Top 10 M&A Targets in Jewellery

07-Dec-2017 | By: Lauren Sherman

The global market for jewellery is set to reach $364 billion by 2022. Where does the opportunity lie for investors?

NEW YORK, United States — While fashion apparel is as much about the label as the garment, 75 to 80 percent of jewellery, from the cheap-and-chic to the rarefied, remains unbranded, sold at a range of national retailers and small mom-and-pop stores. But a branding revolution has been brewing.

The opportunity in branded jewellery has invited the launch of dozens of jewellery labels at every price and aesthetic, from Delfina Delettrez’s surrealist statement earrings to Mateo’s pearl chokers. “In the 20 years I’ve been writing about jewellery, the market has never been more packed with great talent,” says Stellene Volandes, editor-in-chief of Town & Country and author of Jeweler: Masters, Mavericks, and Visionaries of Modern Design. “And there’s demand for it.”

In response, retailers from Moda Operandi to Saks Fifth Avenue are expanding their jewellery offerings, while legacy megabrands like Cartier are extending their reach with public exhibitions. Online retailers dedicated almost exclusively to jewellery, including Latest Revival and The Editorialist, have also emerged. I call it ‘smashing the vitrine,’” Volandes says. “The appreciation for jewellery has broadened. That is a huge shift, and it makes jewellery even more valuable.”

Jewellery is one of the fastest-growing categories of branded luxury goods, reaching $17 billion in 2017, up 10 percent from last year, according to Bain & Company. In fact, jewellers at every price point are thriving, with the total global market for jewellery — including both fine and costume jewellery — is set to reach $364 billion by 2022, according to Euromonitor International.

That, to many, signals investment opportunity. But where exactly does the opportunity lie?

Across the category, if the last decade of deals are any indication. Consider American costume jewellery line Kendra Scott. In December 2016, private equity firm Berkshire Partners acquired a “significant” minority stake in the Austin-based, candy-coloured bauble maker that valued it at more than $1 billion. Then there’s the recently announced launch of the NAGA Group, which aims to devote its $50 million-plus fund to investments in beauty, accessories and jewellery brands.

The public markets have also responded well to jewellery makers. Pandora, the charm bracelet purveyor founded in 1982, now generates more than $3 billion globally after a public flotation in 2010. (At the time of IPO, the company was valued at just over $5 billion. It's current market capitalisation is close to $11 billion.) Large conglomerates have also seized the opportunity. In 2011, LVMH acquired a majority stake in Bulgari; in 2013, Kering cornered Pomellato and the Swatch Group bought Harry Winston. And in 2014, Chinese conglomerate Chow Tai Fook bought US diamond retailer Hearts on Fire for $150 million.

The category even has the support of billionaire Warren Buffett, known for his sound investment strategy. Over the past 10 years, Buffett has made more than 30 investments in the jewellery space through the Richline Group, a subsidiary of his conglomerate, Berkshire Hathaway. This year, he entered the branded jewellery space with industry veteran Alberto Milani.

“There has been a very steady pace of deals,” says Elsa Berry, co-founder and managing director of Vendôme Global Partners, a New York-based strategic financial advisory firm specialising in luxury, beauty and premium consumer brands. “The conglomerates have been systematically looking at jewellery as a round off... a very natural addition to their portfolio. What’s changing is the emergence of new brands and new buyers.” "It’s a seductive market to invest in and, also, in some ways, the next frontier." And yet, jewellery remains a challenging business, especially for new entrants. Fine jewellery in particular is capital intensive. “From a financial perspective, material is a big balance sheet item,” Berry says.

Consider this: It’s feasible for a designer to have $1 million worth of merchandise sitting on a sales floor of just one store. And more likely than not, the merchandise is there on consignment. Fashion may be a rich man’s game, but a set of clothing samples can, in theory, be made for a few thousand dollars. A simple fine jewellery collection can set a designer back seven figures. As a result, many jewellery businesses remain small and family-owned — never reaching more than a few million dollars in sales — which means the opportunities for investments are slimmer than expected.

As for established houses with proven track records and room to grow? “Most of the well-known brands have already been acquired,” says René Weber, an analyst at Bank Vontobel. What’s more, jewellery brands typically don’t come cheap, often selling at four times their current revenue. In the past, “There were chunky multiples paid,” says John Guy, an analyst at Mainfirst Bank. However, the bets have generally paid off. “They have often resulted in very, very strong, profitable businesses.”

While opportunities at the mature end of the market may be low, investors continue eying jewellery brands that have a direct relationship with their customer, from fast-fashion labels like BaubleBar to trunk show-reliant outfits like Irene Neuwirth. In a direct business, the margins are higher. One-to-one relationships also often result in a higher repeat customer rate, which fosters a sustainable business.

And while consumers continue to shift spend away from soft luxury to experiences, the permanency of jewellery has allowed it to retain perceived value.

The nature of the purchase has also changed. Women are increasingly buying fine jewellery for themselves, which means the market is less reliant on special occasion purchases than it used to be. (For instance, 31 percent of diamond jewellery purchased by Millennials in 2015 were made by the wearer, according to a 2016 study by De Beers. In older generations, 37 percent of diamond jewellery was self-purchased.)

“Jewellery is as much a part of the luxury landscape as handbags and ready-to-wear,” Volandes says. “There’s also intrigue around the jewellery world. It’s a seductive market to invest in and, also, in some ways, the next frontier.”

Investors interested in the space must decide whether they are after a quick cash-out or a long-term gain. While affordable jewellery brands have the potential to scale at a rapid rate, fine jewellery brands take decades to build. Which brands are poised to offer a return? BoF conducted its own internal research and analysis and spoke with a number of industry experts — including retailers, investors analysts and agents — to identify 10 jewellery brands worth a look.

Legacy

Tiffany

Founded in 1837

Revenue: $4 billion in 2016

The number of multi-billion jewellery brands not yet under the control of a luxury conglomerate is few and far between. The exception, of course, being Tiffany, which currently boasts a market capitalisation close to $12 billion and is frequently the subject of takeover rumours. (In recent years, the US-based jeweller has struggled to engage its US-based customers, although opportunity abounds in Asia and in particular, China.)

However, only a handful of other companies — most notably LVMH and Richemont — could afford Tiffany, whose market price is estimated to be between $15 and $20 billion. “They’d have to think very carefully how that deal would fit and the ramifications of taking on a much more US-centric business,” Guy says. “There are some clear synergies, but they’d have to figure out, culturally, how the integration works. In Richemont’s case, you’d be running the red box side-by-side with the blue box.”

Chopard

Founded in 1860

Revenue: $800 million in 2014

When Karl Scheufele III bought Chopard, a Swiss jewellery and watch brand, in 1963 from descendants of the founder, it was a five-person shop. Today, the house is internationally recognised for its diamond-encrusted pieces— and still owned by the Scheufele family, despite overtures from leading luxury conglomerates.

Fabergé

Founded in 1842

Revenue: $11.8 million in 2016

Over the years, Fabergé has been bought and sold many times over. In 1989, Unilever bought the Fabergé beauty business for nearly $1.6 billion, selling it for $38 million in 2007 to the Pallinghurst Group, which is owned by South African mining magnate Brian Gilbertson. Merged into gemstone purveyor Gemfields — also owned by Brian Gilbertson — in 2013, the Russian-born fine jewellery firm remains under the radar. (It’s still best known for its legendary decorated eggs, long out of production.) However, its impressive growth — up 33 percent in sales in the past year — suggests to analysts that there is potential to do more with it.

Earlier this year, Chinese conglomerate Fosun launched a bidding war for Gemfields with Pallinghurst, offering £224 million ($300 million) for the overall business.

Young Turks 

Jennifer Fisher

Founded in 2005

Estimated Revenue: Upward of $5 million (according to market sources)

Fisher is praised for her social-media savvy, using her 270k-follower-strong Instagram account to promote her mid-range brass line, which includes on-trend pieces like statement hoops and sculptural cuffs worn by plenty of celebrities, many of whom are friends of the former stylist. But it’s her private, direct-to-consumer fine jewellery that fuels the 100-percent self-funded business. (Overall, 75 percent of the business comes from direct sales.) Net sales were up 40 percent year-over-year, while the brand's online sales were up 200 percent.

Spinelli Kilcollin

Founded in 2010

Estimated Revenue: Undisclosed

Los Angeles-based designer Yves Spinelli launched his namesake line at his former employer, West Hollywood concept store Maxfield, where he worked in sales. Today, it’s stocked everywhere from Dover Street Market to Lane Crawford and has seen sales double year-on-year since 2014. Like many successful modern jewellery brands, Spinelli has used customisation to drive the business. The label’s signature “Galaxy” ring — a stack of bands linked by a hoop — can be personalised by colour, material and stone.

Ana Khouri

Founded in 2002

Estimated Revenue: $6 million in 2017

Trained as a sculpture in her native Brazil, The New York-based designer’s modernist ear pieces and diamond-studded gold collars are a favourite on the red carpet. (No small feat, given that most celebrities are paid by major jewellery houses to wear their wares.)

Irene Neuwirth

Founded in 2003

Estimated Revenue: Upward of $15 million in 2017 (market sources)

Raised in Venice, Neuwirth has developed a reputation for beautifully crafted technicolour jewels as distinct as her eye for interiors, on full display at her magically furnished West Hollywood boutique. She is also known for her commitment to the trunk show model, which has allowed her to build direct customer relationships at the local level. Revenues were up 40 percent year-over-year.

Loquet

Founded in 2013

Estimated Revenue: over $3 million in 2017

The success of personalisation-driven jewellery brands like Pandora have inspired new businesses that approach the concept with varied aesthetics. Founded by British environmentalist Sheherazade Goldsmith and journalist Laura Bailey in 2013, Loquet’s spin on the charm-filled necklace mixes fine materials (diamonds, platinum, gold) with playful crystal baubles.

Costume Upstarts

BaubleBar

Founded in 2010

Estimated Revenue: $75 million in 2015     

A modern, direct-to-consumer alternative to Claire’s, BaubleBar’s fast-fashion approach to jewellery allowed it to scale quickly. Later in its trajectory, the brand partnered with select retailers, including Nordstrom and Target (which sells “Sugarfix x Bauble,” an even lower-priced line). Like many startups that launched during the same period, BaubleBar has raised a significant amount of venture capital funding: $48.6 million in total, including a $13 million debt financing round in 2017.

Kendra Scott

Founded in 2002

Estimated Revenue: $225 million in 2016

Austin-based jewellery designer Kendra Scott famously started her business with just $500. But it's her focus on customisation, an accessible price point (average basket size is $100) and an oh-so-specific retail strategy — most of her stores are in college towns, or in cities or neighbourhoods where the brand’s online sales are high — that have resulted in a valuation north of $1 billion.