Deal Mechanic: Haute Returns

When Permira started the acquisition process for the Valentino Fashion Group and its subsidiary, Hugo Boss, in May 2007 the world was a different place. Lehman Brothers was still the doyen of Wall Street, Europe’s GDP growth rate was at 3.1 percent, and European buyout houses were routinely saddling portfolio companies with debt of more than 6x EBITDA.

Permira paid a combined €5.3 billion, including debt and fees, for the two listed fashion businesses, acquiring 100 percent of VFG and 73 percent of Hugo Boss. During the firm’s mandatory takeover bids for the companies in 2008, the financial world felt the first rumblings of the crisis. 

As LPs struggled with liquidity issues Permira approached investors in its €11.2 billion fourth buyout fund in December 2008, offering them the chance to cap their commitments to the vehicle at 60 percent of the original sum, which brought the fund down to €9.6 billion. 

All of a sudden a massive retail deal with debt on entry of 8x EBITDA was not looking like such a good idea.
What followed is a story of perseverance and strength of conviction. By sticking to its original business plan and carefully restructuring its finances, Hugo Boss – and Permira IV – weathered the crisis better than anyone could have imagined. 

By the time Permira sold its final stake in the German fashion house in March 2015 sales had increased by 60 percent to €2.6 billion, EBITDA had doubled to €591 million, and Hugo Boss had opened more than 750 new stores across the globe. 

Together VFG – sold to Qatari investment group Mayhoola for Investments in July 2012 for around €700 million – and Hugo Boss generated an overall return for Permira IV of 2.3x.


In the first months of the crisis Permira took a close look at all the financing structures it had in place. 

“During the financial crisis we had to renegotiate the financing structure with existing lenders to make it sustainable given the environment,” says Martin Weckwerth, a partner in Permira’s Frankfurt office who worked on the Hugo Boss and VFG transaction. “None of the financing structures in any of the deals we did stayed untouched.”

But the financial crisis also opened up an opportunity for those GPs certain they were on to a good thing. While private equity firms were keen to reduce debt levels, banks were keen to recoup some of their cash. 

In 2009 Permira negotiated with lender Citigroup to buy back a third of its debt at a 62 percent discount.
On a much more stable footing, Permira could then re-discuss with its lenders the terms of the remaining debt so all parties were more comfortable. 

Debt was further alleviated through the €700 million sale of VFG in 2012, which put Permira in a strong position in 2013 to recapitalise Red & Black, Hugo Boss’s holding company, and return 47 percent of the initial costs of the investment to investors.


In summer 2008 Permira brought in Claus-Dietrich Lahrs as CEO of Hugo Boss, and together they built up a core management team. 

Chief executive of Christian Dior Haute Couture from 2003 to 2008, Lahrs joined LVMH in 1997 having previously been vice president of marketing and sales at Cartier. By the time he joined Hugo Boss he had built up extensive management experience in the US, in Asia and in Europe – positioning him well to steer the group’s global expansion plans. 

“Lahrs is one of the few German managers who has global experience in the luxury sector,” Weckwerth says. “He is very strong in brand management, product and retail, and that combination made him basically the ideal fit for the strategic shift that we had in mind.”


When Permira acquired Hugo Boss, Europe was the dominant market, accounting for more than 70 percent of revenues. 

“Internationalising the company and focusing on the US and Asian markets was clearly a key strategy objective,” Weckwerth says. 

Under Permira’s ownership Hugo Boss began reducing its sales in these markets through department stores and other wholesale channels and increasing its own stores. The company chose Beijing to debut its autumn/winter 2012 collection, and in 2014 opened a new flagship store in Hong Kong’s Central Building. 

“The brand gets a very clear global presentation which is consistent across the world,” Weckwerth says. “Before it had been much more decentralised.”


Permira’s intention when it took on Hugo Boss was to turn the business from a wholesale retailer into a global branded retailer. On acquisition wholesale sales accounted for more than 70 percent of total revenue, while the brand itself operated 280 stores.

“The mind-set was a significant shift because the company originally had more of a manufacturer approach, which means designers created a collection, they put the collection in the showroom, and then the wholesale customers would come and pick what they wanted from the collection,” Weckwerth says. “[The designers] knew what kind of products the department stores and other wholesale clients would order, but they didn’t have direct feedback on what the customer liked and were actually buying.”

Permira supported Hugo Boss to create an information system that allowed designers direct feedback on which customers were buying each product. This allowed them to move toward defining a core collection, which in turn drives the visual approach of the Hugo Boss stores and the brand’s marketing campaigns.

“There’s a clear design recommendation to the end customer – ‘This is the collection of the season’ – which actually allows the company to reduce complexity.”

As the business sought to expand its womenswear offerings and its presence in the US and China it brought in designer Jason Wu in 2013 as the artistic director for BOSS Woman.

On exit, Hugo Boss was generating more than 55 percent of revenues through its own retail, and operating more than 1,000 stores. 

“All of these changes were ongoing despite the crisis because they were process-oriented,” Weckwerth says.

“Actually they increased the profitability of the business, therefore there was no reason to stop such developments despite the financial crisis. That didn’t really have an impact.”


Hugo Boss was the last pre-crisis portfolio company in Permira IV to be sold. Including that divestment, that portion of the fund realised an overall return of 1.7x. As of the end of March 2015 Permira IV was also valued at 1.7x. Far from being the disaster some industry insiders were predicting back in 2009, Hugo Boss and VFG generated €2.5 billion, Permira’s largest-ever cash proceeds. ?


restructured the business’s €2.3bn debt, buying back a third of the total debt package from Citigroup at a 62% discount

Nov. 2011

First sell-down: Red & Black, the holding company majority-controlled by Permira IV, offloaded 4.5m shares at €72.60 per share, c. €300m and reducing its stake to 66%

July 2012 

Sold VFG to Qatari investment group Mayhoola for Investments for c. €700m
May 2013 

Second sell-down: Red & Black offloaded 7m shares at €92.80 per share, generating gross proceeds of c. €620m and reducing its stake to c. 55%

Oct. 2013

Recapitalised Red & Black, returning 47% of initial costs of its investment in Hugo Boss to investors
May 2014 

Third sell-down: Red & Black sold a 5.6% stake — 3.96m shares — for more than €400m, cutting its holding to just over 50%

Sept. 2014

Fourth sell-down: Red & Black offloaded 7.9m shares, worth around €846m

Dec. 2014

Fifth sell-down: Red & Black offloaded 4.9m shares, reducing its stake from 39% to 32%

Feb. 2015

Sixth sell-down: Red & Black offloaded 7.35m shares worth €806m, reducing its stake from 32% to 14%

March 2015

Final exit: Red & Black sold its remaining 12% stake — 8.4m shares — at €113 per share