The Shiny, Puffy World of Private Equity, and the Rise of Moncler
This story is a continuation of Part 1 of Moncler’s success story.
As outlined in Part 1, the savvy entrepreneur Remo Ruffini saved Moncler from bankruptcy and paved the way for an unparalleled success story. But in his quest for a global outerwear empire, Ruffini needed a partner, which he found in the private equity firm Carlyle. So how would Carlyle and Moncler go about working together?
In return for 48% of Moncler’s shares, Carlyle agreed to provide Moncler with the necessary capital to finance its global conquest. While the provision of capital is private equity’s classical main role, Carlyle’s support went much further than that. The fund provided Ruffini with an international network and the expertise necessary to facilitate global expansion and market consolidation, especially in the Asian market. Carlyle was experienced in scaling fashion and retail businesses through geographic expansion and strengthening of proprietary online sales from previous transactions. They also helped Moncler to hire management talents with experience in reputable fashion houses such as Gucci, to fluff up the company’s leadership team.
By 2011, only three years after Ruffini partnered up with Carlyle, Moncler’s store network had grown from the original five European stores to a global network of 56, and Moncler started its own online sales platform. As a consequence, total sales rose by 150% in just three years. Even better, direct retail sales (i.e. sales from Moncler’s own stores or online presence) rose from 13% to 58%. This increased Moncler’s revenue and margins significantly, as the fashion house sells its jackets at the same price at its stores as third parties do at theirs, but can pocket the money traditionally made by the retailer as well.
To be fair, some of Moncler’s employees won’t have been too happy about their employer getting into a feather bed with a private equity fund. As a result of the operational efficiency improvement measures conducted by Moncler together with Carlyle, the company’s historic production site in France has been closed as production has been moved to Romania, while logistics and warehousing operations have been outsourced as well. Nevertheless, Moncler’s growth has overall created much more jobs than it has taken away. Today, the company employs 3,500 people, much more than before its staggering growth. Without Ruffini, Moncler had gone out of business in 2003, and all roughly 100 employees would have lost their job.
Further Growth and Going Public
After three years, Moncler had the desire to raise even more money to further stimulate its growth, while Carlyle wanted to reduce its exposure to the company. This resulted in the involvement of Eurazeo, another private equity firm. After the capital increase, Eurazeo held 45% and Carlyle held 18% of Moncler’s shares. With further extensions to its clothing collection and redesigns of it’s by now iconic jackets, Moncler continued its shiny story, eventually opening up its 135th store in fall 2013.
By then, Moncler had achieved most of its current growth potential, and thus, it did not need the help of the private equity industry anymore. Together Moncler, Carlyle, and Eurazeo took Moncler’s success to the logical conclusion when they conducted an IPO (i.e. Initial Public Offering; the new listing of a company on a public stock exchange) on the Milan Stock Exchange in December 2013. Subsequently, both funds gradually sold off their Moncler shares on the public market, with Carlyle exiting completely in 2014, while Euroazeo still holds a 5% share in the company by 2018.
What Will the Future Bring?
A proof of how sustainable Moncler has been set up through its collaboration with the private equity industry is how well the company is still doing as of today. Now, Moncler is boasting an annual revenue of over € 330m, with annual growth rates of still well above 20% in recent years. Moreover, with EBITDA margins of 34%, Moncler is second only to Hermès regarding the margins of any publicly listed fashion company. With the help of the private equity industry, Remo Ruffini has proven that down jackets can be fashionable, elevating them to a staple in the wardrobe of every fashionable closet equipped for winter.
The next big question for Moncler will be the brand may sustain its growth once every last person living in the cold urban areas of this world has been outfitted with a more or less shiny down jacket. There are already first indicators that Moncler is applying its trademark design to other types of clothing which can be worn around the year, such as backpacks, slippers, and rain jackets. It remains to be seen if Remo Ruffini or another savvy entrepreneur manage to keep Moncler’s future as gleaming as it is now. If there’s a thought through plan, even private equity may be there to delist the company from the Milan stock exchange again and to help.
Barbarians at the Gate
The private equity industry is complex, and cannot be represented by any single case. Still, Moncler is an archetypical example of the impact the private equity industry has on the economy. While the private equity industry does not replace the need for visionary and daring entrepreneurs, it supports them in making their dreams come true. If all goes well, everybody benefits: the investors who get a good return, the entrepreneur who gets to grow his business, and the employees who get hired into the many jobs created.
Maybe, that’s not the image you had of private equity until now. Often, private equity is portrayed in a more hostile way, such as in the HBO movie Barbarians at the Gate: The Fall of RJR Nabisco, based on the homonymous book by Bryan Burrough and John Heylar. There, Henry Kravis and George R. Roberts are displayed as ruthless, piling on scandalous amounts of debt when taking control over food and tobacco giant RJR Nabisco in the 1980s. Additionally, they only seem to care about the valuation at the time of the buyout, in order to make as much money as possible when they sell the company again.
The Myths and Realities of Private Equity
The takeover or RJR Nabisco was indeed a Leveraged Buyout (LBO) financed with a high amount of debt. Today debt levels tend to be lower and valuations less aggressive, as the focus of the private equity firms shifted towards increasing corporate value after the buyout. After a deal, private equity companies are working hard together with corporate management to make the company expand and flourish in order to make their investment worthwhile. More often than not, the private equity company takes on a major role in shaping the strategy, further development, and operations of the company it takes over. As in the case of Moncler, portfolio companies may profit from the network, resources, and industry expertise many private equity funds have.
Another common myth connected to the one outlined above is that companies with private equity involvement are more prone to going bankrupt. This may be connected to the notion that private equity piles unbearable amounts of debt onto its portfolio companies, as well as the general perception of private equity funds to be aggressive and high risk seeking in their investments. There are indeed private equity firms focused on the takeover of distressed companies, which are in a precarious economic situation, in order to turn them around and make them profitable again. These investments bring about a higher rate of bankruptcy than investments in financially healthy companies do. Still, the statistics are indicating that private equity-backed companies are not going bankrupt more often than any other major firms.
So far convincing, but what about layoffs and cost-cutting measures? Undoubtedly, private equity funds care about the performance of the companies they invested in, and do not shy away from unpopular measures such as layoffs or cost cuts if necessary. Nevertheless, these activities are inevitably an integral part of the life of any company. Research has shown that private equity controlled companies are not more prone to laying off people and adopting cost-cutting measures than other professionally managed firms with no private equity involvement.
In the end, a private equity fund wants the companies it invested in succeed in the long run. With a time horizon of 5–15 years per investment, private equity funds are forced to adopt a long-term view about their investments. They will do everything they can to ensure success — like in the case of Moncler.
…Join the Community and Become a Part of the Leva Journey!
Website | Telegram | Twitter | Facebook | Instagram | LinkedIn
