A number of high-profile acquisitions have ruffled feathers in the beauty and fashion sector over the last 12 months, involving brands like Valentino and Michael Kors.
Here, Solicitor Megan Fisher explores these high-value, high-stakes deals and the key steps that are involved in a successful business acquisition.
Stylish acquisitions
Tapestry’s deal with Capri
Tapestry Inc. entered into an agreement with Capri Holdings Limited for an estimated value of $8.5bn.
Anticipated to complete in 2024, the deal will unite six distinctive brands — Tapestry’s Coach, Kate Spade and Stuart Weitzman with Capri’s Versace, Jimmy Choo and Michael Kors — expanding Tapestry’s portfolio across geographical areas, consumer segments and product categories.
Kering acquires Creed and Valentino
French luxury group Kering (which owns several world-renowned fashion houses from Gucci to Saint Laurent) acquired the fragrance brand Creed for €3.5bn in October 2023, focusing on beauty as a key growth area in their luxury global group.
Kering also acquired a 30% shareholding in Valentino in July 2023 with the option of acquiring full control by no later than 2028.
Shein acquires Missguided
Most recently in late 2023, the China-founded fast-fashion retailer Shein acquired its first British brand, Missguided, from Mike Ashley’s Frasers Group plc.
Shein acquired the intellectual property rights in the brand, while Frasers Group plc retained the real estate and employees which were integrated into the Frasers Group plc fashion division.
Six key considerations
There are several factors to consider in any fashion or beauty business acquisition — whatever the value or type of deal concerned.
1. Share or asset acquisition?
When acquiring a fashion or beauty business, both parties will need to decide how to structure the deal and significantly, whether the purchaser will be acquiring the whole business or just certain assets.
While the brand is often the key asset of a beauty and fashion business, its stock, premises, key employees, proprietary software and confidential information can all add value to a business and help to determine whether an asset acquisition or a share acquisition is the most appropriate option.
2. Identifying assets as part of the deal
In a share purchase arrangement, the purchaser will acquire the shares in a company and therefore take control of all of the company’s assets and liabilities. The purchaser must complete a thorough due diligence exercise before completing the deal to ensure it is aware of all of the company’s liabilities and obligations.
In an asset purchase arrangement, the purchaser can ‘cherry pick’ which assets and rights of the target business it requires and may choose to take on specific identified liabilities. The benefit of an asset purchase is that enables the purchaser to avoid acquiring any of the target company’s ‘skeletons in the closet’. Identifying which of the assets are key to the continuation of the target business is therefore an essential part of the due diligence process.
3. Due diligence
The principle of caveat emptor (buyer beware) is a fundamental issue that the purchaser should be alive to.
The due diligence process assists the purchaser in identifying:
- the key assets of the business
- strengths, weaknesses or liabilities of the business
- potential employee transfer issues
- contracts that require third-party consent to a change of control.
With any type of deal, the due diligence process should be undertaken thoroughly and will involve assessments by several professionals, including legal and financial advisors.
Commercial due diligence should also be carried out to understand the target business’ market, the strength of its brand and whether any market trends or potential changes to consumer habits would make it more or less attractive to a prospective purchaser.
4. Key documents in the sale process
After the due diligence process and any subsequent negotiations, the purchaser’s solicitor will typically prepare a share purchase agreement (SPA) or an asset purchase agreement (APA), depending on the type of deal.
The SPA or APA are contractual promises given by the seller and include warranties that offer protection to the purchaser against any liabilities.
If any of the warranties are untrue, the purchaser may have a claim for damages under a breach of warranty claim. The warranties are a large part of the negotiation process — the purchaser will insist on the warranties being as wide as possible whereas the seller will want to limit its scope.
In the event that any warranty can’t be given, the seller has the opportunity to ‘disclose’ the facts against the matter. This is usually done in the form of a disclosure letter — a key document in the acquisition. If the issue has been properly disclosed, the purchaser can’t bring a claim against the seller for a breach of that warranty.
If any concerns were raised in the due diligence process or in the disclosure letter, the purchaser can request a specific indemnity to be added to the SPA or APA, which is a promise from the seller to reimburse the purchaser for a specific liability on a whole-cost basis. Specific indemnities are used to address known risks in a transaction and they must be accurately addressed.
5. Regulatory issues
When acquiring a fashion or beauty business, the purchaser will need to consider whether any regulatory consents or clearances are required. This could include (but isn’t limited to) notification to the competition authority or consent from any industry, tax or pension authorities or regulators.
Depending on the nature of the deal and the target business, it may also be necessary to review its operations in relation to packaging, labelling, advertising, sustainability reporting and supply chain credentials to ensure compliance with applicable regulation.
6. Post-completion matters
Once the transaction is completed, the buyer will likely have to deal with some post-completion matters, including payment of applicable taxes, reviewing employment contracts, informing relevant customers and suppliers and settling completion accounts.
With respect to an asset purchase deal in particular, the recordal of transfers of registered intellectual property, premises, stock, data and IT should be addressed as soon as possible.
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If you need advice or assistance with the acquisition of a beauty or fashion business, our corporate law team is experienced in handling complex, high value transactions.
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