Global and Italian M&A Insights: Fashion & Luxury market by PwC Italy

Global and Italian M&A Insights:

Issue 1/21 – Fashion & Luxury market

March 2021 Pw C | M&A Industry Insights | Consumer Markets

Table of Contents M&A Fashion Investing in the fashion space before, during and after the pandemic An interview to Roberta Benaglia from Style Capital SGR SpA

Fashion – Global M&A Quarterly Trends by sub-industry

Fashion – Italian M&A Quarterly Trends by sub-industry

Fashion – Global Deals Volumes - Corporate vs. PE

Fashion – Italian Deals Volumes - Corporate vs. PE

Top ten Global Fashion deals 2020

Key Contacts

Pw C | M&A Industry Insights | Consumer Markets

Investing in the fashion space before, during and after the pandemic About STYLE CAPITAL STYLE CAPITAL SGR S.p.A. is active since 2007 in the promotion and management of private equity funds, and currently acts as the management company of the closed-end fund DGPA CAPITAL (entirely divested) and the industry-focused fund STYLE CAPITAL that started its investing activity in 2017. STYLE CAPITAL operates in the “Lifestyle” segment, supporting the growth of SMEs operating in the global market, whose distinguishing features are creativity, design, product quality and uniqueness, selective distribution and innovation, with a specific focus on Fashion & Luxury brands. The purpose of STYLE CAPITAL is to invest in either majority or minority stakes, through capital increases, share purchases and soft LBOs. Track Record Exited Investment Current Portfolio Shoes, accessories and apparel in the casual luxury segment Shoes, accessories and apparel in the fast fashion women segment

Italian market leader in the high luxury jewelry

Contemporary ready-to-wear segment womenswear

Italian market leader in the man beachwear segment

Luxury and digital native denim brand, focused on upcycling and sustainability

Contemporary designer apparel and accessories

Luxury ready-towear womenswear

2.B | Consumer Products | Executive Summary

An interview to Roberta Benaglia, CEO of Style Capital SGR SpA and Roberto Gattoni Investment Director Style Capital SGR SpA Roberta, you have just completed a majority investment in Zimmermann with a $0.4bn deal (one of the top 10 largest Fashion deals of 2020). What’s your view on the M&A outlook in 2021? Which are the hottest segments where you would like invest? Given the proposition of our fund, we do not have particular restrictions on geographies/size and type of deals, which gives us a certain flexibility on the opportunities arising in the M&A market, in Italy and abroad. We still have 3 years of investment ahead, and, as of today we have invested c. 55% of our fund. Our goal is to complete 1 or 2 deals by the end of 2021, preferably looking at cross-border opportunities with a strong “digital angle”.

The Management Company provides not only financial resources, but active support to entrepreneurs and managers in their strategic decisions and management activities, thanks to the vast experience of Mrs. Roberta Benaglia (CEO), Mr. Gaetano Marzotto (President) and the investment team in the Fashion & Luxury sector.

In terms of sectors, we are focused on the fashion & luxury segment, and to complete our portfolio we are looking at targets in the accessories and sportswear/activewear segment.

Thank s to its hands-on approach, strong financial background, in-depth knowledge of the sector and a solid and outstanding trackrecord, STYLE CAPITAL aims to become the ideal partner for supporting the business and bolstering the growth of the companies in its portfolio.

We have seen very interesting platform deals in the supply chain (shoes / apparel manufacturing, components, etc…), , but our core competence is the brand strategy, the development of channels (wholesale / retail / e-commerce), the international growth, rather than the realization of industrial synergies.

The management company’s flexible and fast decision-making structure, as well as an investment policy with an industry-driven approach, focused on business projects as well as on financial structure, allows STYLE CAPITAL to target a vast range of transactions, in terms of size (with a preference for growing Company with revenues between €20 and €50m) and investment type (primary and secondary deals, buy-out, club deals with a leading role as industry expert,..). Pw C | M&A Industry Insights | Consumer Markets

We do not exclude to complete small-size add-ons on our portfolio companies and maybe to diversify in the cosmetics space. 3

Investing in the fashion space before, during and after the pandemic After the successful exit from Twin Set in 2012 an Golden Goose in 2015, Style Capital completed 4 acquisitions of fashion brands (Forte Forte, RE/DONE, MSGM, Zimmermann): how did your portfolio companies face Covid-19 emergency? Generally speaking, in the fashion space the direct retail channel has been more adversely hit than the wholesale, which was capable to react with direct marketing initiatives during the lockdown period, leverage on proximity shopping, faster re-opening, increased use of e-commerce (c. 50%60% of volumes from March onwards have been absorbed through this channel). Mono-brands suffered the most (and are expected to keep suffering). Our portfolio companies have a relatively agile business model, with a limited direct retail exposure compared to the major luxury brands. In addition, backed by a financial investor, they were able to grant favorable conditions to the wholesale channel, that allowed to stimulate the recovery. As almost everyone else, we relatively increased the markdowns, confident it is a temporary measure required by this emergency situation. Furthermore, both Re/Done and Zimmermann operate on a global market, with only a limited portion of sales in Europe, where the recovery appears to be slower than in US and Asia, and have a strong own e-commerce, that recorded amazing performances, balancing the decline in offline sales.

Pw C | M&A Industry Insights | Consumer Markets

2.B | Consumer Products | Executive Summary

…so which are the most important lessons learnt in this 2020?

Why it is crucial to develop an effective digital communication strategy?

First: digitalization (collect data, establish trends and use them for better business decisions) and e-commerce. We do not expect that the growth of the e-commerce channel will represent a permanent switch from the retail: we do expect a strong recovery in the physical retail, as soon as social distancing measures will soften, but business and personal travels will not recover so fast, therefore it will be of utmost importance to refocus merchandising mix and location on local customers.

For Italian brands top priorities are quality of materials, craftmanship, product innovation and finally the communication.

E- commerce peak is going to normalize in 2021, requiring a convergence between on-line and off-line channels from both brands that have developed their own web-site, aside to the increased use of e-tailers, and pure e-commerce players, which have been opening physical stores in the most important cities. Second: Direct retail is facing a crucial challenge requiring to reconfigure locations and formats to meet the new customer demand and emerging needs. As a result, several lease contracts (in particular the most expensive ones) have been terminated in advance or renegotiated, certain stores have been downsized and others have been relocated. New openings should be now focused on residential areas and resort locations more than traditional Tier 1 cities, following the increased smart working. And this was exactly one of the key factors that drove our recent investment in Zimmermann, which embodies the party/resort style and has a direct retail presence in the resort locations. Third, communication: the budget for off-line communication (typically high) has been cut and switched to digital communication and this will likely be a permanent move.

For American brands it’s the opposite: communication, innovation, product. Products are developed based on what it is more effective to communicate at a certain point of time and then created keeping in mind the designed communication strategy, in order to offer an attractive product which has to be profitable for the seller. Italian brands suffered more than American ones since focused on values which the customer can not “digitally touch” and remained unable to develop an appropriate communication style or shift their offering on products more easy to communicate (and sell) digitally. And therefore do you believe that emerging brands reacted better than traditional ones to the crisis? Emerging brands with a good digital communication strategy and a strong e-commerce presence before the crisis started were definitely in a better position, however, during the most critical phase of the Covid-19 emergency, buyers had to cut their budgets and preferred to leave space to traditional big brands and assortments focused on carry over, rather than to new brands / products to minimize the risk of unsold, and were asking flexible payment terms, which typically emerging small brands can not afford. On the opposite, in 2H21 we expect emerging brands to experience a rebound for increased customers’ appetite for new products.

Fashion – Global M&A Quarterly Trends by sub-industry Despite the spread of COVID-19 pandemic, in 2020 investors confirmed their interest for the Fashion industry, with 2 large deals made by VF Corp (Kontoor brands spin off and acquisition of Supreme from Carlyle)

Fashion, Global Deal Value and Volume Q1’18-Q4’20 • VF Corporation acquisition of Kontoor Brands for $2.1bn • ANTA, FV Fund, Anamered Investments Inc and Tencent Holdings acquisition of Amer Sports for $5.4bn • Michael Kors acquisition of Versace for $2.1m

• Permira acquisition of Golden Goose for $1.4m

• VF Corporation acquisition of Supreme for $2.4bn • Moncler acquisition of Stone Island for $1.5bn

250,0

14000,0

12000,0 200,0

150,0

8000,0

6000,0

100,0

4000,0 50,0 2000,0

Q1'18

Q2'18

Q3'18

Accessories

Q4'18 Apparel

Q1'19

Q2'19

Supply chain

Q3'19 Footwear

Q4'19 Other

Q1'20

Q2'20

Sportswear

Q3'20

Q4'20

Deal Value (US$m)

Deal Volume

10000,0

Deal Volume Apparel Accesories Supply chain Footwear Sportswear Other Total Deal Value (€m) Apparel Accesories Supply chain Footwear Sportswear Other Total

247 26 160 56 54 132 675

Delta FY20 vs. FY19 (15%) (57%) (22%) 6% 0% (13%) (17%)

FY20 8,710 161 1,765 3,084 1,833 1,876 17,429

Delta FY20 vs. FY19 72% (74%) (57%) 180% 97% (34%) 19%

FY20

Deal Value

Source: Refinitiv and PwC Analyses, based on closed and pending deals, allocated to quarters based on the announcement date. Deal value available for c. 44% of deals at Global level and c. 15% at Italian level

Pw C | M&A Industry Insights | Consumer Markets

Fashion – Italian M&A Quarterly Trends by sub-industry The 2020 strong increase of Italian Fashion market in terms of deal value (+$1.3bn vs 2019) is impacted by two mega deals in 1Q (Golden Goose/Permira) and 4Q (Stone Island/Moncler). The decline in volumes is the result of a drop in small transactions in the pandemic period. Accessories is the sub-sector most severely hit by the pandemic downturn in terms of volume (-77%) Fashion, Italy Deal Value and Volume Q1’18-Q4’20

• Chanel SAS acquisition of 40% stake in Renato Corti for $169m

25,0

• Golden Goose sold to Permira for $1.3bn

2000,0

1500,0

15,0

10,0

1000,0

5,0

500,0

Q1'18

Q2'18

Q3'18

Accessories

Q4'18 Apparel

Q1'19

Q2'19

Supply chain

Deal Volume

2500,0

20,0

Deal Volume

• Stone Island acquisition by Moncler ($1.46bn) • Zimmermann acquisition by Style Capital (~$0.4bn)

• Farfetch acquisition of New Guards Group Holding for $675m

Q3'19 Footwear

Q4'19 Other

Q1'20

Q2'20

Sportswear

Q3'20

Q4'20

Deal Value (US$m)

• Michael Kors acquired the entire share capital of Gianni Versace SpA ($2.1bn)

Apparel Accesories Supply chain Footwear Sportswear Other Total Deal Value (€m) Apparel Accesories Supply chain Footwear Sportswear Other Total

FY20 9 3 9 6 2 1 30

Delta FY20 vs. FY19 (50%) (77%) (44%) 0% (71%) 0% (51%)

FY20 414 1,398 1,459 3,271

Delta FY20 vs. FY19 (50%) (100%) n.a. 100% 100% n.a. 177%

Deal Value

Pw C | M&A Industry Insights | Consumer Markets

Fashion – Global Deals Volumes - Corporate vs. PE Corporate deals historically represents ca. 70% of total deal volumes in the Fashion industry. FY20 shows a decline in volumes (-18%), with a growth in PE driven deals in 4Q (37% vs an historical average of ca. 30%)

Corporate vs Private Equity - deal volumes Global Fashion Market Q1’18

Q2’18

Q3’18

Q4’18

Q1’19

Q2’19

Q3’19

Q4’19

Q1’20

Q2’20

Q3’20

Q4’20

FY18

FY19

FY20

Total

237

211

196

225

205

206

220

184

190

137

176

172

869

815

675

Corporate

67%

66%

69%

74%

71%

72%

69%

70%

71%

76%

73%

63%

69%

71%

33%

34%

31%

26%

29%

28%

31%

30%

29%

24%

27%

37%

31%

29%

Corporate PE Total

Corporate – Cross Border

Corporate - Domestic

Corporate - Unknow n

PE – Cross Border

PE - Domestic

FY20 477 198 675

Delta FY20 vs.FY19 -17% -18% -17%

PE - Unknow n

Pw C | M&A Industry Insights | Consumer Markets

Fashion – Italian Deals Volumes - Corporate vs. PE Differently from the global market, the number of deals is well balance between corporates and PEs, driven by a strong interest of both local and international PEs on Italian Target. M&A was more severely hit in FY20 than in the Rest of the World (-50% in volumes), with PEs sponsoring 63% of the transactions announced Corporate vs Private Equity - deal volumes Italian Fashion Market Q1’18

Q2’18

Q3’18

Q4’18

Q1’19

Q2’19

Q3’19

Q4’19

Q1’20

Q2’20

Q3’20

Q4’20

FY18

FY19

FY20

Total

Corporate

40%

44%

56%

60%

50%

23%

48%

41%

63%

50%

33%

20%

50%

41%

37%

60%

56%

44%

40%

50%

77%

52%

59%

38%

50%

67%

80%

50%

59%

63%

Corporate PE Total

Corporate – Cross Border

Corporate - Domestic

Corporate - Unknow n

PE – Cross Border

PE - Domestic

FY20 11 19 30

Delta FY20 vs.FY19 -56% -47% -51%

PE - Unknow n

Pw C | M&A Industry Insights | Consumer Markets

Top ten Global Fashion deals 2020

Top deals are balanced between PE and Corporate. 3 of the most important FY20 deals involved targets specialized in casual apparel and shoes (Supreme, Stone Island and Golden Goose) Top 10 Global Fashion Deals, 2020 Target

Buyer

Deal type

Sector

Deal size (US$m)

Supreme

VF Corporation

Corporate

Apparel

2,400

Stone Island

Moncler

Corporate

Apparel

1,459

Golden Goose

Permira

Footwear

1,395

4 5

Shoe Palace

Genesis Holding (JD Sports)

Corporate

Footwear

681

Ascenta Retail Group

Apparel

540

Premium Apparel (Sycamore Partners)

Brooklyn Investment

Apparel

463

BOA

Compass Diversified

Corporate

Sportswear

454

Ningbo Yinzhou Jielun Invest

Ningbo Shanshan

Apparel

443

Precor

Peloton Interactive

Sportswear

420

Zimmermann

Style Capital

Apparel

9 10

~ 400

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Key Contacts Pw C | M&A Industry Insights | Consumer Markets

Key Contacts

Emanuela Pettenò

Partner | Consumer and Markets Deals Leader +39 348 8519841 Email

Pw C | M&A Industry Insights | Consumer Markets

Anna Nasole

Director | Transaction Services +39 345 4888390 Email

Thank you!

This content is for general information purposes only, and should not be used as a substitute for consultation w ith professional advisors. © 2021 Pw C. All rights reserved. Not for further use and distribution w ithout the permission of Pw C. “Pw C” refers to the netw ork of member firms of Pricew aterhouseCoopers International Limited (Pw CIL), or, as the context requires, individual member firms of the Pw C netw ork. Pw C | M&A Industry Insights | Consumer Markets