Wednesday, June 15, 2016

Revisiting the UN Sale Nearly Two Years Later

This is now coming up on two years.  And very little that should have changed has changed.  The US offices have cleaned house once again, a former Richemont loyalist has been brought into the frame with very few impressions made so far.  In fairness, he has only been in the saddle for a few months so the hope is that he will survive longer than his rather rapacious predecessor.  

Mr. Calce is still atop his throne, ruling over his fiefdom, but that fiefdom is shrinking as he fired most of the vassals.  Sorta' hard to run a fiefdom without vassals ; )  

If JEANRICHARD is not dead, we are clearly in a "Waiting for Godot" phase that seems set to drag on for the next several years.  

And Ulysse Nardin seems to be no closer to solving their own conundrum, yet free spending on luxury events and sponsorships.  Laid off staff always get a warm and fuzzy feeling when they see the latest spread about their former employer's excess while they are collecting their unemployment benefits.  

When times are tough, you have to dig into the fridge and eat leftovers.  So let's reheat this one -

Revisiting the UN Sale a Year Later

I originally wrote this a little over a year ago when the sale of Ulysse Nardin was announced.  Now a year on, and things not quite as rosy as might be wished for, I wanted to look back and see how things have changed (and haven't).

"I look at a hundred deals a day. I pick one."

So now with most of the dust settled and the press releases read, re-read, written and re-written maybe it might be a good time to have a look at the bigger picture.

Now many more revered and respected have held forth, many insisting that they saw the acquisition of Ulysse Nardin coming "a mile away!"  Well, hindsight by its very nature is often 20/20.  So I thought I would call on that all-time humanitarian Gordon Gekko to perhaps view this in a slightly more pragmatic light.

 "He's right, I had to sell. The key to the game is your capital reserves, If you haven't got enough, you can't piss in the tall weeds with the big dogs."

I think in light of all of the speculation, the one question I have not really heard asked is - maybe, just maybe they actually NEEDED to sell?  Ulysse Nardin was a media darling in the age of Schnyder, and by that I mean the age of Rolf Schnyder.  Like every brand re-boot, (and if we are very, very honest with ourselves, this is what it was) a charismatic, iconoclastic visionary is needed.  But that in and of itself is not enough (note Blancpain and Hublot in the "post Biver as Patron" era).  You need something more.  The meeting of Schnyder and Ludwig Oechlsin was perhaps not unlike the meeting of Smith and Wesson… or perhaps more appropriately the meeting of Lorenzo de' Medici and Michelangelo.  Two things happened that took the steam out of UN's engine - Dr. Oechslin opted to pursue a life of the mind and "museum curatorship", and tragically, Rolf Schnyder had a "standing appointment" with his creator.  As it is a privately held company, we can speculate all that we want, but if I am viewing things through "Gekko The Great's" perspective, they needed to sell.  And it is possible that maybe there weren't that many takers, so they took.

And in fact, that perhaps still seems to be the case.  What is interesting in all of this is that with the acquisition of UN, Kering has basically put JEANRICHARD on an ice floe to join it's ancestors in the great beyond.

UPDATE - the ice floe has been melted by economic global warming, and JEANRICHARD may or may not have been eaten by hungry polar bears.  Stay tuned.

"It's not bad for a quant, but that's a dog with different fleas."

The other popular thought out there is that there was a bidding war and that somehow RichemontLVMH and the mighty SWATCH got pipped at the post by Kering.  Survey says……. NAAAAHHHHH!

The Ulysse-Nardin that got sold is not the Ulysse-Nardin that was.  Moreover, it is not on a level with some of the recent blockbuster acquisitions like Harry Winston.  It is a great brand, but it represents a truly niche market.  SWATCH does not want or need a charming brand like UN.  Richemont has a fairly full stable.  LVMH?  Well let's just say that although there is turmoil under heaven, the situation is not exactly excellent.  

Again, with the "leaked" (allegedly) news that Maurice Lacroix was looking for a buyer, and a lack of companies STAMPEDING to buy it, my bet is that UN was probably NOT exactly fought over.  

UPDATE - It seems that while Maurice Lacroix was "just kidding" about looking for a buyer, Glycine (also in the DKSH stable) has now been set adrift on an ice floe of its own.  If they aren't dead, they are certainly giving the public at large the undeniable impression that they are.  But one bright glimmer this year was the recent sale of Frederique Constant / Alpina / Ateliers Demonaco.  As Lou Mannheim reminded us in Wall Street - 
"Stick to the fundamentals. That's how IBM and Hilton were built. Good things, sometimes, take time."

"The most valuable commodity I know of, is information"

But more importantly is what Ulysse-Nardin represents - information and innovation.  With Unlysse-Nardin backing what is said to be up to 1/3 of ochs und junior (Ludwig Oechslin's dream factory), and with Dr. Oechslin said to be retiring from the museum, it is not outside of the realm of possibility that the magic could be returning to UN.  Let's be clear, ochs und junior is most likely never going to be a profit leader, (and if what Beat Weinmann has said, it is not intended to be).  But let's just say it is an inexpensive item to carry on the balance sheet to keep the sorcerer in the court.

And, well, it seems the writing might indeed be on the wall.  Let's hope for watch fans and for UN's profitability that there will be some more Oechslin magic.  

UPDATE:  Elvis, or Dr. Oechslin has left the building.  Now, it is entirely possible that he may come back, and then again, maybe not.  What really made Ulysse Nardin special was NOT sponsoring yachts, champagne fueled events or the current shitty sales numbers ; )  What made Ulysse Nardin special was Mr. Schnyder and Dr. Oechslin.  One of them is no longer with us, the other seems to be otherwise engaged.  Again - maybe that is changing, but it does not appear to be the case at the moment.  When you build a brand on personalities and one remarkable watch maker, there can be quite a void when one is gone and the other is not creating new pieces for you.

"You gonna tell me the difference between this guy and that guy is luck?"

Remember pals and gals, although we always think of Kering as the OWNER of Girard-Perregaux and JEANRICHARD - they are more accurately the majority stake holder with 51%.  So the fact that they have plumped for 100% of Ulysse-Nardin actually gives them a better, unfettered toehold in the luxury watch segment.  And it is not down to luck that they were the eventual buyers.  

Don't get me wrong, UN is going to be a project, but with the experience of working with Girard-Perregaux and completely revamping and "re-birthing" JEANRICHARDKering now has some good experience with updating and reviving an existing brand while not "throwing out the brand DNA with the bathwater".

And by putting a pillow over JEANRICHARD's sleeping face and smothering it, Kering has all but ensured more resources can now flow in the the UN budget sheets. 

UPDATE - Because sales still, well, SUCK, people are getting pink slips, and there does not seem to be much relief in sight.

"...bright but not bright enough,  Sherlock, roll the dice and play a little Monopoly what box would Sir Lawrence land on in Erie, Pennsylvania?"
Those out there convinced that Richard Mille is next on the acquisitions list… maybe, but I don't think so.  Let's just say that there are too many hurdles.  Richard Mille first leaked that the acquisition would happen, and Kering (then PPR) disclosed that although those conversations had happened, it would not move forward until Mille untangled "personal affairs".  That was more than a year ago.  And it is possible that Kering spent most of it's pocket money on UN.

Nobody has bitten on much of anything - although DKSH is keen to "offload" their two brands and who knows, maybe even their share in Bovet.  I could be wrong, but given the general mood out there, the lack of Full Retail Buyers, the number of grey market watches sloshing around the "info-web", and the ever increasing number of calls and emails I am getting from brand reps, brand managers looking for an opportunity, and the brands those managers and reps work for calling and looking for new talent, I don't get the sense that anyone is in a mood to acquire.  BUT, and it's a big BUT - this could also be the moment when changes of ownership will happen.  Things will get so clearly bad that a fire sale might seem like the only solution.  And even though things aren't great out there, maybe some folks in China have been saving their allowance, Christmas and birthday money and are ready to swoop in.  

UPDATE - As previously mentioned, only one major shift this year and it was NOT for the two brands who went out to shake their "money-makers" in hopes of landing a deal.

Other pundits have posited BreitlingChopard among others as being on the potential hit list.  Maybe, but instead of thinking high prestige, it might be time for Kering to think high volume.  Maybe, say, a brand making watches in the Mido price range? 

I could, of course, be wrong - I've been wrong before ; )

Finally, let's remember that although we are all passionate, for many people this is simply business -

It's all about bucks, kid. The rest is conversation.

Ultimately, this is the unknown territory we find ourselves in.  In the great "quartz crisis" it was all about technology and the somewhat stoic belief that to change was unthinkable so it would be better to die.

Thankfully an engineer/consultant was willing to suggest change and in changing rescue the Swiss industry, and a man who as a boy loved his steam machine was willing to roll the dice that there were others out there like him, and more than anyone else saved and helped to reestablish mechanical watch making.

We who write about this stuff are always asking ourselves - who is the next Hayek, the next Biver, the next Macaluso or Stas?  It seems unfair because these guys were (and are) giants.  Those that follow will struggle to step out of those shadows.  But in fairness, those that follow need to do more than just follow.  They need to actually lead.  And when you've been groomed and guided and mentored, it is hard to establish your own point of view.  Moreover, it can be daunting to voice an opinion that might be contradictory.

I would like to leave you with a bit of a "parable" -
Back before longitude was "knowable", it was not uncommon for groups of ships to sail together.  And as you can well imagine, you would not dare make your own changes or alter course without the consent of the Admiral.  As oftentimes the Admiral was on a different ship, communication back and forth would be slow and confused. Moreover, the communication could often be misunderstood in transmission.  

What we are seeing now, for better or worse, is that brand directors, managers and sales reps are not unlike those captains and midshipmen of years gone past.  They see that they are heading for the rocks, but are afraid to voice concern and change course.  Thus not just one ship is lost on the rocks, but several.

Sponsoring sailing teams, appointing DJs as brand ambassadors - these money splurges are not going to save your brand from ignoring the fundamentals of ANY business - be it your kid's lemonade stand or Boeing.  It boils down to a pretty basic idea of supply and demand.  With the exception of Rolex and Patek, nobody else in the watch world seems to have an understanding of:
1.  How many potential customers there REALLY are, and -
2.  How many of those potential customers will REALLY be willing to buy their watch at the price they are asking

Once we get that figured out, on to world peace!

Well, as we learned with Paris, Brussels, Orlando and unruly Russian and English football fans, we have not managed world peace, and the perceived value of brands like UN and GP is dropping faster than a football's air pressure at a New England Patriot's game.  So with the next results for Swiss watch exports due next week, we will all try to tread water a little bit longer.  But let's keep one thing in mind, sometimes a company starts to tank even after things had been good for a long time.  And what separates the "Champs" from the "Chumps" is the ability to see that your game plan is NOT working, and make the necessary adjustments.  Unfortunately, for many CEOs if it is a case of laying people off, or hosting fancy parties... well, there's always work at the post office...

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