Diversification of economy: Valentino deal gives Qatari royals foot in Kering's door

Mayhoola also controls France’s Balmain, Zileri of Italy and Turkish Beymen

MILAN (Web Desk) – As the Gulf States aim at diversification of their economies which are dependent fossil fuels, Reuters reported that Kering's deal to acquire a 30 per cent stake in Valentino gives the Qatari royal family a foot in the door of a much bigger luxury giant, as they consider further joint investments with the French group to expand their alliance.

Kering said it was buying the stake for 1.7 billion euros ($1.87b) in cash from Mayhoola, the investment vehicle backed by the Qatari royals, with an option to purchase the remaining shares no later than 2028.

Mayhoola, whose strategy focuses on global investments in the luxury industry with a long-term investment approach, also controls French luxury house Balmain, Italy's small brand Pal Zileri and Turkish luxury department stores Beymen.

The deal, hot on the heels of Kering's acquisition of high-end perfumer Creed, highlights the return of big-ticket M&A activity in the sector as luxury groups look to diversify sources of revenue against an uncertain economic background and slowing demand.

It also paves the way for the Qatari royals to play a higher-profile role in the 400 billion-euro luxury goods market, traditionally dominated by family-owned European companies.

Qatar – a tiny gas-rich Gulf State – is pursuing a path similar to the United Arab Emirates which have been joined by Saudi Arabia under Crown Price Mohammed bin Salman.

Just recently, Japanese Prime Minister Fumio Kishida's visit to the Middle East last week has led to a flurry of agreements for studies that Japan hopes will encourage key countries in the region to become hydrogen partners.

Read more: It's not oil or LNG: Japan lays foundations for green energy cooperation with Gulf States

The July 16-18 trip to Saudi Arabia, the United Arab Emirates and Qatar, had led to some market expectations of oil and liquefied natural gas (LNG) deals. Those did not eventuate.

Instead, the trip which saw Kishida travel with representatives from 40 Japanese companies, appears to have fulfilled its stated aim of promoting cooperation in green and renewable energy.

Gulf countries are seen as well placed to form a green energy production hub due to their low solar energy production costs.

On the other hand, Qatar Sport Investments is also targeting Man United – a top Premier League Club – which took over France’s Paris Saint-Germain (PSG) in 2011. And reports suggest that it is zooming in on Malaga in Spain’s La Liga.

Meanwhile, the Valentino investment is part of a broader strategic partnership between Kering and Mayhoola, which could lead to Mayhoola becoming a shareholder in the French group, Kering said late on Thursday.

Mayhoola aims to build a stake in the luxury giant by initially acquiring shares in the market, a source with knowledge of the deal said on Friday.

In five years Mayhoola could further increase its stake by selling the remaining 70pc of Valentino to Kering for a mix of cash and Kering shares, the source said. Mayhoola bought the Rome haute couture house in 2012 from private equity fund Permira for around 700 million euros.

In the meantime, Kering and Mayhoola will explore further potential joint investments with a view to broadening their partnership, Kering boss Francois-Henri Pinault said on Thursday. The French group is striving to bulk up and lessen its reliance on top brand Gucci which has been losing steam in recent years and failed to keep pace with the post-pandemic rebound of rivals like Louis Vuitton, owned by Europe's most valuable company, LVMH.

"The emir does not want to sell out of luxury. This is a transaction that gives Mayhoola the chance to still play a big role in the sector but as part of a much bigger entity," the source said.

The two have a period of time ahead of them to see if they get along, the source added.

Mayhoola did not immediately reply to a request for comment.

Kering has a market capitalization of 67bn euros.

The 1.7bn euros price tag it is paying for the 30pc stake in Valentino implies an enterprise value of around 19 times the Italian company's 2022 core profit, according to Exane-BNP Paribas analysts.

"Higher multiples are likely to acquire a controlling stake," the analysts said in a note.

The deal between Kering and Mayhoola was agreed in less than three months, with the heads of the two groups starting to talk in May, the source close to the transaction said.