why is Burberry a possible takeover target?

Burberry’s falling share price puts it in the sights of deep-pocketed groups seeking likely takeover targets, an analyst said this week.

Although the company’s shares closed slightly higher on Thursday, they’re down over 18% this year and almost 56% in the past 12 months. They’re even 43% lower than they were five years ago, before the pandemic.

And with the pound at a low level too, the combined effect means potential bidders could bag themselves a relative bargain.

That said, Burberry is hardly at the bargain basement level of other UK businesses like ASOS (value £410 million) and Boohoo Group (value £421 million) as its market valuation based on its Thursday share price is still a hefty £4.1 billion. 

Others with similar valuations haven’t been major targets so why might Burberry be one?

Recovering M&S is valued at £5.22 billion but was 53% lower a year ago at a lesser valuation than Burberry without major takeover approaches. The big difference with Burberry is that it operates in the luxury sector. This sector may be under pressure at present but is still hugely in demand by other luxury groups, by sovereign wealth funds, by serial acquirer fashion firms and by private equity businesses.

The Kering profit warning this week sent Burberry’s shares down on Wednesday, and in response to this, Abrdn investment manager Sasha Kachanova told The Telegraph: “Burberry remains a potential takeover target, particularly at its current valuation.”

And the newspaper cited a survey of 17 City of London merger and acquisition desks, fund managers and analysts conducted by Bloomberg in 2023 that identified Burberry as among the top possible takeover targets. Also cited in that survey were Germany’s Hugo Boss and Swiss luxury group Richemont, by the way.

Kachanova highlighted Burberry’s unusual position “as the sole British brand of scale operating independently” and also pointed out its “rich heritage and the opportunity to enhance its iconic product lines and accessories”.

With consolidation the name of the game in luxury (even though Tapestry’s Capri Holdings merger has hit a — possibly temporary — roadblock), some see Burberry’s small size relatively speaking as a major vulnerability.

The company hasn’t commented on the speculation.