Italian fashion house Versace is selling a 20 per cent stake to U.S. private equity firm Blackstone for 210 million euros ($287 million), aiming to fund new shops and build on a recent recovery in sales before an eventual stock market listing.
The family-controlled brand, which chose pop singer Lady Gaga to promote it last year, struggled for years following the murder of founder Gianni Versace in 1997.
While it returned to profit in 2011, it has lacked the cash to expand rapidly in fast-growing markets abroad.
"This is a very large and very well-known brand so it could be revived ... but a lot of work has to be done on the creative side," Exane BNP Paribas analyst Luca Solca said in the wake of the deal on Thursday.
"The brand has to be updated and they need new ideas. With a minority stake it might not be possible to make these changes," he added, referring to the potential influence of Blackstone.
Versace, which had been gearing up for a listing before Gianni died, first flagged last April that it was considering opening up to outside investors.
The family does not want to relinquish control, a characteristic which has kept other Italian fashion brands like Giorgio Armani and Missoni in the hands of their founders, but which some analysts say has hampered their expansion.
"The vision is to maintain independence," Versace Chief Executive Gian Giacomo Ferraris told Reuters after announcing the deal.
Gianni's sister Donatella is creative director and older brother Santo is company president, while Donatella's daughter Allegra owns 50 per cent of the company and sits on the board.
Ferraris said a planned initial public offering in the next three to five years was still on the agenda, and Blackstone's investment would help the brand get there.
"In this intermediate period of time you need a financial investor, not a strategic investor," said Ferraris, signaling the company had not wanted a tie-up with another luxury firm or a more activist private equity investor which might have interfered with its management.
Mergers and acquisitions have been picking up in the luxury sector, as a growing number of cash rich buyers from Asia and the Middle East jostle with global luxury brands and private equity firms for deals in a growing industry.
Expansion plans
Thursday's deal values Versace, whose catwalk show in Milan earlier this month showed fishtail gowns and 1960s-style shift dresses, at around 14.5 times expected 2013 core earnings.
This multiple is higher than the luxury sector average of around 11, but well below the 31.5 times core earnings that Qatar's royal family paid to acquire Valentino in 2012.
Versace has 137 shops, and plans to reach a total of 200 directly-operated shops within three years, Ferraris said.
By comparison, fellow Italian designer Roberto Cavalli, whose vivid style is sometimes compared to Versace's, has 179 mono-brand stores, despite making less than half the revenue Versace expects to post for 2013.
"If you compare with competitors we deserve to be bigger," Ferraris said. "That is why we need a little financial help."
Ferraris said the company wanted to open in emerging markets, where demand for luxury goods remains strong, including Turkey, Korea and Japan. It shut all its shops in Japan in 2009 to cut costs as losses deepened.
Versace, which was founded in 1978, said it expects to post 2013 core earnings up more than 50 per cent to at least 69 million euros.
Goldman Sachs (GS.N) and Banca IMI (ISP.MI) advised Versace on the transaction. Blackstone was advised by Lazard.
