In addition to its eponymous label, which generates €3.5bn in sales, and the very on-trend Miu Miu, which brings in €1.2bn, Versace now gives Prada a third pillar on which to build its expansion.
Under-exploited by its previous owner, the American Capri Holdings, Versace should add around €800m in sales to the consolidated group. Financed by bank debt, this €1.5bn transaction values Versace at less than twice its revenue.
That is an attractive multiple for this luxury icon, and a deal struck at an opportune moment, amid sector-wide stress. One can hail Andrea Guerra's sense of timing, as he brings back to the peninsula an Italian luxury icon that has remained very popular with younger generations.
Prada generated €5.4bn sales last year. In addition to Prada and Miu Miu, its brand Church's and its licensing segment in eyewear and fragrances generated nearly €700m. With the addition of Versace, the new consolidated group's revenue should reach €6.2bn.
Prada's post-acquisition valuation is therefore twice revenue as well, since its market capitalization currently stands at €13bn. This valuation represents an historical low for a group whose average is closer to four times revenue.
Moreover, it is by all accounts reasonable to assume that adding Versace will add consolidated operating profit of between €1.2bn and €1.4bn. Pro forma, Prada's enterprise value, which should approach €17bn once the new debt is properly accounted for, therefore represents a multiple of between 12x and 14x next year's expected operating profit. This, too, is a multiple at its historical floors.
It is likely that the Hong Kong listing now hinders the group more than it helps. While a dual listing in Milan was once considered to rekindle institutional investor interest, that option appears to have been postponed for now.
