Beauty is in the eye of the beholder. The adage will really be the case if Estee Lauder Cos. acquires Tom Ford for $3 billion.
While the cosmetics group may covet full control of Tom Ford’s beauty and fragrance arm, dealing with the company’s clothing and accessories would be much more of a stretch.
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The eponymous beauty, eyewear and apparel company, founded by the former Gucci creative director in 2005, is working with Goldman Sachs Group Inc. to explore a potential sale, Bloomberg News reported last month. On Monday, Dow Jones reported that Estee Lauder was in talks to buy the brand.
Estee Lauder already has a longstanding licensing arrangement for Tom Ford’s high-end beauty and fragrance lines. The cosmetics giant said recently that Tom Ford and Jo Malone, which it also owns, were each close to bringing in $1 billion a year in revenue. That may explain Estee’s supposed interest — the company isn’t commenting at this time — as it wouldn’t want to risk losing that lucrative licensing arrangement to a rival.
But the Tom Ford business isn’t just about beauty. It also has an eyewear operation, which is produced and distributed by Marcolin SpA. There’s no reason this arrangement couldn’t continue under Estee Lauder’s stewardship. The trickier part would be Tom Ford’s clothing and accessories. Estee isn’t a natural owner of a fashion house, so it would probably need to find a luxury partner with expertise in apparel.
This most likely won’t be one of the bling behemoths such as LVMH Moet Hennessy Louis Vuitton SE or Gucci-owner Kering SA. Why would they agree to produce the clothing and accessories without the beauty?
A smaller luxury group, such as Ermenegildo Zegna Holditalia SpA or Diesel, would make more sense. And Zegna already has a commercial relationship with Tom Ford. Domenico De Sole, Gucci’s former CEO who is now chairman of the Tom Ford brand, also sits on the Zegna board.
So why doesn’t Zegna buy Tom Ford itself? It would be a useful addition to its portfolio alongside the younger Thom Browne label, which it acquired four years ago. The sticking point may be the price tag. Although Zegna has a strong balance sheet after its listing in New York through a special purpose acquisition company last year, its enterprise value is about $3 billion, around the price Estee Lauder is reported to be considering paying for Tom Ford.
By marketing itself as a beauty business, Tom Ford is looking to tap into some of the rich multiples paid for cosmetics and skincare labels over the past five years.
Meanwhile, anyone producing Tom Ford’s streamlined suits or one-shoulder mini-dresses would have their work cut out. They’d have to keep the brand at the high-end of the luxury hierarchy in order to tempt more consumers to buy its pricey lipsticks and fragrances. And even though Tom Ford’s strength is in apparel, it doesn’t have an in-demand handbag line, the real profit driver of the luxury industry.
It’s not clear whether Ford himself would be part of the arrangement. Bloomberg News reported that a deal may include an option to work with the founder after the sale. That might leave a private equity firm, keen to get hold of the beauty business, as a potential buyer. But with financing markets seizing up, conditions may be more difficult.
Estee Lauder would be as good an owner of Tom Ford as any, but it’ll have some complexities to iron out. The trick will be demonstrating that the beauty of this deal is more than skin deep.
Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry. Previously, she was a reporter for the Financial Times.