Good Case for LVMH’s Groovy German Acquisition
Rimowa, inventor of the ribbed aluminium suitcase, is a fast-growing bolt-on for French luxury group LVMH
LVMH Moët Hennessy Louis Vuitton has bagged a good maiden deal in Germany. Just don’t expect the usual cost-cutting or cross-selling to boost profits.
The French luxury group announced Tuesday it had agreed to buy80% of Rimowa, a Cologne-based luggage firm famous for its ribbed polycarbonate suitcases, for €640 million ($716 million). The remaining 20% will remain with the founding family. Current patriarch Dieter Morszeck, grandson of the founder, will stay on as co-chief executive, working alongside Alexandre Arnault, still in his early 20s but qualified by his status as son of LVMH chairman (and France’s richest man) Bernard Arnault.
The fit is clear enough. Mr. Morszeck is 63 and needs a succession plan. He is also an engineer who could benefit from support in distribution and marketing after a period of rapid growth. Last year Rimowa’s sales rose 28% to €350 million, and this year they’re expected to reach €400 million. The company has a high profile in east Asia and Germany, but only a handful of boutiques elsewhere.
For its part, LVMH is using the proceeds of its €650m Donna Karansale to buy a fast-growing complement to its stagnating fashion and leather goods division—and at a very reasonable price. The deal values the company at €800m, twice expected sales. LVMH paid almost four times sales for a similar 80% share in cashmere specialist Loro Piana in 2013. In March, Samsonite’s acquisition of Tumi, a similarly priced brand but one growing far more slowly, worked out at 3.3 times 2015 sales.
Tumi made an operating margin of 23% in the fourth quarter. Rimowa keeps its numbers secret but could be less profitable than its U.S. peer. The German firm has been investing heavily in its factories in Cologne, the Czech Republic and Canada to keep up with demand.
But a better explanation for the frugal deal price is the nature of Mr. Morszeck’s priorities. He stresses close ties with the Arnault family and “guaranteeing a promising future to all Rimowa employees” in public comments. Common values, not crystallizing value, seem to have driven his thinking.
To keep its side of the bargain—and the potentially awkward co-CEO structure alive—LVMH will need to invest rather than seek synergies. A costly store rollout looks likely, particularly in the U.S., still the key market for luxury groups and a weak spot for the German company.Like Loro Piana, Rimowa will remain largely independent of its new parent. Their only link will be Alexandre Arnault, a longtime Rimowa customer and now its new boss for marketing and distribution.
This is a deal between families, not financiers. Even so, LVMH has probably got the better of the domestic negotiations.