LVMH expands portfolio with $2.6B Belmond travel deal

Dive Brief:

LVMH Moët Hennessy Louis Vuitton on Friday announced the acquisition of luxury travel company Belmond Ltd. in a deal that has the conglomerate paying $25 cash each per Belmond share — an equity value of $2.6 billion in a transaction with an enterprise value of $3.2 billion, according to an LVMH press release.
Belmond launched over 40 years ago with its own acquisition of the Hotel Cipriani in Venice and has grown into an upscale conglomerate of its own, with a "portfolio of 46 hotel, rail and river cruise experiences" in 24 countries, according to the release.
In October LVMH reported a 10% third-quarter revenue rise year over year to €11.38 billion ($12.9 billion), with comparable sales growing 10%.

Dive Insight:

Belmond is often referred to as a hotel company, but not even calling it a "travel company," which would be a bit more accurate, quite captures it. The fast-growing business entices its wealthy customers with sumptuous experiences and that fits nicely into LVMH's ambitions.

The "acquisition will significantly increase LVMH's presence in the ultimate hospitality world," LVMH CEO and Chairman Bernard Arnault said in a statement. "Belmond delivers unique experiences to discerning travelers and owns a number of exceptional assets in the most desirable destinations. Its heritage, its innovative services, its excellence in execution and its entrepreneurship resonates well with the values of the Group and is complementary to our own Cheval Blanc maisons and the Bvlgari hotels activities."

Analysts generally hailed the move in light of the opportunities in luxury hospitality. "Over the past year, the luxury segment of the lodging industry has outperformed other segments in terms of revenue per available room ... as consumers, especially the younger generations, have placed more value on unique experiences over buying goods," Moody's Investors Service lodging analyst Pete Trombetta said in a note emailed to Retail Dive.

But others had some notes of caution. "We generally like LVMH's bid for Belmond which is a strategically significant investment in experiential luxury," Cowen & Co. analyst Oliver Chen said in comments emailed to Retail Dive, but added, "We do have concerns" that the deal is different because of the complex and extremely high-touch nature of such high-end hospitality. Chen noted that Belmond operates leisure travel operations like trains as well as hotels.

Experiences and travel are increasingly integral to consumers' perception of luxury, "especially among younger consumers," according to Cowen research. Shopping and travel landed among the major spending categories across demographics identified by Cowen's Millennial Tracker.

"Margin expansion is a big opportunity," according to Chen's team. "[H]owever, demand creation and other investments could be possibilities before margins rise."

The French fashion conglomerate has spent more than a year executing a new strategy that solidifies its upscale credentials and expands its appeal into food and leisure. Last year LVMH announced a new lifestyle and experiential e-commerce platform, dubbed Clos19, for its Moët Hennessy wine and spirits brands. The company also took full control of Christian Dior and unveiled a new e-commerce site (24Sevres.com) for its Parisian luxury department store Le Bon Marche. About a year ago, the company shuffled its upper ranks "for a new era."