The famous beauty, eyewear and clothing company, founded by the former creative director of Gucci in 2005, is working with Goldman Sachs Group Inc. to explore a possible 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 long-standing licensing agreement for Tom Ford’s high-end beauty and fragrance lines. The cosmetics giant recently said that Tom Ford and Jo Malone, which it also owns, were each close to bringing in $1 billion in annual revenue. This could explain Estee’s alleged interest – the company is not commenting at this time – as it would not want to risk losing that lucrative licensing deal to a rival.
But Tom Ford’s business is not only about beauty. It also has an eyewear operation, which is manufactured and distributed by Marcolin SpA. There is no reason this arrangement could not continue under Estee Lauder. The trickiest part would be the Tom Ford clothing and accessories. Estee isn’t a natural fashion house owner, so she’ll probably have to find a luxury partner with clothing expertise.
Most likely, this will not be one of the top giants like LVMH Moet Hennessy Louis Vuitton SE or Gucci owner Kering SA. Why would they agree to produce clothing and accessories without 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, the former CEO of Gucci, who is now chairman of the Tom Ford brand, also sits on Zegna’s board.
So why doesn’t Zegna buy Tom Ford himself? It would be a useful addition to her portfolio alongside the newer label Thom Browne, which she bought four years ago. The sticking point may be the price. Although Zegna has a strong balance sheet after listing in New York through a special-purpose buyout company last year, its enterprise value is about $3 billion, about the price Estee Lauder is reportedly considering paying for Tom Ford.
Marketing itself as a beauty business, Tom Ford is looking to capitalize on some of the rich multiples paid for its cosmetics and skin care labels over the past five years.
Meanwhile, whoever makes Tom Ford’s simple suits or one-shoulder mini dresses will have their work cut out for them. They will have to keep the brand at the top of the luxury hierarchy in order to entice more consumers to buy its expensive lipsticks and fragrances. And although Tom Ford’s strength is in clothing, he doesn’t have a sought-after line of bags, the real profit driver of the luxury industry.
It is not clear whether Ford itself would be part of the deal. Bloomberg News reported that a deal could include an option to work with the founder after the sale. That could leave a private equity firm eager to get its hands on the beauty business as a potential buyer. But with funding markets taking hold, conditions may be tougher.
Estee Lauder would be as good a Tom Ford owner as any, but there will be some complexities to iron out. The trick will be to demonstrate that the beauty of this deal is more than skin deep.
This column does not necessarily reflect the opinion of the editorial board or of Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Opinion columnist covering the consumer goods and retail industry. Previously, she was a reporter for the Financial Times.
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