The Ermenegildo Zegna Group, the Italian luxury textile and fashion brand well known all over the world, will go public on the NYSE thanks to a business combination with Investindustrial Acquisition Corp. (IIAC) (see here the press release), the SPAC sponsored by Investindustrial, the private equity firm founded by the Italian financier Andrea C. Bonomi. IIAC actually listed on the NYSE last November, taking in $ 402.5 million from investors (see here a previous article by BeBeez).
Upon completion of the transaction, which is scheduled for the fourth quarter of this year and is subject to standard regulatory approvals and conditions, as well as the favorable vote of Spac shareholders, the Zegna family will continue to have control of the company with a 62% stake. Based on the value of the transaction, the merged entity will have an expected initial enterprise value of 3.2 billion dollars with an expected market capitalization of 2.5 billions, assuming zero withdrawals by current shareholders of IIAC, a price of 10 dollar per share upon completion of the transaction and no impact from private and public warrants (as they become exercisable at a price of 11.50 dollars per share).
The Boards of Directors of IIAC and Zegna both unanimously approved the transaction. In detail, SPAC has signed a definitive aggregation agreement with the Zegna group which will bring the group a total of 880 million dollars in fresh capital. In fact, approximately 403 millions of these will be paid in cash by the SPAC; while other 250 million dollars will come from a PIPE (Private Investment in Public Equity) agreement, which has been increased by 50 million dollars compared to the original target in light of the strong demand from investors and which was signed by a group of high profile institutional investors, including the involvement of one of the leading global asset managers in the United States, as well as several prominent names in the luxury industry, board members and top management of the company. Finally, other 225 million dollars will come from the forward purchase agreement signed with Strategic Holding Group sarl (SSH), an independent investment vehicle of the Investindustrial VII fund, as already announced at the time of the listing of SPAC (see here a previous article by BeBeez), and which will lead it to hold about 11% of the company. SSH’s investment will be subject to a lock-up period of up to a maximum of 3 years.
UBS Investment Bank acts as exclusive financial advisor of the Ermenegildo Zegna Group and co-lead placement agent of PIPE. Deutsche Bank, Goldman Sachs & Co. and JP Morgan Securities also act as co-lead placement agents of the PIPE. Sullivan & Cromwell acts as legal advisor to the Ermenegildo Zegna Group. Deutsche Bank, Goldman Sachs Bank Europe, JP Morgan Securities and Mediobanca act as financial advisor to Investindustrial Acquisition Corp. Mediobanca has provided the fairness opinion to the Board of Directors of Investindustrial Acquisition Corp. Chiomenti and Kirkland & Ellis act as legal advisor to Investindustrial Acquisition Corp. Shearman & Sterling acts as legal advisor to placement agents.
We recall that Investindustrial’s SPAC is chaired by Sergio Ermotti. SPAC is headed by ceo Roberto Ardagna, while the cfo is Andrea Cicero. Both have been managers of Investindustrial for years. Members of the board of directors are also Dante Roscini, former top banker of Morgan Stanley and Merrill Lynch and now professor of finance at Harvard; Michael Karangelen, formerly of TowerBrook Capital Partners; Teensie Whelan, professor at NYU Stern School of Business.
As for the Ermenegildo Zegna group, since its inception in 1910 it has evolved from an exclusive manufacturer of fabrics and men’s clothing to a supplier of luxury goods for customers all over the world. While the Zegna brand remains the flagship brand of the group and the emblem of Italian excellence, in 2018 Zegna acquired the majority stake in the US brand Thom Browne. Zegna’s management has been able to capitalize on Thom Browne’s unique strengths, specifically the coherence and recognizability of the name, the young clientele, the high digital penetration and its iconic collections, doubling its turnover compared to 2018. The Zegna brand has thus been able to extend its leadership in the informal segment of luxury leisurewear, which has gone from representing 38% of revenues in 2016 to over 50% in 2021 (to date), while maintaining its leadership also in formal clothing. Over the years, Zegna has also strengthened its laboratory platform for textiles and luxury manufacturing, entirely Made in Italy and unique in its kind, through the acquisition of Italian textile companies.
At the end of December 2020, Zegna was present in 80 countries through 296 direct stores. In 1991 Zegna was the first men’s luxury brand to enter the Chinese market: in 2019 Greater China accounted for 35% of the Group’s total revenues for clothing, accessories and fabrics. This year the group expects to achieve annual revenues in line with the levels of 2019. That year the group had closed the financial statements with consolidated revenues of 1.32 billion euros, an ebitda of 297 million and a net financial debt of 646.6 millions (see here the Leanus analysis after registering for free). In 2020, however, the group was affected by the impact of Covid-19, with a 20% drop in revenues: “We managed to stay above the billion euros in turnover, which was my goal, and to preserve cash and maintain a positive ebitda thanks to cost cutting “, said the ceo of the Zegna Group, Ermenegildo” Gildo “Zegna, to Reuters last January.
Now, regarding the operation just announced, Gildo Zegna commented: “More than 111 years ago, my grandfather and my namesake founded Zegna with the conviction that attention to the environment, the community and people should be the foundation to create the finest fabrics and a successful brand. Since then, we have proudly followed in his footsteps to become an authentic Italian luxury group in the world. Today’s announcement underscores the success of our strategy in constantly focusing on Zegna’s brand equity while continuing to strengthen our heritage, our ethics of sustainability and the uniqueness of craftsmanship that has made our name synonymous with the highest quality and global luxury. Upon completion of the transaction, the Zegna family will retain control of the company and we will continue to invest in creativity, innovation, talent and technology to support our leadership in the global luxury market”.
Andrea C. Bonomi, founder of Investindustrial and chairman of the Industrial Advisory Board, said: “For over thirty years, Investindustrial has invested and supported both growing and established Italian brands. We believe in the strength of Made in Italy, which has always been recognized all over the world for quality, craftsmanship and innovation. At Zegna we have identified a group that also combines a strong family tradition and a leadership position in sustainability, one of the pillars of Investindustrial’s investment strategy. We want to support the Zegna Group with a long-term commitment and a significant investment to support the Company’s current expansion and growth with the aim of bringing Zegna’s exceptional tradition and luxury craftsmanship to an increasingly broader base of consumers worldwide”.
Sergio Ermotti, chairman of Investindustrial Acquisition Corp., added: “Our SPAC was created for precisely this type of operation: bringing on the stock market a well-managed company with solid fundamentals and strong growth potential like Zegna. Our goal now is to support the group in this new chapter of its history while providing the market with the opportunity to invest in one of the few iconic independent brands in the luxury world”.