Dubai investors branch out into French fashion

Published: 16 June 2008

HSBC acted as a financial adviser to Dubai-based M1 Group Ltd on its USD210 million acquisition of French-based premium apparel brand Façonnable, from US fashion retailer Nordstrom.

The newly-formed M1 Fashion plans to strengthen Façonnable's presence in Europe, with Asia and Russia as the next target areas, while the deal served as an affirmation of HSBC's relationship with M1.

M1 Group, an international conglomerate owned by the Lebanese Mikati family, began life in the construction industry in the early 1960s. In the 1980s, the company ventured into telecommunications through its launch of Investcom, which initially offered telecom services in Lebanon. The 1990s saw Investcom expanding its reach as a reseller of Middle East air traffic to US fixed-line telecommunications service providers. After establishing itself in Monaco and the UK, Investcom enlarged its African and Mideast presence with networks in Ghana, Benin, Yemen, Syria, Guinea Bissau and Sudan.

In 2005, the firm first partnered with HSBC for its initial public offering (IPO). Valued at USD3.3 billion, Investcom shares listed on both the London and Dubai stock exchanges and were considered one of the largest international listings by a Middle East company. After the sale of Investcom to South African telecom firm MTN, M1 again began to look for new investment opportunities. "The Mikati family became a very important client of HSBC's private banking unit," says HSBC Securities USA Managing Director John Park.

After Investcom, diversification became a core strategy for M1's expansion plans. The company subsequently ventured into energy, travel, airlines and real estate. The Façonnable acquisition marked its first acquisition, both in the fashion industry and the luxury goods business. "As they are a French Lebanese family, the transaction was a natural one for the Mikatis. They grew up admiring the brand and knew that they could restore the brand to its proud heritage," said Mr Park. "The Mikatis are savvy financial investors who only do deals that would also provide a healthy rate of return."

With a reputation for luxury and quality, Façonnable first won recognition for the custom tuxedos it created for the 1958 Cannes Film Festival. In 2000, Nordstrom acquired the brand. The move was thought to be a good one for Nordstrom since it was already established as a high-end fashion retailer in the United States.

But in 2007, the US retail market faced tight margins and growing overhead costs. Nordstrom decided to refocus its business on retail, and considered options for Façonnable. "The idea (Façonnable) originated from the US," said Mr Park. "Our local teams in the Middle East and Europe then started a dialogue with M1, who showed a tremendous amount of interest."

With a relationship already established, M1 turned to HSBC for financial advice. HSBC's deep experience in cross-border transactions allowed for seamless execution of the deal. "The awarding of the business became a true global effort, joining up the strengths and capabilities of investment banking, private banking and equity capital markets teams," said Mr Park.

Figures soundly back the deal. As Façonnable is considered an affordable luxury brand (branded goods priced a notch below top-tier designer), luxury goods sales data would be critical. In its 2006 annual global luxury goods market study, global business consultancy Bain & Company reported a nine per cent growth in sales in 2006. The study found that growth was spread across all major luxury brands and that Asia-Pacific sales grew by 18 per cent. China is one key growth area, where retail sales figures have been trending upwards (see chart).

China retail sales

Data sources: Central Bank, Thomson Financial Datastream, Bloomberg, HSBC estimates and forecasts

The 2007 annual International Herald Tribune Luxury Business Conference similarly identified Asia as a main growth area. Outside the traditional luxury sales bastions of the USA, Europe and Japan, Asia showed the highest increase of high-net-worth individuals (HNWI), the primary market for luxury goods.

HNWIs (millions) 2006

Data sources: HSBC, Capgemini

Even as the world economy continues to go through a slowdown, the long-term forecast for luxury goods is still upbeat in areas where M1 wants to grow Façonnable. This bodes well for M1's entry into the fashion business, giving it promising opportunities and fresh retail experiences for its clients.