Richemont (SWX:CFR), FARFETCH (NYSE:FTCH) and Symphony Global, one of the investment vehicles of Mohamed Alabbar (“Alabbar”), announce a landmark transaction towards the digitalisation of the luxury industry, with the acquisition by FARFETCH and Alabbar of a 47.5% and 3.2% stake respectively in YNAP, and the agreement for Richemont and YNAP each to adopt FARFETCH Platform Solutions.
Through this partnership, Richemont and YNAP will leverage FARFETCH’s technology platform to advance their Luxury New Retail programme. YNAP will adopt FARFETCH Platform Solutions to facilitate its shift towards a hybrid retail-marketplace model. Richemont will adopt FARFETCH Platform Solutions to advance the delivery of the omnichannel strategy of its Maisons, which will also join the FARFETCH Marketplace, boosting, among other categories, FARFETCH’s watches and jewellery offering.
Today’s announcement highlights that the FARFETCH platform is well-positioned to deliver end-to-end capabilities for the luxury industry, and envisions further collaboration on innovative technology solutions to be made available to luxury brands and retailers to meet the increasing omnichannel demands of the luxury customer.
Transaction Rationale
YNAP Partnership
YNAP enjoys an established reputation as an authoritative voice in the luxury space, with strong brand relationships, distinctive curation and editorial expertise, excellent customer service and a highly valuable base of over 4 million high spending customers globally.
YNAP operations will leverage FARFETCH’s sophisticated technology. This technology will significantly advance the roll-out of YNAP’s marketplace offering, as FARFETCH’s platform is already connected with the inventory of many of YNAP’s luxury brand partners. It will also enable YNAP’s shift towards a hybrid business model which will be more asset-light, complementing YNAP’s first-party curated inventory ownership with a third-party e-concession/marketplace offer. This shift is expected to improve YNAP’s financial performance while customers, in turn, will enjoy an enriched shopping experience.
As a result of FARFETCH and Alabbar’s initial acquisition of shares in YNAP, YNAP will become a neutral distribution platform, not controlled by any one shareholder.
Richemont Maisons to Adopt FARFETCH Platform Solutions
Richemont has chosen FARFETCH as its partner to advance the LNR vision of its Maisons.
Through this partnership, Richemont Maisons’ wealth of experience in luxury retail, through over 1,250 internal stores worldwide, and in offering luxury experiences to their highly sophisticated clientele globally will combine with FARFETCH’s extensive luxury focused technology capabilities and skills.
This approach will allow Richemont Maisons to advance the development of innovative omnichannel services and technology solutions in the most financially efficient way and will further enhance the FARFETCH Platform Solutions offering for the benefit of luxury brands and consumers.
Richemont, FARFETCH and Alabbar to partner in YOOX NET-A-PORTER
Transaction Structure
There are two envisaged stages of the investment into YNAP.
In the initial stage, FARFETCH and Alabbar will acquire 47.5% and 3.2%, respectively, of YNAP’s share capital from Richemont, making YNAP a neutral platform with no controlling shareholder. The 47.5% share acquisition by FARFETCH is expected to be accounted for as a non-controlling stake, which will not require it to consolidate YNAP in this stage.
Upon completion of the sale of 47.5% of YNAP’s share capital to FARFETCH, Richemont will receive 53.0-58.5 million FARFETCH Class A ordinary shares (expected to represent 10%-11% of the fully diluted share capital of FARFETCH and 12-13% of the issued share capital 1). Richemont will also receive $250 million (expected to be settled in FARFETCH Class A ordinary shares, using the then current 60-day VWAP) on the fifth anniversary of completion of the initial stage of the transaction. At completion of the initial stage, YNAP will be free of financial debt, with a minimum of $2902 million of cash on its balance sheet, and Richemont will make available, for up to 10 years, a committed credit facility for an additional $450 million that YNAP may draw upon at its discretion, subject to certain conditions.
Alabbar, Richemont and YNAP’s longstanding partner in the Gulf States, will become a shareholder in YNAP, alongside Richemont and FARFETCH. Alabbar will acquire a 3.2% interest in YNAP in exchange for its shares in the joint venture with YNAP in the Gulf Cooperation Council region. As a result of this share swap, YNAP will own 100% of its business in the region. Mohamed Alabbar is a global entrepreneur with active interests across real estate, retail, luxury hospitality, e-commerce, technology, logistics and the food industry. Widely acknowledged as the driving force behind Dubai’s economic growth, Mohamed Alabbar is the Founder and Chairman of Emaar Properties, the leading developer of iconic assets such as Burj Khalifa, the tallest tower in the world, as well as the Dubai Mall, one of the world’s largest and most prestigious shopping malls.
YNAP’s Online Flagship Store business (“OFS”) is carved out of the transaction and Richemont will retain the risk and reward for this division.
Following today’s announcement, Richemont’s investment in YNAP will be classified as an asset ‘held for sale’ and YNAP’s results will be presented as discontinued operations in Richemont’s consolidated interim financial statements for the six months ending 30 September 2022 and until completion of the first stage of the transaction. The carrying value of this investment will be written down to the expected fair value less costs to sell, resulting in a non-cash charge to Richemont consolidated income statement estimated at €2.7bn3. Further information is available in the separate announcement released on this matter today and accessible in the Investors section on the Group’s website.
Completion of the initial stage of the transaction is subject to a number of conditions, including the receipt of certain antitrust approvals. The initial stage of the transaction is expected to complete before the end of calendar year 2023.
The potential second and final stage of the transaction provides for FARFETCH to increase its ownership of YNAP’s share capital to 100% through a put and call option mechanism:
FARFETCH has a call option on all YNAP shares it does not own at the time of exercise, which is exercisable at any time from completion of the initial stage of the transaction until its fifth anniversary4, at the higher of fair market value and certain agreed valuation floors.
Richemont has a put option requiring FARFETCH to acquire all the remaining YNAP shares FARFETCH does not own at the time of exercise, at fair market value, exercisable at any time from the third to the fifth anniversary5 of completion of the initial stage of the transaction, subject to YNAP having achieved positive adjusted EBITDA (as defined in the underlying shareholders’ agreement) in the 12-month period prior to exercise as well as in three of the four quarters over that same 12-month period.
If exercised, the put and call options will be settled in FARFETCH Class A ordinary shares. The number of FARFETCH Class A ordinary shares to be issued to purchase the remaining YNAP shares is subject to a maximum dilution cap of ca.15%-16%6 of fully diluted share capital following the acquisition of the remaining YNAP shares, waivable at FARFETCH’s discretion, with any balance to be paid in cash. Upon completion of the put or call option exercise, all shareholders of YNAP will become shareholders of FARFETCH. In the event YNAP is fully acquired by FARFETCH, Richemont will have the right to nominate a non-executive director to FARFETCH’s Board of Directors7.
Absent exercise of the put or call option, a qualified majority of YNAP’s shareholders may then agree to an exit via a sale to a third party or an initial public offering of YNAP shares.
The distribution of proceeds to YNAP shareholders in the above scenarios will follow a pre-agreed waterfall mechanism that sees Richemont potentially benefitting from more than its proportionate return within a certain exit valuation range.
Completion of the second and final stage of the transaction, to the extent triggered, is subject to the receipt of certain regulatory approvals.
Governance
All YNAP shareholders will be party to a shareholders’ agreement, which includes customary shareholder protections and governance rights.
YNAP will be governed via a structure commensurate with its new ownership: its Board of seven Directors will be comprised of three representatives of each of Richemont and FARFETCH and one representative of Alabbar.
Richemont Maisons to leverage FARFETCH Platform Solutions technology and launch e-concessions on the FARFETCH Marketplace
A key feature of the partnership is that most Richemont Maisons will adopt FARFETCH Platform Solutions for their e-commerce operations and connect their physical boutiques globally, for a seamless omnichannel client experience. These include A. Lange & Söhne, Alaïa, Baume & Mercier, Buccellati, Cartier, Chloé, Delvaux, dunhill, IWC Schaffhausen, Jaeger-LeCoultre, Montblanc, Panerai, Piaget, Purdey, Roger Dubuis, Serapian, Vacheron Constantin and Van Cleef & Arpels.
Most of the Richemont Maisons will also launch e-concessions on the FARFETCH Marketplace. These include AZ Factory, Baume & Mercier, Buccellati, Cartier, Chloé, Dunhill, IWC Schaffhausen, Jaeger-LeCoultre, Montblanc, Panerai, Piaget, Roger Dubuis, Serapian, Vacheron Constantin and Van Cleef & Arpels.
It is envisaged that the implementation of these activities will commence immediately following completion of the initial stage of the transaction according to a set roadmap.
FARFETCH’s sophisticated technology will enable Richemont Maisons to benefit from the best route to market and realise their Luxury New Retail vision, while implementing a hybrid model at YNAP will greatly enhance its prospects. We have adjusted YNAP’s valuation to bring it in line with today’s market environment and will receive, in exchange, shares in FARFETCH, further aligning our interests. As a supportive shareholder and a Luxury New Retail partner, we will look to build the perfect platform for the future, enabling the luxury industry to flourish in an increasingly digital economy.
Last but not least, we are excited to acquire 47.5% of YNAP and partner with Richemont in YNAP’s transformation into a hybrid business model which we believe will drive strong growth and profitability for YNAP. This investment and work we will do with FARFETCH Platform Solutions for YNAP will pave the way to a potential acquisition by FARFETCH, which would create a complementary portfolio of iconic luxury destinations, appealing to different demographics, price points and regions.
