After Li & Fung buys Cerruti, deep-pocketed Asian investors eye other European luxury brands

China World shopping center, Beijing

China World shopping center, Beijing (Achim Hepp)

By Dominique Chapuis

The Chinese are hungry for the jewels of the European luxury and fashion industry. Just as China has become the primary growth market for top luxury goods stalwarts like Louis Vuitton, Gucci and Chanel, major Chinese investors are looking to acquire some of these world-famous brands outright. "There isn't a single case today of a possible company sale that doesn't have contacts with potential candidates in emerging countries, especially Asia," says Aforge bank co-president Damien Bachelot.

The symbol of this newfound appetite: Cerruti was purchased on Christmas Eve by Trinity, a subsidiary of the Chinese clothing firm Li & Fung ($16 billion in sales), for 53 million euros. In October, to justify the acquisition of stakes in Hermès, there was talk among insiders at LVMH (owner of Les Echos) that, beyond fending off European competitor Richemont, there was also the threat of a Chinese takeover.

Pressing demand

This Asian interest in luxury goods isn't new. Since 2001, Lanvin belongs to the Taiwanese billionaire Shaw-Lan Wang. Chinese magnate Dickson Poon controls ST Dupont, the French pen and lighter maker.

But the demand is heating up. Some like Fosun International, a conglomerate that includes an investment bank, has the means to take over luxury brands. The Chinese sovereign fund CIC with its $200 billion dollars is also a candidate, as well as Li & Fung.

"Asian predators have a thirst for acquisitions and have huge amounts to spend," says Laurent Thoumine of Kurt Salmon Associates.

Jimmy Choo, the British luxury shoe brand, could be the next target. Its owner, the TowerBrook Capital Partners fund, which controls the company along with its co-founder, Tamara Mellon, is considering a new capital strategy. The brand could be worth between 500 million and 1 billion Euros, and according to a source familiar with the project, Asian firms have been contacted.

Experts explain China's newfound appetite as a desire to no longer be relegated to producing clothes for European brands. Many firms have opened stores to sell these products in recent years. Now, they want to have complete control over them.

At the same time, rising costs in China have also pushed fashion brands to bring their production back to the Mediterranean. This has sparked fears of losing clients in a clothing sector in full boom in China. "These investments are based on European know-how in matters of fashion," says Philippe Pasquet, President of Premiere Vision. "China has gained ground technically in this sector, but it's harder to create successful collections."

These investors are ready to buy international brands, and use their national market as leverage for developing them in the rest of the world. And even if there are few brands willing to sell, "it doesn't prevent them from making much higher offers then the market price, double the sales revenue, even for small luxury brands that are still unknown," says Thoumine.

Indian potential

In India, instead, a similar lineup of potential big players in the textile business has not emerged, though last year Megha Mittal, the 33-year-old daughter-in-law of steel magnate Lakshmi Mittal, purchased Germany's Escada.

"Indian investors' interests in luxury are mostly limited to wines and spirits," says Garnier & Co's Francois Arpels de Bryan. "United Breweries, number three in the sector, could be interested in stakes in champagne." For this India expert, who created a Franco-Indian fund, European luxury firms should be the ones buying high-end Indians brands to develop them abroad.

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