$2,000 Golden Goose sneakers are a rare win for private equity

Golden Goose SpA is an Italian maker of distressed-looking sneakers that can cost $2,000 for a crystal-encrusted pair. The price of more than 2.5 billion euros ($2.9 billion) that its private equity owner just secured for the business is also more opulent than miserable.

The sale of Permira to HSG, formerly known as Sequoia Capital China, with Singapore's Temasek as a minority investor, is one of the few historic exits from a troubled series of purchase deals struck as the world emerged from the pandemic, just before interest rates soared. The transaction, which doubles the size of Prada SpA's purchase of Versace earlier this year, also comes at a time of depressed demand for luxury goods. The valuation may be less extravagant than what was proposed in an abandoned initial public offering 18 months ago, but the private equity firm has roughly doubled the company's value in five years.

It acquired most of Golden Goose from Carlyle for €1.3 billion in 2020. Investors balked at a €3 billion enterprise value in that doomed Milan IPO effort last year, pointing to problems at Dr Martens, another shoe company previously owned by Permira. The slowdown in the high-end market did not help after three years of spectacular growth.

And yet, the worst luxury crisis since the financial crisis (excluding the pandemic) has been good for Golden Goose. As well-off but not very wealthy consumers reined in their spending, megabrands like Louis Vuitton and Gucci moved upmarket to follow the money.

By focusing on the 1%, they abandoned entry-level products like designer sneakers, leaving that market to Golden Goose. Prices of shoes, bags and other basic products also increased. The average cost of a basket of iconic luxury goods in Europe rose 54% between 2019 and the end of 2024, according to analysts at HSBC Holdings Plc.

By comparison, Golden Goose has increased prices only 4% over the past five years. That makes their sneakers, hardly a bargain at an average price of €550 including customization, seem like better value for money. The company increased sales from €266 million in 2020 to €655 million in 2024. Growth has continued this year, with sales up 13% in the first nine months and earnings before interest, taxes, depreciation and amortization up 7%. Assuming similar momentum for the full year and a stable Ebitda margin, Golden Goose could generate around €740 million of sales in 2025 and close to €250 million of Ebitda.

The price is equivalent to about 10 times Ebitda, a discount to Moncler SpA's 13 times and Birkenstock Holding Plc's 11 times, but is still at least double the value of Permira shares. The company will remain as a minority investor.

HSG previously backed Labubu maker Pop Mart International Group Ltd., TikTok owner ByteDance Co Ltd. and Chinese social media platform Red Note, so expansion will likely focus on Asia. Golden Goose makes just 12% of its sales in the region, with just 7% in China, far less than most luxury brands. Approximately half of its sales are made in America; the rest in Europe and the Middle East.

There is clearly more to do in China. Now that Gucci bags and Chanel shoes are no longer so beloved, there is an appetite for quirky items that emotionally connect with young shoppers. Take Crocs Inc. clogs, for example, which can be personalized with charms. They have become a hit among the country's Generation Z consumers. That bodes well for Golden Goose.

Sneakers represent 90% of the company's sales, so there is room to diversify. Bags and clothing, which can also be customized, are other opportunities in both the US and China. Temasek's experience as an investor in Stone Island, Ermenegildo Zegna NV and Moncler Chairman Remo Ruffini's holding company should help. Former Gucci boss Marco Bizzarri will become president.

But achieving Golden Goose's long-term goal of increasing annual sales to €1 billion will not be easy. Although there are hopes that China's luxury market is past the worst, any recovery will take time. And consumers there are more focused on shoes that help them run faster or tackle more challenging hikes. Nike Inc. recently said it was viewed more as a casual fashion footwear brand than a performance brand, slowing sales and forcing it to discount prices.

Meanwhile, large luxury companies have decided that they want to win back their middle-class customers. Sneakers and similar products will be key and will generate more competition.

If Golden Goose can successfully expand into China and become a broader lifestyle brand like Ralph Lauren Corp., its future will be far from shabby. But given the travails of PE owners over the past few years, it's not a bad time to take some money off the table.