PE Case Study: CVC's Breitling Exit and Markdown
An ex-investment banking analyst shared a case study on CVC Capital Partners' investment in Breitling, a luxury watchmaker. The private equity firm reportedly achieved a 5x multiple on invested capital (MOIC) through a $4.5 billion exit, though the asset has since been marked down by approximately 50%, illustrating the volatility of sponsor-led investments.
CVC Capital Partners initially acquired an 80% stake in Breitling from the Schneider family in 2017 for over €800 million, later acquiring the remaining 20%. The deal was based on a reported 2017 EBITDA of €75 million and saw the appointment of former IWC Schaffhausen head Georges Kern as CEO to lead the turnaround. Under CVC's ownership and Kern's leadership, Breitling's strategy focused on simplifying its product lines, expanding sales in Asia, and broadening the brand's appeal to female customers. A key, and costly, part of this strategy was a rapid global expansion of its retail footprint from 56 boutiques in 2017 to over 290. The ownership structure shifted in December 2022 when CVC sold a controlling stake to Partners Group in a transaction that valued Breitling at $4.5 billion. Following the deal, Partners Group held over 50% of the company, while CVC retained a minority stake of approximately 23.6%. The recent markdown was triggered by a confluence of factors, including the high fixed costs associated with the aggressive store rollout, a general softening in demand for high-end watches, and the impact of U.S. tariffs on Swiss exports. Industry estimates suggest Breitling's sales underperformed the broader Swiss watch market, with a notable 25% sales drop in the UK. As a result of the weaker performance, CVC has reportedly marked down the value of its remaining stake to approximately 0.5 times the capital it reinvested in 2023. Partners Group, which first invested at a lower valuation in 2021, values its current holding at around 0.7 times its 2023 investment level. The company's financial health has also been scrutinized by credit rating agencies. Moody's downgraded Breitling's debt, citing a sharp decline in earnings, high leverage, and historical borrowing of over €1 billion used to finance dividend payments under CVC's ownership. Despite the setbacks, Partners Group co-founder Alfred Gantner has taken over as Chairman of Breitling's board. The private equity owners are now reportedly focused on cost-cutting measures while still considering a potential IPO for the watchmaker between 2027 and 2029.
