank forecast overall Swiss watch exports could decline by 5 percent by value in 2024 after rising 7.7 percent in 2023 and 11.3 percent in 2022.

Another asset on the market is a 20 percent stake held by Singapore investor Chong Min Lee through his CMIA fund in watch retailer The 1916 Company. The business many people still refer to as WatchBox was founded in 2017 by entrepreneurs Danny Govberg, Justin Reis and Tay Liam Wee.

Initially, WatchBox focused on second-hand watches. It is one of the few second-hand watch retailers to publish high quality editorial content about watches on its website. However, since the price of second-hand watches has fallen since their peak of April 2022, the company has moved its focus to new watches and investing in retailers specialized in that field, particularly in the United States. It now has 20 boutiques worldwide. In 2023, the company generated some $500 million in gross annual revenue, up 25 percent against 2022.

The 1916 Company is a certified pre-owned retailer of Rolex watches. It also owns a 57 percent stake in luxury watchmaker De Bethune, co-founded by the talented watchmaker Denis Flageollet. “While we won’t comment on any investor’s actions, shareholders sometimes have fund term issues and may look to sell a portion of their investment. We know that CMIA will remain a long-term investor in our company,” a spokeswoman for the company said.

Other shareholders include David Wertheimer, son of Chanel co-owner Gérard Wertheimer, as well as basketball stars Michael Jordan and Giannis Antetokounmpo. The global advisory firm BDA Partners is discreetly sounding out potential investors who might want to purchase CMIA’s 20 percent stake. BDA Partners declined to comment. The 1916 Company is estimated to be worth more than $850 million.

In February, Miss Tweed reported that the Sandoz Family Foundation had put up its watchmaking unit for sale. That includes Vaucher Manufacture and other suppliers as well as the Parmigiani watch brand. Deloitte are coordinating the bidding process, several sources have said. The Foundation already tried to find a buyer for its watchmaking hub several times, including once three years ago, but discussions failed to produce a deal.

Parmigiani Fleurier, Vaucher Manufacture Fleurier and their suppliers may be rare assets – it is not every day that such a vertically integrated watchmaking hub is put on the market – but the sale process is complex. There are many vested interests and a buyer for the entire hub is unlikely to emerge, industry sources predict. Swatch Group, Richemont or LVMH are not interested since they have their own production facilities, industry sources say.

The Parmigiani brand may attract interest from a private equity firm or a family office, but no bidder will have the means to compete against big brands such as Hermès or AP for Vaucher and the other suppliers.

Hermès has already made several offers for Vaucher but markets sources say they were not accepted. The Sandoz Family Foundation is not in a hurry to sell. It’s happy to hold out for the highest price for its assets. The most likely outcome is that Vaucher’s three most important clients aside from Parmigiani — Richard Mille, Audemars Piguet and Hermès — will end up buying Vaucher together, senior industry sources. They all declined to comment on the process.

Hermès, which started investing in Vaucher in 2006, has injected more than€120 million in the movement provider since then to keep it afloat financially and retain its 25-percent stake, industry sources say. A spokeswoman for Hermès told Miss Tweed in February: “I can confirm that we do not wish to comment on such news, but that we reaffirm our attachment to Vaucher Manufacture Fleurier and our position as a strategic shareholder with the rights that go with it.” The company’s position has since remained the same.

Vaucher is strategic for Hermès. That’s why it’s been trying to buy it for years. Until a decade ago, Hermès was known mainly for its popular watches with quartz movements and double bracelets retailing for€2,000-€3,000. In the past few years, it has been introducing more high-end pieces costing more than€12,000, paying great attention to design and innovation in terms of “poetic” complications and sophisticated movements. Vaucher gives it legitimacy and plays an important part in its watchmaking narrative. At Watches & Wonders, Hermès presented one of the most impressive and creative collections of new watches. This included a new genderless model called the Hermès Cut — with a new movement designed specifically for it and a triple-axis tourbillon coupled with a minute repeater — that experts considered one of the most impressive timepieces unveiled at the fair.Hermès is one of the watch industry’s fastest-growing brands. Last year, it made€611 million in watch sales, up 23 percent at constant exchange rates.

Parmigiani, on the other hand, is still a relatively small player. It is estimated to have generated just over 65 million Swiss francs in revenue last year, up from 26 million Swiss francs in 2019. It’s aiming for further steady growth this year.

Under the leadership of Guido Terreni since early 2021, Parmigiani has enjoyed a revival. The brand has focused its ad campaigns on its best-selling model, the Tonda PF, which has a recognizable integrated design.Steel models start at around 20,000 Swiss francs. To reduce costs and become more attractive for a potential investor, Parmigiani has laid off some of its representatives, several industry sources said. Parmigiani is distributed solely by third-party retailers anddoes not have any boutiques.

One element complicating the sale of the Parmigiani brand is the fact that it does not own the intellectual property (IP) of its movements. Those belong to Vaucher. This means that whoever buys Parmigiani is buying a brand without its movements’ IP.

Also on the market are suppliers Atokalpa, a provider of key elements such as balance wheels and springs, and Elwin, which makes hardware for mechanical movements. Patek Philippe and Chopard are shareholders in both companies but refuse to say it publicly. It’s not clear whether they would allow rivals Richard Mille, Hermès and Audemars Piguet to become shareholders – if the trio succeeded in acquiring Vaucher together.

Also part of the Sandoz Foundation’s watch hub is Quadrance & Habillage, a specialist maker of watch dials with expertise in guilloche and engraving. All these suppliers work for the world’s top watch brands. When including Vaucher, Elwin, Atokalpa and Parmigiani, the Sandoz family watchmaking hub employs more than 500 people, spread between the Vallée de Joux, La Chaux-de-Fonds andAlle in Jura canton, three of Switzerland’s most important watchmaking clusters.