What’s holding the Rapha deal back?

LONDON — We’re hearing that LVMH’s pursuit of Rapha is has cooled. And one big thing seems to be holding back the deal.

1. The hold up.

Control seems to be the big issue here. Rapha’s shareholders don’t want to give it up, and LVMH, true to form, might want to replace the current Rapha team with their own people. Two things to consider here:

  • The LVMH Way. LVMH has established a lengthy track record, dating back to the 1980s, of buying smaller luxury firms, and then uprooting the existing team and management with LVMH’s own hand-picked operators. It’s the opposite of the Warren Buffet strategy: buying up undervalued companies with strong management teams, and letting them continue to do what they do best. His is a more trusting, and long term, perspective.
  • Some might call this a hostile takeover. From Rapha’s standpoint, that might indeed be the perspective. We spoke to close source who, in talking to a separate source with direct dealings with the Rapha deal, explained that control might be the big point of contention here between Rapha and LVMH. We’re hearing that a set of Rapha’s dormant founders and former executives who still hold shares in the company, are unwilling to give up shares and total control. They’re looking for a less intrusive process.

2. Besides liquidation, what’s in it for Rapha?

Still, talk of whether or not the deal is on glosses over some great talking points about why LVMH’s purchase might make sense for Rapha right now. Some big considerations:

  • Those tiny margins. Rapha’s poor margins are, by far, its biggest issue. We’ve already detailed why those margins are so meager in our previous report, so no need to rehash that here. The big point to remember is that they could use LVMH’s help in that regard. LVMH could in a sense, act a saving grace: they have the infrastructure to help lower manufacturing costs associated with those slim margins.
  • Going back to its roots. This ties directly into the margins argument. In recent years, Rapha’s been having more and more clothes made in China. There have been grumbles and head scratching about this with core fans. Over the short term, this poses a minor problem. Over the long term, this would most certainly erode Rapha’s premium perception. Plugging into LVMH and using their resources would help Rapha return to its original roots of top quality clothing.

3. Plan B (in case the deal falls through).

While nothing’s confirmed about whether or not LVMH has actually lost interest — or whether other buyers are even sniffing around — in the even event that LVMH does back out, what other potential buyers might be good options for Rapha?

1. Lululemon: If Chip Wilson had it his way, Lululemon would certainly be looking to buy. He’s made that quite clear of late.

2. Under Armour: They’re all about innovation, and investing in domestic manufacturing. A Rapha acquisition might make sense for Kevin Plank and the team.

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