The latest in high-end fashion consolidations will see Estée Lauder Companies acquire Tom Ford. Estée Lauder Companies confirmed on Tuesday evening that it will buy up the American fashion brand for $2.8 billion by way of a combination of cash, debt and $300 million in deferred payments. The deal – which will be Estée Lauder’s “biggest and latest in a series of transactions,” per Reuters, including taking full control of mass-market beauty group Deciem for $1 billion in 2021, and the biggest in the luxury space in 2022 – will see the NYSE-traded cosmetics giant take on fellow New York-headquartered Tom Ford’s 17-year-old fashion business, and its robust beauty, skincare, and fragrance arm, of course.
The news of the deal follows from initial reports this summer that Tom Ford had been exploring a potential sale with the help of Goldman Sachs. Not long after, Ford made headlines in connection with a potential deal with Estée Lauder back in August, and subsequent reports of a bidding war between Estée Lauder and Gucci-owned Kering for the formerly-independently-owned brand that Tom Ford founded in 2005, a year after he left his post as creative director of Gucci.
The tie-up between Ford and Estée Lauder makes sense in light of the fact that Estée Lauder has been the long-standing licensee of Ford’s beauty and fragrance offerings. In terms of Ford’s high-end fashion and accessories offerings, the New York Times reports that Estée Lauder will license the entirely of that aspect of the business to Ermenegildo Zegna.
The Times’ Vanessa Friedman and Lauren Hirsch state, “Zegna, with a license to produce and distribute Tom Ford men’s wear since 2006, will now become Estée Lauder’s sole licensee for Tom Ford men’s and women’s wear, as well as accessories, jewelry, children’s wear and home wares, with responsibilities for its stores and shows and for ensuring the brand remains a luxury product and continues to cast the sort of runway-associated halo that sells beauty products.” Meanwhile, Marcolin, which has held the license for Tom Ford eyewear since 2005, will continue to do so.
The ready-to-wear front is, of course, where Kering seemed like a more natural fit to take over Tom Ford. And Gucci history aside, a Tom Ford deal also appeared like it would be a coup for Kering due to its enduring efforts to bolster its in-house beauty and eyewear divisions. Chances are, Estée Lauder’s push to outbid Kering was driven in large part by its desire to permanently hold on to the ultra-valuable Tom Ford beauty license. Had Kering acquired the company, it would have almost certainly opted to bring the beauty division in-house upon the expiration of the existing Estée Lauder licensing term, thereby, cutting Estée out of the equation.
As for Mr. Ford, the label’s eponymous founder, 61, will stay on board through at least the end of 2023, saying in a statement on Tuesday that Estée Lauder has been “an extraordinary partner from the first day of my creation of the company and I am thrilled to see them become the luxury stewards in this next chapter of the Tom Ford brand.” Ford, who owns 64 percent of the company, according to Forbes (with former Gucci CEO Domenico de Sole and Zegna maintaining minority stakes), is expected to walk away from the deal with $1.1 billion in cash.
THE BIGGER PICTURE: The deal comes amid efforts by luxury conglomerates to consolidate further. “Over the past decade, European luxury conglomerates, private-equity firms, and, more recently, U.S. fashion groups and Middle Eastern investors eagerly snapped up attractive acquisition targets,” McKinsey analysts Antonio Achille and Daniel Zipser stated in a note back in 2020. Consolidation provides no shortage of benefits for groups, including helping them to diversify and thus, protect themselves in the event of changes in consumer – and other market – trends. At the same time, such large-scale banding together enables conglomerate-owned brands to “benefit from increased capital allocation and from sourcing, real estate and marketing synergies, while also having access to a talent pool within the group,” Thomas Chauvet, managing director and head of luxury goods equity research at Citi in London, said last year.
And “of course, [there are] cost benefits generated by centralizing support functions, such as operations and logistics, finance, and real estate management,” according to Andrew Shipilov and Frédéric Godart, who have noted that there is also “the relatively efficient internal market for capital that luxury groups, like successful private equity firms, provide by identifying promising brands and supporting them with the capital management they need to grow.” Against this background and with the impact of the pandemic in mind, Achille and Zipser expect that “further industry consolidation or even the formation of new luxury conglomerates” very well may be in the cards, particularly as “luxury groups [keep] grabbing a bigger slice of the pie at the expense of many smaller players.”