Earlier this month, the Wall Street Journal reported that US-based handbag and apparel designer Kate Spade is considering a potential takeover bid. The news comes just a couple of months after a US hedge fund, Caerus Investors, urged the fashion house to consider a sale in light of the falling price of its stock when compared to its peer group.
Likened to other brands such as Michael Kors and Coach, Kate Spade sits in a favourable market; its customers view the brand as aspirational, yet its pricing makes it a far more affordable designer choice than the likes of high-fashion houses. However, this middle-market has weakened itself by relying upon outlets and other discounting locations to distribute end-of-season products, thereby diluting its pricing power.
Currently valued at $2bn, the designer was acquired by Liz Claiborne for $124m in 2006. Following the acquisition, Liz Claiborne shed its other assets, Juicy Couture and Lucky Brand, leaving Kate Spade the last man standing as a standalone company, Kate Spade & Co. Despite this relative growth, Kate Spade’s stock has slipped from $40 in 2014 to more recently trading at $17 a share. So, is this the right time for Kate Spade to sell? According to Caerus, absolutely, but should they have made the decision sooner?
We all know too well that timing is everything when it comes to M&A. While the sale of Kate Spade has been met with an immediate surge in its stock of 17 per cent, its somewhat disappointing financial performance in 2016 and dropping stock prices suggest that the business is overdue an overhaul in order to enhance its shareholder value and bring sales and earnings back up to more prosperous levels. The market has moved against the designer as its competitors have continued to grow at a rapid rate, while Kate Spade’s own growth has stagnated.
So who could be a potential buyer for Kate Spade? A number of industry experts speculate that its peers, Coach Inc. and Michael Kors Holdings Ltd., could be the perfect candidates for purchasing Kate Spade, particularly as both have recently revealed their interest in brand acquisition.
While the sale of Kate Spade won’t necessarily go down in the history books as a monumental deal, the announcement is an indication of the type of deal making we can expect to see in 2017. Although Kate Spade enjoys a good market share and the type of millennial attraction that other fashion brands fail to achieve, its slow decline is a sign for change. Seeking a worthy takeover bid that can transform the business back into the attractive shareholder opportunity it once was, is the best way for the brand to reignite its growth possibilities.
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