The Acquisition of Jimmy Choo by Michael Kors: Focusing on Synergies and Financial Aspects

Louise Wendel Andersen & Line Hyldgaard Sørensen

Student thesis: Master thesis

Abstract

The luxury market is becoming a more and more consolidated industry characterised by a significant number of large players. These large corporations house up to 60 different brands within the luxury segment. American Michael Kors has been a large stand-alone player on the luxury market, but to keep up with the large corporations, the company acquired English Jimmy Choo mid year 2017. This makes it interesting to examine and estimate the value of these potential synergies Michael Kors can realize after the acquisition of Jimmy Choo. The method towards finding the intrinsic value of the potential synergies, initiates with a theoretical view on motives and synergies in mergers and acquisitions (M&A) and how these are specifically for the luxury industry. Followed by a detailed strategic and financial analysis of the companies and the personal luxury industry. This will act as the fundament for the forecast and valuation of Michael Kors and Jimmy Choo as stand-alone companies. The potential synergies Michael Kors are expected to gain after the acquisition will then be identified and forecasted, which will add to the valuation of the consolidated company and thereby the value of the synergies. Sensitivity analysis and the use of secondary valuation methods will create a critical view of the estimated values. The aim of the acquisition of Jimmy Choo was found to be the realization of potential synergies, and furthermore providing Michael Kors with a stronger presence within the luxury field. Additionally to this, Michael Kors seeks a greater focus on the luxury segment in comparison to the premium segment, but also to exploit cross-selling advantages and geographical expansion. The intrinsic value of the synergies between Michael Kors and Jimmy Choo was estimated to USD 464 million as of the 1st of November 2017. The key synergies found in this thesis is revenue synergies and not traditional hard synergies, as cost savings, which is likewise the general trend in the luxury sector. The value of the synergies are not fully reflected in the price paid for the acquisition, given the higher expected value of the synergies together with the equity value of Jimmy Choo stand-alone compared to the acquisition price.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final ThesisMSc in Accounting, Strategy and Control, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2018
Number of pages167