It’s been a while since I’ve heard any major news around Breitling since their acquisition by CVC Capital Partners last year. The news story took the world of private equity and horology by storm given all the unusual variables involved.
At the time just before the announcement of the acquisition news, Breitling was a label that had a big question mark over it’s head. It was on the market for some time which gave headway for a lot of speculation and commentary from pundits.
For those spectating, what stood out was the awkward timeslot that Breitling went on the block. The team handling Breitling’s offering stated that they wanted an existing luxury holdings group to sell the brand to, rather than sole private equity firms. The issue was that the market atmosphere at the time just wasn’t in favour for Breitling. The largest luxury goods holdings companies; Swatch Group AG, Richemont, Kering SA and LVMH weren’t really in position to acquire something the scale of Breitling. The Swiss watch industry had just come out of a slump at the end of March that year with healthy sales figures finally emerging, but brands across the board were still having to adjust from the months prior.
Swatch had to prioritise diminishing sales from it’s retail partners whilst Richemont had to focus on some of its own loss-making subsidiaries such as Dunhill and Shanghai Tang. Even the more diversified counterparts such as LVMH weren’t feeling the need to partake in acquisitions as they were expecting a positive yield from their own watch sales. The elusive wild-card option would’ve then been non-European luxury holdings companies. Citizen group of Japan acquired Frederique Constant and Arnold & Son, whilst Hong Kong’s Citychamp owned Corum and Alpina. The issue however, was that neither companies were showing any interest towards the offering which made the situation bleaker for Breitling.
With such unfavourable odds against Breitling, it was no wonder that there was industry swept shock with the announcement that CVC Capital had bought a majority stake in the company. A private equity firm had paid 800M Euros for the company, putting it at the upper tiers of it’s valuation. A brand that major luxury holdings companies weren’t interested in, ended up having its majority stake being bought buy the largest buyout firm in Europe.
I think the situation is quite interesting to say the least. What you have is the familiar story of a formerly fully independent (loss-making) watch label that went through the whole M&A charade, but instead of the usual participants putting their bids, a newcomer took the offering instead.
The usual strategy involved in private equity, is the ‘buy, improve, sell’ method. You purchase a company, invest in a turnaround strategy and then sell it off for a profit. CVC has an excellent track record in delivering so.
At the time, I was having a discussion with a few other fellow watch/finance enthusiasts about the outcome of the deal and what to expect. The first thing we agreed upon was that there would be an effort to heavily push Breitling towards the Chinese market and grow its presence across Asia. The ‘Legendary Future’ event in Shanghai seems to be an example of that happening. The second was that given the current ‘niche’ offerings that Breitling has, the label would have to take some time out to rebrand or at least adjust its image to appeal to a wider audience.
As I’m currently aware, the label didn’t have too much of a heavy pop culture or physical presence in Asia. Breitling has built its reputation with racing and flying, being well known for their chronographs and their relationship with stars such as John Travolta. Whilst that is something held dear and beloved by the current fanbase, it’s highly unlikely that the wider Chinese market will share the sentiments unless there are adjustments made. The acknowledgement to this was the appointment of Georges Kern, CEO of IWC and head of Richemont’s specialist watchmaking as the new CEO of Breitling. It showed that that there was indeed a growth plan in place for Breitling and CVC wasn’t cutting corners in bringing in the heavy hitters.
The issue with adjusting an image or rebranding, is that too often a watch label loses its way. In the case of Breitling, it’s too early to say if such is the case. The display in Shanghai consists of a collection of 60 Breitling vintage chronographs, along with showcasing the new Navitimer 8 collection. What we can see is that Breitling has decided to go back to it’s roots to draw inspiration for it’s new collection and is keeping the design aesthetic – with the focus being trying to appeal to a whole new market. A (relatively) simplistic dress watch with a potential appeal to luxury Chinese consumers. The situation isn’t like Zenith, which under LVMH management drew it’s El Primero roots and completely modernised it in hope of merging client bases with its other subsidiaries – namely Hublot. The Navitimer 8 will hopefully be the start of Breitling unveiling many new things and freshening the company’s portfolio.
The next point of interest is looking at the current state of the Chinese watch market. It’s fair to say that there has been a series of fluctuations in areas that some brands took for granted. For example, few Chinese tourists are choosing to buy their watches abroad and instead are looking for alternatives within the borders of Mainland China. Recent cuts on luxury import tariffs opened a new wave of opportunities for those in the luxury industry – particularly watches. Breitling has timed its expo very well in that regard, wedging their foot in the door. Breitling’s new offerings will demonstrate both how the Chinese watch market has matured – setting a benchmark for brands in a similar situation – as well as a case study to see how an exotic equity firm develops a turnaround strategy for a company the scale of Breitling.
In the end, it’s the balance sheets that keep a business going. As stated in my Voutilainen piece, it’s easy to romanticise horology, but there need to be mechanisms to support that beloved perception. I know that a lot of purists hate the idea of ‘big business’ being involved in horology, but I think in order to make a stand in the current dynamic and brutish environment that this the business of watches, there needs to be compromises. The question remains in seeing what those compromises are. Are we going to see a whole new creative chapter in innovation and business practice? Or are we going to see another shill of a brand that’s completely lost its identity and is limping on obscure and convoluted branding strategies to survive?
I for one, am looking forward to seeing the answer.