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'My first bunny' is a soft toy made of real rabbit hair with a polyester interior. It will set you back a mere £2,405 ($3,764). This is just one of the products made by Loro Piana – the Italian cashmere brand in which LVMH has invested €2-billion ($2.7-billion) for an 80 per cent stake. LVMH chairman and chief executive Bernard Arnault really is living up to his nickname "the wolf in cashmere."
With a market capitalisation of €67-billion, this is a bolt on deal for the French luxury goods conglomerate, which has been honing in on premium luxury (note LVMH's battle over Hermès). And the price looks fair. Including debt, the enterprise value of €2.7-billion values the Italian brand on 19 times this year's earnings before interest, tax, depreciation and amortisation.
Granted, that is steep when considering LVMH trades on a multiple of 10 times, and its peer group on 11 times. But then Loro Piana's earnings are expected to grow by at least 18 per cent each year on average over the next two years – seven percentage points faster than the group, according to Morgan Stanley. Loro Piana's closest peer, Brunello Cucinelli, trades on an EV/ebitda multiple of 20 times.
All that makes Bernard Arnault look quite the opportunist. LVMH bought Italy's family-owned jeweller Bulgari two years ago. Last week it bought a majority stake in Milanese coffee house Cova; in 2011 it bought leather goods maker Fendi. LVMH's French peer Kering (formerly PPR) has followed a similar path – buying Italian jeweller Pomellato in April, having already acquired Italy's Gucci and Bottega Veneta. After all, it costs dearly to finance a global distribution and marketing operation for luxury goods and, as sales slow closer to home, the need to expand intensifies. Analysts reckon that it takes annual revenues of €1-billion-€2-billion to compete globally. Italy has been prevented by from forming its own sizeable luxury conglomerate pride among family-run luxury groups. Like the rabbit and the wolf, Italy's loss is the French luxury conglomerates' gain.