Estée Lauder plus Tom Ford is a tricky defensive act

Estée Lauder plus Tom Ford is a tricky defensive act

Managing eyewear and fashion licenses can be complicated, and the designer will leave in a year

The purchase of the Tom Ford company by Estée Lauder seems defensive, but it comes with wrinkles. He will pay 2.8 billion dollars, including debt. That will allow him to keep the fragrance business of the former Gucci designer; but there are difficulties.

Strategically, it makes a lot of sense. The US group already licenses perfumes from Ford’s beauty unit, a division that grew 25% in 2021 and is expected to reach $1 billion in sales in two years. But he could have lost that business if the company had been sold to Kering, who was considering it. Now, by owning the brands, Estée Lauder can include all of Tom Ford’s beauty revenue in its accounts and stop paying royalties. And it’s a huge loss for Kering, who needs an acquisition to diversify his empire.

From a financial point of view, it is less clear. Estée Lauder has not disclosed Tom Ford’s numbers. A senior official in the sector estimates that his ebitda is between 150-200 million, that is, a multiple of about 19 times, compared to Kering’s 14. But Estée Lauder will only pay $2.3 billion upfront, as part of the fees are deferred, and eyewear maker Marcolin, which licenses Tom Ford’s, will chip in $250 million. That reduces the multiple to 15 times.

For Estée Lauder, the risks are different. She will also own Tom Ford’s eyewear and fashion divisions, which are out of her comfort zone. To manage them, he has agreed to extend and expand existing agreements with Marcolin and Ermenegildo Zegna, which manufactures and distributes the Tom Ford menswear collection. But both lack the influence of EssilorLuxottica or Kering, making it difficult to grow the brands. And overseeing relationships with licensees could be tricky.

There is another potential problem. Tom Ford – the person – has only agreed to stay until the end of 2023. Whoever replaces him could dilute the brand, making it more difficult to sell perfumes up to $800. Getting the most out of Tom Ford without him could be tricky.

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Brian Adam
Professional Blogger, V logger, traveler and explorer of new horizons.