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Global luxury goods industry ripe for further M&A

The luxury goods industry is ripe for further M&A. Moet Hennessy Louis Vuitton SA (LVMH) the France-based luxury goods company is in a key position to lead industry consolidation through M&A and further extend its leading role. One can hardly think of an ‘American LVMH’. Even Coach and Michael Kors are fighting to become America’s luxury conglomerate and neither really fit the bill as a pillar of strength around which to build a luxury giant. Not only do they lack the strong cash profile necessary to finance such a strategic move, but even combined, the market capital of the four largest American soft luxury champions would be no match for a European challenger.

LVMH shows up as a clear leader to spearhead industry consolidation through M&A and further extend its lead. Kering, the international luxury group based in Paris, France which owns various luxury goods brands, including high-fashion labels such as Gucci, Saint Laurent and Alexander McQueen appears as the natural challenger. Not only does it have multi-category ambitions, it is could certainly move towards a high-profile merger.

A tie-up with Richemont SA the Swiss-based luxury goods holding company would be a master stroke. The Swiss luxury group announced recently that it was doubling down on its investments in high-end internet retail, making an offer of 2.8 billion euros, or about $3.4 billion, for the online fashion retailer Yoox Net-a-Porter.

Richemont’s strategy is an acknowledgment that wealthy consumers are increasingly comfortable buying an expensive watch with a click rather than a trip to an upscale store. Richemont may have ‘the filthy lucre’, but it also has a controlling family whose voting rights would be diluted by a high-profile merger. The group could also be on the receiving end of a bid/merger by one of the two French giants, LVMH or Kering

It would be amazing to see LVMH tie-up with Chanel. Given its footprint in cosmetics, Chanel would be even more desirable than Hermès and not as big as L’Oréal. On the practical side of M&A the choices are limited. One thing that seems certain is that any major moves are likely to be as dramatic as the French Moulin Rouge.