Zegna’s SPAC deal offers a low-cost path to luxury

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Models present designs from the Ermenegildo Zegna Fall / Winter 2010/11 Men’s Collection during Milan Fashion Week on January 16, 2010.

MILAN, July 19 (Reuters Breakingviews) – Italian Ermenegildo Zegna goes public and travels to America. The century-old maker of expensive men’s suits announced on Monday that it would be listed in New York by merging with a blank check company run by former UBS boss Sergio Ermotti and private equity group Investindustrial. It’s a turnaround for the family business at a time when revenues have not yet fully recovered from the pandemic. With an enterprise value of $ 3.2 billion, it at least seems more affordable than most luxury competitors.

Founded in 1910 as a textile manufacturer in the province of Biella, in northern Italy, Zegna is a world leader in high-end menswear. Yet the widespread cancellation of formal opportunities over the past 18 months has hit her hard. The company’s core revenue, which includes US fashion brand Thom Browne, fell to € 1 billion in 2020 from € 1.3 billion in 2019. It expects sales to fall to € 1 billion in 2020. go back to just 1.2 billion euros this year, according to forecasts released on Monday.

The uncertainty is reflected in the price. The deal places the value of Zegna’s business at around 2.3 times its expected 2021 revenue. Italian rival Salvatore Ferragamo (SFER.MI) is trading at 2.9 times, while groups of luxury Prada (1913.HK), Kering (PRTP.PA) and Moncler (MONC.MI) are valued at more than 5 times sales. An enterprise value of around 18 times the expected 2022 base adjusted EBIT of 142 million euros is lower than that of seven other large listed companies, according to company data.

Listing in the United States is not exactly an endorsement of the “Made in Italy” tradition on which Zegna has built its name. But chief executive Gildo Zegna, whose family will retain a 62% stake, hopes the move will generate greater brand awareness in the Americas, which is expected to account for 15% of apparel and accessories sales this year. He also wants to use the product to drive digital sales and may consider acquisitions.

Investors, including undisclosed shareholders who have agreed to invest an additional $ 250 million as part of the deal, will need to trust Zegna’s ability to withstand a tougher environment. While the extensive lockdowns have accelerated the abandonment of formal wear, there are signs the group is adjusting. Casual wear accounted for 51% of sales of Zegna-branded products through May of this year, up from 38% in 2016. Despite the challenges, Zegna’s SPAC list could represent an affordable route to luxury.

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NEWS CONTEXT

– Italian luxury brand Ermenegildo Zegna announced on July 19 that it would go public in New York by partnering with Investindustrial Acquisition Corp, a Special Purpose Acquisition Company (SPAC) launched by private equity group Investindustrial and chaired by former UBS CEO Sergio Ermotti.

– The deal gives Zegna, founded in 1910, an enterprise value of $ 3.2 billion. The expected market capitalization is around $ 2.5 billion.

– The transaction will generate gross proceeds of approximately $ 880 million, including $ 403 million raised by PSPC. Anonymous investors will inject an additional $ 250 million, while a subsidiary of Investindustrial will invest an additional $ 225 million.

– The Zegna family will retain 62% of the capital of the listed entity.

Editing by Peter Thal Larsen and Karen Kwok

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