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<\/p>\n\t\t\t\t\t\t<\/p>\n
\n\tWhere there\u2019s a will, there\u2019s a way.<\/p>\n
\n\tThat\u2019s the message from Prada<\/a> and Versace<\/a> to fashion\u2019s dealmaking market.\u00a0<\/p>\n \n\tEven with a partial truce in U.S. President Donald Trump\u2019s trade war with almost everybody, the battle rages on with China \u2014 and both sides have ratcheted tariffs up to levels that promise to cripple trade between the world\u2019s two largest economies.\u00a0<\/p>\n \n\tGoods from China, which makes 36 percent of the apparel imported to the U.S., are now subject to a new 145 percent tariff at the border, erasing profit margins and threatening much higher prices for consumers.\u00a0<\/p>\n \n\tThe two-sided shock, hitting both supply and demand, has investment bankers and would-be buyers stepping way back to see what happens next, a series of strategic adjustments or a global meltdown.\u00a0<\/p>\n \n\tThen the market will re-weigh their dealmaking opportunities as the smoke clears.\u00a0<\/p>\n \n\tBut even in a broken acquisition market, some deals will still get done.<\/p>\n \n\tWitness Versace<\/a>.\u00a0\u00a0<\/p>\n \n\tCapri Holdings<\/a> inked a $1.4 billion agreement to sell the Italian luxury brand to Prada<\/a>, yes. But there was a lot more \u201cneed\u201d than \u201cwant\u201d in the sale.\u00a0<\/p>\n \n\tAs one fashion dealmaker put it, \u201cThey just needed to do something, anything and this was doable.\u201d\u00a0<\/p>\n \n\tJohn Idol, Capri chairman and chief executive officer, bought Versace for $2.1 billion at the end of 2018 and routinely touted the brand\u2019s potential to drive sales of \u201cat least $2 billion\u201d over time. But the top line just barely cracked $1 billion last fiscal year.<\/p>\n \n\tCapri is selling Versace at a roughly $745 million discount on its own acquisition price \u2014 leaving the company deep in the hole as the brand has produced a total of only $323 million in operating income during its six-plus years at the company.\u00a0<\/p>\n \n\tBut the deal was done because it has its benefits for both Capri and Prada<\/a>.\u00a0<\/p>\n \n\tSimeon Siegel, an analyst at BMO, said the transaction will allow Capri to pay down some of its $3.1 billion in total debt, flipping the company from one of fashion\u2019s \u201cworst net leverage ratios to one of the best.\u201d\u00a0<\/p>\n \n\t\u201cClearly the focus\u00a0\u2014 and questions \u2014 will now turn to whether [Capri\u2019s Michael Kors and Jimmy Choo businesses] can be turned, and we understand the skepticism, but we also believe the cash infusion and inflection from net debt to net cash is not yet being reflected in shares and represents a compelling opportunity,\u201d Siegel said.<\/p>\n \n\tWhile shares of Capri shot up in anticipation of the deal, the stock inched up just 0.1 percent to $14.63 on Friday, leaving the company with market capitalization of just $1.7 billion.\u00a0<\/p>\n \n\tThis is really Plan C for Capri.\u00a0<\/p>\n \n\tPlan A was to take a group of three founder-led luxury brands and drive consistent growth and profit.\u00a0<\/p>\n