This is a "happy decision" for watch enthusiasts! Ulysse Nardin and Girard-Perregaux MBO

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On January 24, 2022, luxury conglomerate Kering Group sold Sowind SA, which owns the two brands Ulysse Nardin and Girard-Perregaux, to the current management team in a management buyout (MBO). What was the reason for this? And what does the future hold for the two brands?

"Ah, I knew it" sales

When I first heard the news that "Ulysse Nardin and Girard-Perregaux have been sold," I'm sure there are many people in the watch industry who, like me, thought, "Ah, I knew it."

　Ulysse Nardin was founded in 1846 and celebrated its 175th anniversary last year in 2021. Girard-Perregaux, founded in 1791, has a history of over 230 years. Both are prestigious brands representing the Swiss watch industry, having produced numerous masterpieces that have left their mark on the history of watches.

　Ulysse Nardin was acquired by the Kering Group in the fall of 2014. Meanwhile, Kering's relationship with Girard-Perregaux began in June 2008 when Kering (then PPR, Pinault Printemps Redoute) acquired 23% of the shares of its parent company, Sowind, and in 2011 the brand became a subsidiary of PPR, the predecessor of the Kering Group. While the circumstances for each were different, both brands joined the group following the death of the CEO who had revitalized the brand.

　Now, these two long-established brands are leaving the Kering Group through a management buyout (MBO), meaning the current management will purchase the brands and businesses, and develop their businesses with their own strategies. If management is strong, this will undoubtedly be a happy decision for the two watch brands.

　If you ask whether these two prestigious brands have been able to fully demonstrate their potential under the Kering Group umbrella, unfortunately, the answer is no.

　However, joining Kering has not been a negative thing: the two brands have received new investment and have been able to perfect their own next-generation movements. Without Kering's acquisition, they probably would not have exhibited at SIHH.

　It seems that the Kering Group originally intended to focus on these two long-established Swiss brands with great histories as its core and get serious about the luxury watch business, inheriting the passion of the charismatic businessmen and investors who revived the brands and led the boom in mechanical and luxury watches that began in the 1980s: the late Rolf W. Schnyder, who led Ulysse Nardin, and the late Luigi Macaluso, who revived Girard-Perregaux.

　Patrick Pruniaux, who currently serves as CEO of these two brands, took over as head of Ulysse Nardin in the summer of 2017 and then Girard-Perregaux in the summer of 2018. The new releases for 2018 and 2019 at Ulysse Nardin, where he took over earlier, were impressive for the first time in a long time, and it seemed as though the company was finally ready to demonstrate its capabilities.

　That said, it's undeniable that the brand strategy was a little unclear. If anything, it felt like it was smoldering. So when I heard the news of the sale, I thought, "Ah, I knew it."

The one I bought it with was the current CEO...

　The "sale" of a watch or fashion brand, especially one from a luxury conglomerate, is inevitably fraught with negative connotations, as many assume that the brand was sold because it was deemed to have no investment value.

　However, this sale is not a normal sale. And it is not a negative one. First of all, the sale is in the form of a management buyout (MBO). In other words, Patrick Prunier, the current CEO of the two brands, and his associates will be selling Sowind, a subsidiary of the Kering Group that is the parent company of the two brands. Based on the group's official announcement and Prunier's interviews with foreign media about the matter, the sale and brand transfer appear to be amicable. However, it is currently unclear what investors are participating in this MBO alongside Prunier. This is sure to be of great interest to those in the watch industry.

The reason for the sale is that it is "too long-established"!?

　As a result of the COVID-19 crisis, both Ulysse Nardin and Girard-Perregaux have likely suffered a significant drop in sales, and are reportedly laying off employees, putting them in a difficult financial situation.

　So why did Prunier and his team buy these two prestigious brands, and why did Kering sell them to them?

　The reason why Prunier and the current management team bought the two prestigious brands is obvious. They believed they could realize the potential of these two prestigious brands and generate profits. The luxury watch business is currently enjoying great success, despite the COVID-19 pandemic, or rather, thanks to the unprecedented monetary easing brought about by the pandemic.

　So why is Kering Group giving up this "golden egg" now?

　This is likely because the group's management was unable to devise a watch business strategy that would make the most of these two prestigious brands, and although they had brought them under their umbrella, they were struggling to know how to handle them.

　The characters and product strategies of the Kering Group's fashion houses, led by Gucci, and the two watch brands with histories spanning over 150 years are very different.

　Both Girard-Perregaux, with a history of over 230 years, and Ulysse Nardin, with a history of over 175 years, have focused on developing cutting-edge mechanical movements using silicon materials since joining the Kering Group. However, the core of their business remains traditional mechanical watch models. The core of their appeal lies in the fact that they have inherited their past heritage, and that "the brand has a history, and the product design is in line with tradition."

　However, what is required of fashion houses' products is to reflect the present while anticipating the future. In other words, they need to be contemporary (modern and reflective of trends). Gucci has developed collections that reflect the appeal of vintage style from the 1960s and 70s. Although it calls itself a heritage brand, it only has a history of about half a century. This is very different from the product strategies of the two long-established watch brands.

　The two watch brands are so well-established that it is difficult to know how to incorporate them into the group's strategy. Frankly, perhaps there were aspects of them that were "left over in the lurch."

　The new watches from both companies over the past few years have focused on contemporary styles rather than traditional styles. Ulysse Nardin's complicated watches were innovative in both design and technology, while Girard-Perregaux brought to the forefront a range of watches, from simple to sports and complicated, unified by a theme and color, much like fashion.

　When I saw these new collections, I thought that the Kering Group, which has many new brands compared to other luxury conglomerates, is focusing its product strategy on contemporary collections in line with its culture.

　However, for the two watch brands, this was like sealing away their greatest strength. Customers' attention was likely focused on the classic styles. In fact, at the SIHH press conference held in Geneva, the model that I thought was good and would sell was one that inherited the "marine chronometer" style dial heritage.

Will they move towards a more traditional "classical" style in the future?

　As CEO of two prestigious watch brands, perhaps Prunier felt "stuck" and "at his limit" due to the insurmountable gap between the Kering Group's strategy and customer needs?

　Prunié, who served as TAG Heuer's Vice President of World Sales and Retail and returned to the watch industry after a stint at Apple, was a subordinate of Jean-Claude Biver, now a legend in the watch business. It's said that Biver readily approved of and even encouraged his move to Apple. This story shows Biver's generosity and greatness in the Swiss watch industry, where many people at the time viewed the Apple Watch as "merely a threat."

　Prunier, who became CEO of two prestigious brands after his experience with smartwatches, must have believed that a prestigious brand needs to develop products that emphasize its heritage, as befits a prestigious brand. To achieve this, he wanted to break away from the "constraints" of the group. This is probably why he chose to "acquire" the company through an MBO.

　Some overseas news outlets carried headlines regarding this MBO that could be interpreted as saying, "Kering Group withdraws from watch business." One Japanese newspaper published an article under the name of a correspondent in Paris with the clearly incorrect headline, "Kering Group withdraws from watch business," which was at the level of a false report.

　However, as anyone in the watch industry knows, Gucci's watch business and its watches have established a unique position, primarily due to their different price range and design compared to the products of specialized watch brands, and their appeal not found in specialized brands. There was a time when the company operated under a licensed business, but now it operates under direct control. It is unlikely that the company will abandon that business.

　Moreover, in 2021, Gucci launched the new "GUCCI 25H" collection of ultra-slim watches, designed by Creative Director Alessandro Michele. The watches are equipped with Gucci's first in-house developed mechanical movements and include models with complex tourbillon mechanisms. While maintaining a contemporary Gucci aesthetic, they also boast mechanisms and designs that will impress even watch enthusiasts. This is truly a collection worth looking forward to. There is no information on whether Ulysse Nardin or Girard-Perregaux were deeply involved in the creation of this collection. Judging from the watch, there seems to be no evidence of their involvement.

　It is likely that Kering's watch business will focus on this highly original luxury watch line from its core brand, Gucci, and on models in the traditional price range.

　With the birth of the "GUCCI 25H" collection, named after Michele's lucky number, the Kering Group no longer needs to stick to these two long-established brands, which are "too historic."

　Going forward, Ulysse Nardin and Girard-Perregaux, as well as other long-established Swiss watch brands, will likely develop and sell products that make better use of their heritage than they do now, which would be a "happy outcome" for both brands, the Kering Group, and watch enthusiasts alike.

　I want to believe that will happen.