BREAKINGVIEWS - Jimmy Choo shows buyout firms can run in heels

Tue May 24, 2011 1:29am IST

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-- The author is a Reuters Breakingviews columnist. The opinions expressed are his own --

By Quentin Webb

LONDON (Reuters Breakingviews) - The Jimmy Choo buyout is proof that private equity firms can run in heels. The luxury shoemaker's backers have made a stellar return from their investment, in spite of buying the company at the height of the boom. Its new owners -- Labelux, a vehicle for Germany's billionaire Reimann family -- may not be in for as fast a buck. But buying Jimmy Choo makes sense as a long-term bet on the Asian luxury market.

TowerBrook Capital Partners is selling Jimmy Choo for an enterprise value of 500 to 550 million pounds, people familiar with the matter say. The precise financials of the buyout, in particular any further equity injections post acquisition, aren't clear. But the exit generates a return of more than three times the initial investment, equating to an internal rate of return of roughly 35 percent, one person adds. That's not bad going for an acquisition made in 2007, a vintage that many buyout shops would rather forget.

At the top of the mooted range, the deal values Jimmy Choo at about 15.7 times last year's EBITDA, which people familiar with the matter say was about 35 million pounds. That's not a bargain for Labelux, but it's not expensive in this sector. The share price of Italian shoemaker Tod's equates to an enterprise multiple of about 13.2 times historic EBITDA. That is just a market multiple. Exit valuations can be astronomical in luxury -- consider the eye-popping 27 times EBITDA that LVMH offered for a controlling stake in Bulgari recently. Moreover, Jimmy Choo is growing fast, with EBITDA now running at an annualised 45 million pounds.

The Reimanns, heirs to the Benckiser empire, have been steadily accumulating premium and luxury brands. The stable already includes Bally shoes, Coty perfume and Zagliani handbags. Jimmy Choo further tilts the portfolio towards luxury, implying a potentially higher rating for the group if it were to be sold.

Labelux can probably reap synergies in purchasing and back-office costs with Jimmy Choo. But the prize lies in further extending the brand beyond shoes, while taking the heels synonymous with Sex and the City deep into China. Jimmy Choo has just a toehold there; Bally is in dozens of cities.

The law of diminishing returns suggests it will be hard for Labelux to repeat TowerBrook's trick. But Labelux hasn't overpaid and it has a credible strategy. The shoe seems to fit nicely.

CONTEXT NEWS

-- Labelux said on May 22 that it would buy Jimmy Choo from TowerBrook Capital Partners and minority shareholders. The deal is backed by Jimmy Choo's senior management, including founder Tamara Mellon and Chief Executive Joshua Schulman. Management will re-invest in the Labelux subsidiary that will own Jimmy Choo.

-- Founded in 2007, Labelux is a division of the Reimann family's investment vehicle, Joh A. Benckiser SE. The parent vehicle also owns Coty Inc, the perfume maker, and the single largest stake in Reckitt Benckiser. Last year Germany's Manager magazine estimated the Reimanns were the country's fifth-richest family, with assets worth about 8 billion euros.

-- A TowerBrook-led consortium bought Jimmy Choo from Lion Capital in February 2007, in a deal that placed an enterprise value of 185 million pounds on the shoemaker.

-- Labelux press release: 77.73.0.139/release.html

(Editing by Chris Hughes and David Evans)

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