German fashion Off the Shelf

After years of buying labels in Italy and France, foreign investors are increasingly contacting German consumer goods brands with an eye to making acquisitions. More and more German family firm owners are returning their calls.
Bogner: Sloping off to Asia?

Lacking an heir, fashion designer and former Alpine ski racer Willy Bogner is looking for someone to buy his life’s work. Luckily for him, investors are standing in line for a chance to buy Bogner, his Munich-based sports and lifestyle company, which in 2013 generated sales of €241 million ($284.8 million).

At least three dozen potential buyers have reportedly registered to bid for the company, whose sale is being handled by Goldman Sachs. The U.S. investment bank wants to whittle that group down and negotiate with a smaller number of bidders.

The interest in Bogner underscores an emerging trend. Financial investors are increasingly turning to Germany's lifestyle and luxury industry, whose reach traditionally had extended only to its national borders. For years, global investors tended to focus on Italy and France. Now German brands are in.

“We have endless inquiries from investors and strategic buyers, especially from Southeast Asia,” said Xaver Zimmerer, a managing partner at InterFinanz, a mergers and acquisitions boutique in Düsseldorf.

Thomas Schlytter-Henrichsen, managing director of Acapital, an investment adviser in Frankfurt, added: “They see the German market as an opportunity to buy companies with globally established brands.”

What’s in demand are the hidden champions that have a unique position in their niche market. Sabine Meister, Consultant, Munich

Among the interested parties is Fosun, the largest privately owned conglomerate in China, which last summer acquired Hamburg fashion company Tom Tailor and wants to turn it into an international fashion label.

Several developments are stimulating the interest of domestic and foreign investors. Many top international brands have already been sold, so German companies are by default moving into the limelight.

Additionally, many German clothing firms urgently need money to finance foreign expansions to compete with international rivals, or make possible restructurings.

Above all, however, investors seem to be attracted to the quality and leverage of German market leaders. Sabine Meister, who is head of Meister & Associates, a retail consultancy in Munich, explains. “What’s in demand are the hidden champions that have a unique position in their niche market, rely on sustainability and are one-of-a-kind quality.”

These traits have attracted three investors to Bree, a handbag manufacturer in Langenhagen near Hanover. The family-owned company couldn’t handle its rapid growth and modernize its label on its own, so the family sold its majority to three partners. Axel Bree stayed on as the top business manager.

Many fashion and lifestyle companies, such as German furniture maker Thonet, are positioned to survive over the long-term because they are brands recognized for quality merchandise. “But Thonet hasn’t followed through with this strategy in the past years for a variety of reasons,” said Michael Hüsken of Munich-based private equity investor, Afinum, which invested in Thonet last year.

Afinum has focused on new product development at Thonet, closed gaps in trademark protection and paved the way for the company, which specializes in designer chairs, to enter China and the rest of Asia. The changes have brought results. “Sales have clearly grown in 2014,” Mr. Hüsken said.

Some owner families are unable to overcome the boardroom inertia that often reigns in long-held private enterprises.

Some owners, however, don’t want to work with investors, mostly because they don’t want to lose control of their companies. This strategy can put companies in difficult and tricky situations. The women’s fashion label, Strenesse, for example, tried to solve its financial problems and raise money by selling a high-interest small-business bond.

But eventually, the luxury brand, based in Nördlingen in Bavaria, was forced to apply for self-managed insolvency and is now attempting to restructure. The owners, the Strehle family, are ready to relinquish power. Luca Strehle recently withdrew from the management board and joined the non-executive supervisory board, while the chief restructuring officer, Michael Pluta, is looking for new investors.

But many desirable fashion brands still hesitate to accept outside investors. “We have today five times as many buyers as sellers,” said Mr. Zimmerer of Interfinanz, the M&A boutique.

Among desirable companies are well-known names such as luxury kitchen maker Bulthaup; the Berlin maker of high-end audio equipment, Burmester; the aluminum suitcase maker, Rimowa; and jewelry maker Wellendorff.

Some owner families are unable to overcome the boardroom inertia that often reigns in long-held private enterprises. Others see no possibility at the moment to profitably invest the proceeds from a potential sale of their companies amid the current low-interest rate environment.

Whoever does decide to sell, however, has strong cards to play. “Owners who sell their companies now are getting a very good price,” Mr. Schlytter-Henrichsen said.Georg Weishaupt is a Handelsblatt editor who has written on the German electronics, telecom, alternative energy and other industries, as well as retail.  To contact the author: [email protected]