A potential acquisition of Versace by Italian luxury group Prada would result in a more diversified company that could better withstand economic fluctuations. However, revitalizing Versace may take years and could impact short-term profits.
Prada, following a strong organic sales performance in the last nine months of 2024 despite a slowdown in demand, is looking to expand. Meanwhile, Versace continues to operate at a loss. A merger would present Italy’s answer to the French luxury conglomerates that currently dominate the sector.
“The Versace brand needs significant restructuring and has suffered from mismanagement, making a quick turnaround unlikely,” said Melania Grippo, an analyst at BNP Paribas, in a note on Monday.
Despite these challenges, acquiring the renowned Versace brand could expedite Prada’s growth, according to Mario Ortelli, managing partner at luxury advisory firm Ortelli & Co.
“Scale matters,” Ortelli stated, highlighting that Prada’s market capitalization of $22.5 billion is much smaller than that of French industry leaders LVMH and Kering.
Bloomberg News reported on Sunday that Prada is nearing an agreement to acquire Versace for nearly €1.5 billion ($1.6 billion). Versace, founded by the late Gianni Versace in the 1970s and helmed by his sister Donatella for over two decades, is currently owned by Capri Holdings. Capri is working with Barclays to explore a sale of the brand.
Challenges Ahead
Prada, listed in Hong Kong but controlled by designers Miuccia Prada and her husband Patrizio Bertelli, has the expertise to address Versace’s weaknesses in manufacturing, marketing, and managing directly operated stores. Additionally, Prada’s leather goods expertise could help develop a segment of the business that has yet to reach its full potential.
“Versace has yet to unlock its full potential under Capri’s management. Prada has the right credentials to lead a relaunch,” Ortelli said.
Capri Holdings, previously known as Michael Kors, acquired Versace more than six years ago for €1.8 billion.
Versace’s bold, maximalist aesthetic could also bring in a new customer base for Prada, which is known for its minimalist style.
“Prada’s interest in Versace likely stems from its desire to diversify, reducing the cyclical nature of its fashion business by adding a brand with a distinct profile,” said UBS analyst Susy Tibaldi in an interview.
Turning Versace around is expected to take several years, according to Tibaldi.
“There’s much to rebuild,” she noted, pointing out issues like Versace’s reliance on discounts and its extensive product range, not all of which could be considered luxury items. “However, if the acquisition price is attractive, the potential for growth is significant.”
Versace’s license portfolio, valued at around $2 billion, is seen as one of the brand’s key assets, according to Tibaldi.
For its fiscal 2025 ending in March, Versace is expected to report revenues of $810 million, down from the previous year, and has experienced operating losses in the last three quarters.
“While we’re not in favor of Prada acquiring Versace, we believe the risks associated with the deal have likely been priced in, given Prada’s recent stock performance,” said BNP Paribas.
Looking to the Future
At the end of 2023, Prada held €197 million in net cash after significant investments in real estate. Analysts expect that figure to exceed €500 million by the close of 2024, but the company would need another €1 billion in financing to support a deal of this size—something analysts believe is manageable.
Prada’s interest in Versace comes as both companies face future uncertainties.
In 2023, Prada appointed former Luxottica CEO Andrea Guerra as its new CEO, replacing Patrizio Bertelli and Miuccia Prada, marking a transition to the next generation of leadership.
Speculation about the future of Versace’s creative leadership is also mounting, as Donatella Versace, who has held the role for over 25 years, has a contract set to expire in February 2025, with no clear indication of renewal.
