Ready for Pradace anyone?

Italian luxury group Prada SpA may be evaluating a purchase of rival Versace, owned by Capri Holdings Ltd., the Italian daily Il Sole 24 Ore reported on Friday.

Collaborations are all the rage in luxury — indeed LVMH’s Fendi teamed up with Versace three years ago — but Pradace is one tie-up that should stay in the design room.

It’s not hard to see why Prada might be interested in the storied Italian house founded by Gianni Versace. For a start, Capri faces a challenging future since its $8.5 billion sale to Tapestry Inc. was blocked by a judge last October and the two companies abandoned plans to become the Italian LVMH. Capri is now widely expected to sell Versace.

Although the Michael Kors owner acquired the label back in in 2018 from the Versace family and minority shareholder Blackstone Group, it is still relatively rare for such assets to come onto the market. Versace is one of the most instantly recognizable fashion names in the world.

Meanwhile, Prada has engineered a remarkable turnaround, as the creative vision of Miuccia Prada — now joined by her co-creative director Raf Simons — has been augmented by top-class management under Chief Executive Officer Andrea Guerra. This has improved the nuts and bolts that sit behind the selling of luxury goods, such as serving top-end customers. Add in the success of Miu Miu, Prada’s sister label that has become the watch word for cool-girl style, and the company has generated the sort of sales growth that most rivals can only dream about.

Yet, with revenue of €5.4 billion ($5.5 billion) in 2024, according to the Bloomberg consensus of analysts’ estimates, Prada is still about 30% smaller than Kering SA’s Gucci.

Adding Versace, which is expected to generate about $846 million of sales this year, would help Prada get closer to its rival. The additional revenue stream would also be useful if Miu Miu’s stratospheric growth starts to slow.

Prada is known for its elegant clothing, and apparel still accounts for the bulk of Versace’s business. But Prada’s prowess in handbags — the real profit driver — and footwear could turbocharge Versace’s leather goods, which are still a relatively small part of the business.

Add in the fact that the two Italian brands would be able to generate cost savings, and the combination has merits.

But there would be some considerable hurdles to overcome to make the deal work. Capri paid a punchy $2.1 billion for Versace in 2018. Although sales initially expanded, growth has recently stalled. The label is expected to make an operating loss in the year to March. Meanwhile, luxury valuations have slumped, so price could be a sticking point. And while Versace regained its cool under former Burberry Group Plc CEO Jonathan Akeroyd, further work is needed, which would take time and significant investment.

On the face of it, that wouldn’t be too much of a problem — Versace’s opulence isn’t the hottest look right now so Prada would have time to develop the division before loud luxury makes a comeback. But this heavy lifting could be a distraction from ensuring that Prada and Miu Miu’s success continues. The junior label is already facing a future without its CEO Benedetta Petruzzo, who has been snapped up by LVMH to be managing director of Christian Dior Couture. And Prada has other opportunities, for example, introducing menswear at Miu Miu.

Prada’s last acquisition spree in the 1990s, when it was at the height of its previous success, didn’t live up to expectations. It acquired Jil Sander and Helmut Lang in 1999, only to sell them seven years later. Although Prada is a very different company today, it may be reluctant to expand again.

Finally, Versace’s ostentation looks at odds with Prada’s minimalist chic. Of course, Miuccia Prada’s creativity combined with Versace’s Italian glamor and incredible archive could have fashionistas salivating. It’s possible that Prada has more success by adding a company that is complementary to its namesake brand, rather than overly similar, in the way that Jil Sander and Helmut Lang were. Even so, the mix of the two aesthetics risks a wardrobe malfunction. And where would Donatella Versace, the steward of Gianni’s legacy for the past 30 years, fit in?

It’s possible other luxury brands are eyeing Versace. It could appeal to LVMH for example, although CEO Bernard Arnault tends to avoid turnaround situations as the investment in Moncler SpA demonstrates. Interest from Valentino majority owner Mayhoola as well as private equity firms would also be logical. Kering likely has its hands full turning around Gucci, although it has acquired a minority stake in Valentino.

So there’s room for a revitalized Versace. But not with Prada.