Sunday, 5 June 2011

Valuing a diluted brand: the Pierre Cardin challenge

In a piece for the Wall Street Journal last month, "Pierre Cardin Ready to Sell His Overstretched Label", Christina Passariello gave an account of the exercise in which still-active designer and hyperactive licensor Pierre Cardin is currently engaged in selling his business.  In brief:
".... Ever since luxury-goods giant LVMH Moet Hennessy Louis Vuitton paid richly for Italian jeweler Bulgari SpA in March, valuations of fashion houses have been on the rise. The industry is entering an acquisitive phase for the first time in a decade. ... The price Mr. Cardin wants — €1 billion, or $1.46 billion— is a stretch, industry watchers say.

Bankers estimate it could be worth about €200 million—but even that is a guess because of a lack of financial information. ... Mr. Cardin doesn't have a clear idea about his company's annual sales, which are garnered by some 400 license partners world-wide. ...

Says Mr. Mallevays [ex-LVMH executive, founder of boutique investment advisory Savigny Partners], "From a due diligence perspective it's an absolute nightmare, and goes contrary to the fact that he wants a lot of money for it." ...  
Like other fashion companies such as Dior and Gucci, he parlayed his cachet into licensed products far removed from fashion. But he went much farther, starting from a first license for porcelain crockery in 1968. There are Cardin toilets, strollers and heating units. Some 20 years ago, however, fashion labels began to realize that too much licensing harmed their global reputation. Now, fashion houses carefully handpick their licenses in areas that are related to the core business: Gucci has a perfume license with Procter & Gamble Co.; Swiss watch giant Compagnie Financi√®re Richemont makes Ralph Lauren timepieces.

Not Pierre Cardin. He continues to farm out his name to thousands of products world-wide....

In recent years, sales and profits at several of Mr. Cardin's subsidiaries have continued to slowly increase, according to the company's public records. Still, there is no global picture of his finances. Making his financial empire more nebulous, he claims to owns a 5% to 10% stake in each of the companies he licenses his brand to, as part of the royalties he collects....

Asked how he came up with the billion-euro valuation, [Cardin] takes out an old greeting card and, scribbling, says, "If I ask €10 million per product, which is nothing at all, per country, multiplied by 1,000, that makes one, two, three...." Dismissing the profusion of zeroes, he concludes, "One thousand products, 100 countries, that's how it calculates. It's nothing." ...".
The question for readers is this: how does one approach the valuation of an IP portfolio which contains a bundle of copyright and design rights which is likely to defy organised attempts at due diligence, and which is underpinned by a brand which is (i) extremely diluted through decades of apparently promiscuous licensing but (ii) highly recognisable and attached to a large number of product sectors in a correspondingly large number of countries?

A second question relates to the prospects of turning such a brand around by jettisoning some of its excesses and refocusing it by creating a new, fresh image to tie to the brand recognition and which promises a prospect of a good return: is this exercise feasible and, if so, how should it be tackled?

1 comment:

  1. As usual, Dr Johnson has the answer to the Pierre Cardin conundrum. Asked his recipe for a salad, the good doctor replied: "A cucumber should be well sliced, dressed with pepper and vinegar, and then thrown out as good for nothing".

    Tom Blackett