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  • MAP Asia Pacific Ltd

Why An LVMH Acquisition Of Ralph Lauren Is A Good Idea

There is a report out today that LVMH has had numerous discussions with Ralph Lauren Corporation about buying the entire Ralph Lauren business. LVMH is the owner of numerous, mostly European, luxury brands including Louis Vuitton, Christian Dior, Berlute, Fendi and many others. LVMH also recently bought Tiffany.

The deal is a good idea and a good fit. Ralph Lauren is a big company but LVMH can easily handle the size since it does more than 10 times the revenue of Ralph Lauren. LVMH has also demonstrated the unique skill of maintaining the luxury level of its owned brands without cheapening their market position to generate short-term gains.

LVMH’s capability has to be a comfort to the founder Ralph Lauren whose legacy is likely to be on his mind at the age of 82. It doesn’t hurt that LVMH is among the most prestigious companies in the fashion industry.

Financially, Ralph Lauren sells for a multiple of EBITDA (earnings before interest, taxes, depreciation and amortization) of less than 9x while LVMH sells for just under 16x. The practical implication is that Ralph Lauren’s earnings, when added to LVMH’s, will make the LVMH stock price go up immediately (what investors call an accretive deal). That increase will be reduced by the premium LVMH will have to pay to motivate shareholders to sell but there’s plenty of room to pay more and still have the deal be accretive.



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