Reply With QuoteThey have an interesting portfolio. Maybe we can look forward to seeing Breitling concessions next to Costa in motorway service stations?
Edit - they would still only be the second most expensive item on sale. ;)
https://www.bloomberg.com/news/artic...ng-sold-to-cvc
What do you we all think will happen/thoughts?
They have an interesting portfolio. Maybe we can look forward to seeing Breitling concessions next to Costa in motorway service stations?
Edit - they would still only be the second most expensive item on sale. ;)
PE buys to sell.
That means costs down, prices up, and another new owner within two or three years.
Breitling is so expensive already i feel. Who will buy it if prices go up even more?Originally Posted by Seamaster73
Sent from my iPhone using Tapatalk
It's hard to say without knowing more about Breitling - it's a private company so there's no real sense of what's going on in terms of capital structure and income/costs.
Generally PE firms will have companies they acquire take on as much debt as the business will support, but who knows if this is more or less than the current amount.
One would guess that Breitling isn't doing so well so cost controls will likely be paramount. The other thing is whether the product mix is right - ensuring the management have an experienced team to be able to decide which lines are the most profitable is important, but again who knows if this is already the case or not.
Taking clues from previous PE transactions in luxury goods, there's any number of things they might try. They might try to reposition the brand (for example cutting the number of more expensive or less expensive models to shift the overall balance), refocus the distribution (e.g. cut distribution to weaker retailers or focus more on brand boutiques, as in the cases of Tommy Hilfiger or Samsonite), bolt-on other companies (e.g. Lemania was acquired by Breguet and Heuer merged with TAG while they were under PE ownership)
PE investments being sold in 2-3 years is pretty rare these days. 4-5 years or longer is typical.
At face value I'm a bit surprised by it. Either they paid a decent price for a reasonably performing company that in my opinion does not have an extremely strong brand position (i.e. not much scope to be a much of a market leader in a very crowded field) or they paid a low price for something that needs to be overhauled, which CVC generally does not aim to do when it buys companies. They also do not have any particularly strong record in luxury goods. But of course there's not much information available to the public on private companies so there could be any number of opportunities that I simply won't be aware of, and CVC are one of the best private equity investors in Europe.
TBH, Breathing prices have stretched beyond what the majority of the market will tolerate for the brand - which is probably why they are not performing that well.
When you look long into an abyss, the abyss looks long into you.........
As long as it steadies the ship, it's good?
I really can't see prices going up further though, but then I'm no expert.
I used to be a Breitling fan having perviously owned two Navitimers, an Aerospace and a SuoerOcean. The brand then started opening up their boutiques around the same time as running that dreadful pop art campaign. The over-pricing together with a childish branding campaign really put me off them. It was as if they were trying to target the rich kids of instagram.
It seems that the way the watch business is nowadays, price hikes for successful brand, no matter their original price bracket, are mandatory. But there are two very important aspects to get right I think: the pacing of the hikes, and knowing where to stop. I bet Breitling, as well as many other companies, employ analysts whose only job is to make good educated guesses about this.
And there is the final ingredient, which can make or break a brand in the process of becoming more luxurious, and where there really is no proven formula: the mythology of the brand which needs to match the pricing at least roughly, and which a brand needs to constantly nurture and, more importantly adjust to suit their purpose of making more money - but without being caught doing that. Breitling have done that well from the 1990s to around ten years ago in my opinion, but lately, they have been rushing too much, and their image has been growing less and less solid. One thing I definitely noticed as a would-be customer is that they were unable to keep projecting their supposed enthusiasm for aviation and all things macho and extreme - what felt honest in the past began to feel rehearsed, and even pandering, and that can really be the kiss of death in the long run. These things are always a matter of the gut feeling of customers, and when enough of them don't buy into it any more, they also cease to buy the product. I can't say whether Breitling are actually headed that way, maybe I'm the minority here, but this is my take on the situation, FWIW.
Cut costs and possibly outsource parts of the business. Increase profit margin. Sell.
Good analysis. I'm guessing you work with/for PE firms?
I half expected Rolex to buy them after the collaboration on the chronograph with Tudor.
Sent from my iPhone using TZ-UK mobile app
Lots of speculation about why Cvc bought it but it would be interesting to know why the current owners decided to sell. I suspect they approached potential purchasers first rather than the other way round. If cvc have bought cheap then simple asset stripping might well be on the cards.
Sent from my iPhone using TZ-UK mobile app
does CVC not own the RAC? maybe they could do a callout service for breakdowns ?
I think most people saw this coming, I mentioned recently in a thread that they were either going out of business or going to sell with the price grab increases recently.
What it means going forward who knows but considering the state of the industry currently it's going to be difficult to turn around their fortunes, they do have some iconic designs and watches if they can milk those a bit maybe they can come back.
Zenith on the chopping block next imho! Anyone else got picks for the next to one to get in trouble
That was really quite interesting, but I guess it goes back to the day when most of the major watch brands were independent and providing ebauches to one another was fairly routine. Then the brands consolidated into luxury groups and this practice was slowly unpicked - no more JLC ebauches in AP and others, etc - only really within groups (e.g. Zenith calibres in Tag and Bulgari, Piaget calibres in Cartier, and so on).
I'm sure CVC (or any buyer of Breitling) will already have a few ideas on who the possible eventual buyers will be in however many years' time (and develop this over the period) but for me it's hard to imagine Rolex acquiring Breitling - it's just such a direct competitor to Tudor and it feels like they already make enough watches to not need to pump up their scale. If Tudor had been standalone I could see why they might want to expand their distribution network but I'd imagine Rolex already has a pretty strong network anyway. I suppose if Rolex ever wanted to sell Tudor they've got a good candidate for a buyer now =P
For me it seems difficult to imagine also that LVMH, Richemont, or Swatch would want to pick up Breitling either barring a huge growth trend in watches - they've already got direct competitors in their portfolios. Kering is a bit lighter on the watch side with only GP/JeanRichard and Nardin, which are pretty thin outside of Asia it seems, so maybe it could make sense for them since they could get some synergies on the distribution/after-sales. You also can't discount the possibility it will be sold to some Asian brand group like Corum or Maurice Lacroix were. Of all the other watch groups I can't think of anyone else really big enough to acquire/merge with Breitling eventually - probably why they ended up with CVC as they'd been seeking a sale for a while.
Why do you think so? It would be rather unlike CVC to buy to liquidate (there are other firms that specialize in that) and €800m seems like a lot to pay if you're just going to strip it for parts. Plus the 20% equity stake by the previous owners suggests that, if the new owners do intend to liquidate, they certainly didn't tell their new minority shareholders that they do (and minority shareholders get protections or can sue).
To be fair Zenith seems to be doing a lot better now versus when they were first acquired from Movado. I bet LVMH is much happier that they ended up with Zenith rather than Ebel. Zenith just needs the right CEO.Zenith on the chopping block next imho! Anyone else got picks for the next to one to get in trouble
Perhaps this will be the new default answer for "investment" watches. :)
PE buy out not a surprise the firm doing it - given their portfolio - is. But if they bring in decent industry people it could work.
I reckon the Chinese will try establish the brand to the Asian market in which the previously company couldn't market and establish itself well enough before.
Chinese need a watch brand, China is a large market and Breitling might be the next thing to the far east.
CVC Capital Partners were until recently the owners of Delta Topco, which owned the commercial rights of Formula 1.
CVC Capital Partners employed Bernie Ecclestone to maximise their income from the business of Grand Prix racing, and sold their shareholding to Liberty Media having made vast profits, at the expense of almost every team, promoter and circuit owner in the sport.
Their departure has led everybody involved in Formula 1 to breathe a sigh of relief.
I'm guessing lots of watches based on old designs to minimise R&D, then it'll be sold to another watchmaker. Maybe Rolex/Tudor could pick it up for the change down the back of their HQ's sofas.
They're PE. They're all evil. To coin a phrase, the unacceptable face of capitalism.
Looks good to me. I'd happily invest with them, if only I was in that league. ;-)
CVC is run by very smart people. Sorry to disappoint some of you but they aren't viewed as smash and grab merchants, (industry insider so I have seen lots of similar PE firms and can base my comment on observing lots of PE shops). Breitling has gone in an interesting direction with its sponsorship of competitors in Red Bull's air races (and building a good brand awareness in China and emerging markets) and IMHO the current brand management has been pretty strong. I would guess CVC have seen both value and opportunity and I wouldn't be surprised if they have 'bolt-ons/other acquisitions' planned for Breitling. Expect them to be patient and pretty long-term in this project.
What management changes and new initiatives leads to in terms of products only time will tell.
I only have one Breitling in my collection (a Cosmonaute I bought 37 years ago) which is a companion to my Speedy Moon watches adhering to the space watches theme. Many of you will know the story, but for those that don't: Breitling's Cosmanute was the first wrist watch to be worn in space by an American astronaut, Scott Carpenter on May 24th 1962. Carpenter asked Breitling to make him a 24 hour watch for the Aurora 7 mission, so the re-geared Navitimer movement and 24 hour dial 'Cosmonaute' was born. Carpenter trashed it by dunking his arm in the Pacific ocean while waiting to be picked up at the end of the mission! (Carpenter was pretty accident prone - he cocked up the re-entry glide angle and overshot his landing point by 260 miles... NASA dropped him from their space programs afterwards).
Last edited by tom waring; 28th April 2017 at 16:46.
I didn't say that they were "smash and grab merchants".
They are, however, ruthless and cynical.
It'll be sold on within 3 years
Mozza
Sent from my iPhone using TZ-UK mobile app
Did I say you did?
Reduced sizes
Modernised product line
Models with links to their back catalogue from the 1960's and 1970's.
There is a place for Breitling and it was not hard to spot. PE with do well out of this one as long as the industry downturn does not get worse.
Hopefully they will keep their operational staff. Always found them very friendly at BUK.
Scale back the range (its to numerous)
Better marketing.
Share R&D
Sell to Swatch.
Whoever does not know how to hit the nail on the head should be asked not to hit it at all.
Friedrich Nietzsche
A smart watch maybe?
I read an article recently in WatchTime magazine stating that in 2016 only 2 out of the top 15 export markets for Swiss watches grew in terms of Swiss Franc value (both the UK and S. Korea by + 3.7%) and Hong Kong's market - still in the No.1 position - has halved in the past 4 years, last year alone it dropped by a gnat's over 25%. 7 of the top 15 dropped by double digit figures.
I'm sure that CVC wouldn't have bought in if they couldn't see a financially beneficial way out though it certainly looks tough at the moment. I know zip about such acquisitions however I'd wager that CVC thought they got a good price in a depressed market and are in it for the long term.
Now THAT's an interesting idea - especially if targeted at luxury pastimes (aviation, for example)?
I would say the following:
1- breitling doesn't appear to own assets that's can easily be sold off.... that's normally in the form of property holdings, factories, mines etc
2- they have a luxury brand and luxury brands are doing well due to wealth creation in Asia
3- as a watch company their capital expenditures prob aren't v high
So CVC prob will load them up with debt, as that is an tax efficient way of taking money out of company. They will prob try to focus on Asia and possibly sell/close retail outlets in Europe.
PE typically isn't short term in thinking any more, so expect them to try to maximise value of business over 5-7 years by focusing on growth and or profitability.
I've written 'probably' a lot because lots of unknowns. I highly doubt anyone at CVC will be thinking about the actual range of watches they produce!
Sent from my iPhone using Tapatalk
They may be trying to buy at an inflection point. HK was a massive growth market because retail prices were much lower than China for many luxury brands - this discount versus China RRP was consistent around the world (and indeed was a strong driver of European sales by Chinese visitors), but most brands dropped the policy of keeping Chinese RRPs high and opted for a strategy of keeping RRPs roughly equivalent globally. Coupled with a crackdown in bribery, graft, and conspicuous consumption plus aggressive expansion, China slowed significantly. This is starting to relax now that purchases are made using the wealthy's own wealth, rather than receiving luxury goods as 'gifts' which was previously typical but now frowned upon. There are early indicators of renewed luxury goods growth in China - e.g. luxury automobiles growing despite a luxury goods tax on them. I would expect HK to stagnate now that it's purpose of feeding Chinese buyers has ended but this can be made up by local Chinese consumption (the same buyers anyway).
Agreed, I think one would struggle to unload a watch factory given the need for other buyers to retool it and the relatively large volumes of Breitling would make it hard to be absorbed. Given that they've already developed the B01 movement and have a partnership with Tudor, it's hard to see a need for major capex.
With regards to whether CVC folks are thinking about the watch range, it probably isn't the place of a buyout firm to take such a granular approach - they would probably focus on hiring the right management team who will in turn take a good look at the range. As you suspect not everyone is a watch nerd like us folks! They will usually sit on the board so they will want to guide rather than totally micromanage what should be a company's core competence.
Cap could easily be ex'd on brand building exercises. It will be interesting to see what happens, but I suspect servicing will get more expensive at some point.
Technically brand building is not capitalised under IFRS but one certainly takes your meaning that this could require investment
Breitling increasing prices, crikey-their sales reps are going to have their work cut out.
It seems to me that a price cut (with or without new models) might be more likely with a view to increasing volume and overall income.
But that's just me: I distrust niche and always veer towards 'upper' mass market. I think it's less risky. Eggs in more baskets.
Last edited by markrlondon; 29th April 2017 at 16:44. Reason: Fixed weird typos
A price cut would make sense given they are always substantially discounted but has the risk of being perceived as a sign of weakness and big brands are very wary of doing that. A price rise in UK has more to do with the current weakening of GBP. I may be wrong but I don't think they have been increased every where.
Anyway, hope Breitling continue to thrive as they are an important segment of Swiss watch industry.
Haven't they just increased prices across the board last week?
My thoughts precisely, I cannot see this as good news for the brand (but better than Breitling going bust).
If I was running Breitling, I'd double down on "instruments for professionals", differentiating the brand from all the other mid-tier Swiss by focussing on HEQ and smartwatches. If the next generation of Aerospace isn't a smartwatch, they've blown it.
I think you might have a point here, as long as they guarantee somehow that the OS isn't going to suffer form bitrot after just a couple of years. A Tag style buyback/upgrade guarantee might be the solution.
The problem with losing true independents is losing real design and innovation. Private equity firms only have the true bottom line outlook they could care less what you the collector wants just what the larger underinformed market wants. Appeal will be lost over market share by money value and the investors scream over low returns for returns.
To be honest I think being independent isn't completely necessary to be able to design and innovate. Nor do I think brands can only focus on either watch enthusiasts or the broad market.
Look at Tag Heuer - with LVMH's resources and support and the right strategy, they've actually done quite well appealing to both - I don't think many Tag purists are going to appreciate the new Carrera 01, but the new Autavia and Carrera re-editions look great.
At the end of the day, investors know they have to sell Breitling one day, and if they diminish the brand's value it will be reflected the eventual selling price. They've also got the family who backed Breitling for nearly 40 years staying on as shareholders, who were unlikely to have sold the business to anyone who didn't have some kind of shared vision for the brand's identity.
Honestly, investment firms tend to not want to be seen as completely gutting, trashing, mismanaging, or stripping the companies they acquire because nobody would sell to them in the future.
Although I am not disagreeing with you about this particular case (I don't know enough about CVC to know one way or another), I think that this...
... is not true in general. If investment firms don't want to be seen this way then they have failed dismally because they are in fact almost universally seen this way. They are seen this way because, historically at least, a great many of them have acted in exactly this way. It's become a cliché because it was (still is?) real.
That said, it doesn't matter. Really, it doesn't matter. Why? Because, even though people complain, it never makes any substantive difference in the longer run. People forget and/or never enough people care. (See also politicians: They too have learned that they can do anything and once the outcry has died down not enough people care or remember to make a difference.)
Posting Permissions
