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Estée Lauder circles Tom Ford

Tom Ford walks the runway at the conclusion of his Tom Ford SS22
Photo by JP Yim/Getty Images

Estée Lauder Cos. (NYSE: EL) is in talks to buy fashion label Tom Ford for at least $3 billion, per the WSJ.

Why it matters: A successful trade could create pricing comps for large and midsize luxury fashion brands weighing sales of their own (e.g., Giorgio Armani and Gieves & Hawkes).

State of play: With a $102 billion market cap and $3.8 billion of cash on hand, Estée is one of few suitors with the financial resources to digest Tom Ford, WSJ writes.

  • Estée's longstanding licensing deal with Tom Ford's beauty business further validates the cosmetic giant's buying position.
  • Tom Ford tapped Goldman Sachs to explore a sale, Bloomberg reported last month.

Yes, but: There's no guarantee a deal will get done — and Estée is not the only suitor looking at the business, WSJ says.

  • The report didn't name names, but industry banker Euan Rellie tells Axios, "private equity does like luxury."
  • Rellie, founder and managing partner at boutique investment bank BDA Partners, says usual suspects like Investcorp, Carlyle and Blackstone would be "three pretty obvious players."
  • Middle Eastern sovereign wealth funds are also logical suitors, he says.

Be smart: Tom Ford is more of an establishment player in a luxury market that's increasingly shifting toward a younger audience with a penchant for streetwear, Rellie says.

  • See Supreme, which Carlyle sold to North Face parent company VF Corp. for about $2.1 billion in 2020.
  • High-end fashion houses like LVMH and Balenciaga are also diving headfirst into the streetwear market.

The intrigue: Estée could leverage Tom Ford's production relationship with luxury fashion house Zegna and eyewear leader Marcolin — and bring both in as partners on a deal, Rellie says.

What we're watching: A handful of middle-market luxury processes hang in the balance, like Isabel Marant and Ganni. Rellie says downmarket deals will get done — but at much lower multiples than the premium-name players.

  • "Luxury is a business where scale and real, true high-end positioning win," Rellie says.
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