Gucci

Issue

The luxury goods industry had seen significant consolidation with three major groups emerging of which Gucci was one. The acquisition of the Yves Saint Laurent and Sergio Rossi brands were integral to the Group’s strategy. The key issue to be determined was the value of the brands and how these should be accounted for on the balance sheet.

Approach

A brand valuation was conducted for each of the target brands. A submission was made to the SEC in the US to argue the case for the YSL brand having an indefinite life. This was a landmark case since the accounting legislation did not allow for brands to be amortised over a period in excess of 20 years.

Effectiveness

The brands succeeded in being capitalised on the balance sheet at full value. Although the SEC denied the application for an indefinite term the case highlighted the need for a change in the accounting legislation. Shortly afterwards the SEC changed the accounting guidelines effective to compel the value of acquired brands to be capitalised and to allow for the possibility that some brands could have an indefinite useful economic life.  This was one of the cornerstones of Financial Accounting Standards 141&142.

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