What Mistakes Lead to Undervaluation in Luxury M&A Negotiations?

India’s luxury goods market, valued at ₹65,000–₹75,000 crore with a 10–12% CAGR, spans fashion, jewellery, real estate, beauty, and collectibles, drawing global investors and private equity (PE) funds. In Luxury M&A, valuations hinge on intangibles like brand equity, cultural relevance, and heritage, making negotiations complex. Valuation mistakes often lead to undervaluation, causing brands to lose significant value. This article, crafted for senior leaders, explores key errors driving undervaluation in Luxury M&A negotiations and offers strategies to secure fair valuations.

The Complexity of Valuations in Luxury M&A

The reliance on intangibles such as heritage, design IP, and loyal clientele makes valuations in India’s luxury sector subjective. Luxury M&A negotiations falter when brands fail to align financial data, narrative control, and intangible asset presentation, leading to undervaluation. Global conglomerates, PE firms, and regional players seek brands with cultural cachet, but valuation mistakes can erode perceived worth, even for heritage-rich businesses.

1. Recent M&A Trends & Deal Dynamics (2025)

• Several trends shape Luxury M&A and highlight risks of undervaluation:

1. PE Interest: PE funds target distressed and growth-stage luxury brands, but poor preparation risks undervaluation during negotiations.
2. Cross-Border M&A: Acquirers from GCC, Southeast Asia, and the EU focus on IP and D2C strength, penalising brands with weak documentation.
3. Valuation Premiums: Premiums increasingly tie to influencer traction and D2C channels rather than EBITDA, amplifying undervaluation risks for unprepared brands.
4. Earn-Out Models: Brand perception gaps during negotiations lead to earn-out structures, which may mitigate but not fully prevent undervaluation.

2. Key Mistakes That Lead to Undervaluation in Luxury M&A

Valuation mistakes in Luxury M&A negotiations stem from inadequate preparation and misalignment:

• Poor Documentation of Intangible Assets

Failing to identify, quantify, or document intangible assets like design IP, brand heritage, or exclusive clientele weakens value positioning, leading to undervaluation. Unregistered designs or untracked archives reduce perceived worth.

• Inadequate Financial Hygiene

Unstructured financial statements, unclear cost allocations, or poor inventory management create uncertainty, prompting buyers to apply risk discounts and causing undervaluation in Luxury M&A.

• Weak Brand Narrative During Negotiations

Neglecting to articulate heritage, founder vision, or cultural cachet during negotiations erodes premium positioning. Without a compelling story, brands risk undervaluation despite strong intangibles.

• Overreliance on Historical Metrics

Focusing solely on past financials without highlighting D2C upside or global expansion potential leads to conservative forecasts, driving undervaluation in Luxury M&A negotiations.

• Ignoring Legal IP Gaps

Unregistered trademarks, GI tags, or weak contracts with designers and influencers increase buyer risk, forcing discounts and leading to undervaluation.

• Underprepared Management Teams

Key-person dependency, lack of second-rung leadership, or poor integration readiness signals operational risk, contributing to undervaluation in negotiations.

3. Hybrid Consulting Analysis: Strategies to Prevent Undervaluation

A multidisciplinary approach helps brands avoid valuation mistakes and secure fair valuations:

• Financial Strategy

1. Normalise Earnings: Adjust financials to exclude one-time losses or non-recurring costs, highlighting core profitability to counter undervaluation.
2. Isolate High-Value Assets: Focus on cash-rich SKUs and eliminate underperforming lines to strengthen the valuation narrative.

• Legal Preparation

1. Secure IP: Register brand IP, trademarks, and digital assets to reduce buyer risk and prevent undervaluation.
2. Review Contracts: Ensure vendor, founder, and influencer agreements are deal-ready, with clear terms on IP and transferability.

• Technology Enablement

1. Leverage Analytics: Use CRM and social listening tools to quantify customer lifetime value and brand equity, combating undervaluation risks.
2. Digital Strength: Showcase D2C channel performance to highlight growth potential.

• Management & Organisational Readiness

1. Succession Planning: Develop a post-merger team plan to mitigate key-person risks and demonstrate scalability.
2. Document Processes: Formalise internal processes, staff training, and CRM capabilities to showcase operational maturity.

• Negotiation Strategy

1. Brand Equity Pitch: Create a pitch deck highlighting heritage, cultural relevance, and growth levers to justify premium valuations.
2. Emphasise Synergies: Showcase market-specific tailwinds (e.g., rising e-commerce penetration) and synergy potential to strengthen negotiations and avoid undervaluation.

Illustrative Case Examples

• Underreported Brand IP Impact

A luxury skincare label failed to register its formula patents and influencer contracts. During Luxury M&A negotiations, the acquirer applied a 30% risk discount, citing unclear IP value, leading to undervaluation and a ₹50 crore reduction in deal value below projections.

• Successful Value Recovery

A high-end jewellery brand overcame financial volatility by digitising its GI-tagged design archives, launching a branded storytelling campaign, and building a professional leadership bench. These efforts countered undervaluation risks, securing a premium valuation in Luxury M&A by showcasing heritage and future potential.

Conclusion

Undervaluation in Luxury M&A negotiations is avoidable through holistic preparation. By strengthening financial hygiene, securing IP, crafting compelling narratives, and ensuring management readiness, luxury brands can defend their true worth. With India’s luxury market growing at 10–12% CAGR, avoiding these valuation mistakes is critical to securing fair valuations in high-stakes Luxury M&A.

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