Italian Fashion Brand Zegna Joins SPAC Frenzy With $3.2 Billion Valuation

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MILAN—Ermenegildo Zegna Group said it would merge with a special-purpose acquisition company in a deal that values the Italian luxury-goods group at $3.2 billion, including debt, and provides it with funds for future acquisitions to bulk up amid consolidation in the fashion sector.

Zegna specializes in high-end menswear and bought the American fashion brand Thom Browne in 2018. It intends to list on the New York Stock Exchange after merging with a SPAC owned by London-based private-equity firm Investindustrial and chaired by

Sergio Ermotti,

the former chief executive of

UBS Group AG

.

The Zegna family would retain a 62% stake in the company following the deal’s closing, which is expected by the end of the year. Investindustrial would own 11% with the remainder publicly traded. Zegna and Investindustrial said they expect Zegna would start trading with a market value of $2.5 billion. Adding the debt pushes Zegna’s so-called enterprise value to $3.2 billion.

The Zegna family, which has owned the company for more than a century, will receive about $550 million in the deal. The company will get $250 million it can use for future acquisitions, according to a presentation. Gildo Zegna, the company’s chief executive and the grandson of its founder, said his family will remain at the helm following the closing of the deal.

Italian luxury-goods companies have been the target of buyout offers from a handful of fashion conglomerates that include LVMH Moët Hennessy Louis Vuitton SE and Kering SA. The two French giants already own many Italian fashion mainstays including Gucci, Fendi and Bottega Veneta. U.S. fashion conglomerate

Capri Holdings Ltd.

owns Versace, one of Italy’s most well-known brands.

The gap between the midsize Italian brands and the industry’s juggernauts has widened during the coronavirus pandemic. The bigger companies enjoyed the financial muscle to better withstand last year’s drop in revenue that afflicted almost every fashion company. The steep drop in travel last year hit the fashion industry, which relies on free-spending tourists in airports and in shops in fashion capitals like Paris and Milan.

Private companies are flooding to special-purpose acquisition companies, or SPACs, to bypass the traditional IPO process and gain a public listing. WSJ explains why some critics say investing in these so-called blank-check companies isn’t worth the risk. Illustration: Zoë Soriano/WSJ

Before the pandemic, the larger players had invested more to build out their digital operations. The well-developed e-commerce operations of brands owned by LVMH and Kering helped them meet demand during coronavirus lockdowns and the period afterward, when many people were still reluctant to return to stores.

Zegna, which has almost 300 directly owned stores and 6,000 employees, had revenue of €1.3 billion, equivalent to about $1.5 billion, in 2019 and €1 billion last year. The company expects to make up most of that 25% drop this year, getting it close to 2019 levels. To get there, Zegna is banking on a strong year in the Greater China region, which accounts for half of its apparel-and-accessories revenue. Zegna earned €38 million in 2019 and lost €45 million last year.

Write to Eric Sylvers at eric.sylvers@wsj.com

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