This is an extract from European M&A: On the road to recovery?, a report written by the EIU and commissioned by Clifford Chance
But it has little presence in the European retail market, which it describes as “too fragmented” to be an investment priority. At the moment it is concentrating upon expansion in fast-growing emerging markets such as India and China. But in the past year it has also bought three European firms, including two retail chains.
These acquisitions were “opportunistic”, admits Luxottica’s chief financial officer Enrico Cavatorta. From scratch, Luxottica was able to buy a leading position in Italy’s, Spain’s and Portugal’s eyewear retail markets for sunglasses on the cheap, although it paid a relatively handsome amount for an upmarket French brand of glasses. “Good companies still fetch a good price,” says Mr Cavatorta.
Luxottica is already the biggest wholesaler in Europe, supplying its glasses and sunglasses to often small, independent, opticians in many countries. But up to a year ago it had little presence in the European retail market outside of the UK. In November 2012 it announced the acquisition of a minority stake in an Italian retailer, paying €45m (US$57.9m) for 36% of a leading eyewear seller, the unlisted 900-store Salmoiraghi & Viganò. Luxottica bought the stake as part of a financial restructuring, and has the option of buying control from the family owner over the next few years. In August the same year, it announced that it had bought 90 Sun Planet sunglasses stores in Spain and another 30 in Portugal, making it the leading seller of sunglasses in both countries.
Mr Cavatorta points out that both the Spanish and Portuguese purchases can quickly be folded into Luxottica’s existing global branding and distribution systems, making a fast return on capital realistic despite the troubled economies in both of the countries it has bought into. But he also admits that these stores were gobbled up largely because the crisis made them remarkably cheap to buy. Both were valued at approximately one year’s sales, perhaps half of the cost of a similar company in China.
It is a good example of how the euro zone uncertainty is opening the door to opportunistic buying, but Luxottica also shows why European assets are attractive. In November 2012, it announced that it was paying €90m (US$115.7m) for Alain Mikli, a French luxury eyewear maker – close to two years’ worth of the firm’s sales and far from a low price.
Now, it is concentrating on emerging market expansion, pointing out that European and US markets are saturated whereas up to two-thirds of the people in some of these countries who need glasses do not have them. Europe is not a core part of this strategy, and the group is still not interested in trying to buy its way into the optical glasses retail market. “There is no dominant European player [to buy],” Mr Cavatorta points out, but rather a series of national chains many of which are already Luxottica wholesale customers. However, it is looking for acquisitions on the sunglasses side as the recent troubles throw up bargains.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.
