Michael Kors to Buy Versace – 3 Lessons for Acquirers

Michael Kors will purchase Versace for $2.1 billion as part of a plan to build a luxury fashion empire. After the deal closes, Michael Kors will change its name to Capri Holdings and have 18,000 employees worldwide.

While you may (or may not) be a fashionista, here are three lessons any strategic acquirer can learn from this deal.

1. Customer demand is key

Michael Kors traditionally has sold “affordable” luxury items through stores in malls, but like many retailers, the brand has faced challenges as shoppers’ tastes and habits have changed. More customers are shopping online and demand for an “affordable” luxury purse worth $400 is down. The acquisition of Versace, a high fashion brand that sells gowns for thousands of dollars will help Michael Kors offer the products customers want.

2. Consider buying a brand

In industries where brand name is critical, it’s often best to acquire rather than build your own solution. Barriers to entry can be high in many industries, including high-end fashion. The acquisition will help Michael Kors better take on rivals like LVMH, the owner of Louis Vuitton and Tapestry, the parent company of Coach and Kate Spade. An acquisition allows Michael Kors to gain scale and strong brand name quickly, so it can access the right markets and customers.

3. Take frequent bites of the apple

Last year Michael Kors purchased luxury shoe brand Jimmy Choo for $1.2 billion for many of the same reasons. Like Versace, Jimmy Choo sold higher priced products and was a strong brand name. The acquisition helped Michael Kors begin building its “multi-brand” strategy to increase sales. Acquiring multiple companies over time is one of the best tactics strategic acquirers use. Use each acquisition to build on previous deals to achieve long-term, sustained growth.

While the fashion industry may not apply to your organization, I encourage you to consider the underlying themes of the transactions that you read about in the news. Training your mind to think strategically in this way will help you learn from the successes and failures of others, so you can apply these lessons to your own M&A deal.

Photo credit: Phillip Pessar via Flickr CC BY 2.0